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, 1997 . 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.)
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, 1998,
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
$24,900,000. 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 17, 1998, the Registrant had outstanding 4,143,343 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Definitive Proxy Statement, relative to its
1998 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.
<PAGE>
HAMPSHIRE GROUP, LIMITED
1997 ANNUAL REPORT
Table of Content
Page
Part I
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
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 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
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
Signature Page 19
Consolidated Financial Statements F-1
Financial Statement Schedules F-22
Quarterly Financial and Stock Data F-28
2
<PAGE>
"Cautionary Disclosure Regarding Forward-Looking Statements"
When used in this document in general and in the Outlook Section of 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 - sweaters, hosiery and investments. Hampshire Designers, Inc.
is the largest manufacturer of sweaters in North America and is a manufacturer
of hosiery and other legwear. Hampshire Investments, Limited was organized in
March 1997, for the purpose of making long-term, diversified investments.
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 the manufacture
of hosiery since 1917 and of sweaters since 1956. On June 24, 1992, the Company
had an initial public offering of one million shares of its common stock.
STRENGTHS AND STRATEGY
- ----------------------
The Company's primary strength is its ability to design, develop, manufacture
and deliver quality products within a given price range, while providing
superior levels of customer service.
The Company's products are designed and developed in several ways depending on
the type of product. In the branded business, the products first are designed
through the Company's experienced design team incorporating aspects of the
latest fashion trends together with the consistent appeal of the brand name.
These products are then further refined in collaboration with the manufacturing
sector, resulting in a high-quality product that can be manufactured to meet
certain price points. In the private-label side of the business, the products
are designed in a collaborative process with the customers to ensure that the
needs of the customers are being satisfied.
The quality of these garments is ensured in a variety of ways. For those goods
produced in the Company's own facilities, each garment is manufactured using
only superior quality yarns and must undergo a rigorous quality assurance
program. For goods that are sourced outside the Company, several techniques are
utilized. In some instances, multi-staged inspection processes, including direct
field audits, are employed by the Company's employees to ensure the quality
demands of our customers are being met. In others, the Company utilizes both
sourcing agents and inspection agencies to obtain the assurances that those
goods manufactured outside meet the same standards applied to the goods produced
"in-house".
The Company provides superior customer service from its domestic distribution
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 centralized location of its distribution facilities
in the United States and through sophisticated order fulfillment techniques, the
Company provides an important service to its customers.
3
<PAGE>
The Company is a leading supplier in the women's sweater moderate-price
category. The Company has expanded into higher-priced segments of both the
women's and men's sweater market. The Company, in addition to being the largest
sweater manufacturer in North America, has developed world-wide sweater sourcing
capabilities.
The acquisition of San Francisco Knitworks, Inc. ("SFK") and Segue, Limited
("Segue") expanded the Company's business into women's better sweater market.
Segue also provides worldwide sourcing of manufacturing for sweaters. The
acquisition of Winona Knitting Mills expanded the sweater business by providing
a strong customer base in the men's sweater market. The Company's men's sweater
business will be further expanded beginning in 1998 by the acquisition of
licenses to produce sweaters under brands covering the entire range of men's
sweaters sold by department stores.
The hosiery segment strategy consists of producing a limited number of high
volume customized styles and increasing its 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. This
business consists of Designers Originals branded sweaters and private-label
women's sweaters, novelty imported women's sweaters, designer-branded women's
sweaters and men's private-label and branded sweaters.
With the expansion of the import program of Segue and the addition of the
licenses for the designer branded men's sweaters, management believes that 1998
sales will consist of approximately 50% women's and 50% men's sweaters; and
approximately 50% self manufactured and 50% outsourced. This mix allows the
Company to supply the needs of its customers at a number of price levels.
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 branded, cashmere-like acrylic yarn called Luxelon 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 strong because of the demand for classic-styled sweaters. The Company
has historical relationships with many of its 1,600 customers which include
department stores such as J C Penney, Dillard's Department Stores, May Company,
Federated Department Stores and specialty stores. The sweaters are sold by two
employees and twelve independent sales representatives in 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 Designers Originals sweaters. 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.
The Company utilizes Quick Response automatic reordering through EDI for many of
its customers. Because of the consistent demand for its products, the Company is
able to maintain a sizable finished goods inventory which, when combined with
the fast turnaround time for manufacturing, allows the Company to fill most
reorders in 72 hours.
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, California and Puerto Rico, utilizing the same processes
employed for manufacture of the branded Designers Originals sweaters. 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 Segue's international sourcing capability, designs and
imports patterned and novelty sweaters for sale primarily in the women's
moderate-price market. These products are sold under several brand names
including Designers Originals Studio, Designers Originals Sport, and Moving
Bleu.
4
<PAGE>
Designer-Branded Women's Line
- -----------------------------
The Company has the exclusive right to market products designed by Mary Jane
Marcasiano which bears the Marcasiano label. Ms. 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 catalogs to develop specific products for
their customers. Major customers include Saks Fifth Avenue, Neiman Marcus,
Bergdorf Goodman and Nordstroms.
The sweaters are manufactured by the Company, by domestic contractors and by
contractors in Southeast Asia obtained by the Company's import business.
Men's Branded and Private-Label Line
- ------------------------------------
In October 1995, the Company acquired Winona Knitting Mills, which has
manufactured branded and private-label men's sweaters since 1943.
Approximately 60% of the men's sweaters are manufactured in the Company's
facilities in Winona, Minnesota and the remaining sweaters are produced by
contractors.
The sweaters, made from natural fibers including wool and cotton, are sold
primarily under private-labels for retailers and apparel companies including
Eddie Bauer, Lands' End, L.L. Bean and Woolrich. The branded men's line,
including American Portrait, Berwick, The Lake Harmony Rowing Club and
Landscape, are sold to retailers including Dillard's Department Stores,
Federated Department Stores and J C Penney.
Men's Designer Branded Lines
- ----------------------------
The Company has acquired the following licenses, effective January 1, 1998, to
produce and market men's sweaters: Jantzen, which the Company believes to be the
number one men's sweater brand in the country, Geoffrey Beene, Ron Chereskin and
Robert Stock. These brands cover the entire range of men's department store
offerings, from middle-of-the-road, "main floor" styles to fashion-forward,
designer sweaters for the "better" departments of our customers. The majority of
the sweaters will be produced by contractors.
The sweaters will be sold to large department stores and specialty stores in the
United States. Major customers will include Federated Department Stores, May
Company, J C Penney, Mercantile Stores, Belks and Sears. The sweaters will be
sold by two employees and five independent representatives.
Competition
- -----------
The sweater industry competition is 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 providing superior service based
on domestic manufacturing. The Company sources sweaters both in Southeast Asia
and in Mexico.
HOSIERY OPERATIONS
- ------------------
The hosiery industry is highly competitive and is dominated by two major
competitors. Hampshire Hosiery provides customized private-label hosiery and
tights programs for chains and mass merchandisers and selected department store
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 of 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 reduces the inventory required to be carried by its customers.
Hampshire Hosiery sells its hosiery and tights to customers in the United States
including Kids "R" Us, Nordstroms, Loehmann's Department Stores and Casual
Corner. The hosiery is sold by eight employees located in the Company's
showrooms in New York and other sales locations throughout the United States.
The Company also sells niche products including cotton tights, Diahann Carrol
and Charles Jourdan branded hosiery products and athletic socks.
5
<PAGE>
INVESTMENT OPERATIONS
- ---------------------
Hampshire Investments, Limited ("Hampshire Investments") was created by the
Company for the purpose of implementing its strategy to use a portion of its
financial resources to invest in diversified businesses which are not
necessarily owned solely by the Company. The investment objective of Hampshire
Investments is to make a substantial contribution to the earnings of the Company
in the long term.
In 1997, Hampshire Investments invested approximately $8 million in such
businesses and expects to invest an additional $10 million in 1998. The
investments were made in publicly traded apparel and textile businesses, in
entertainment, industrial and service businesses, some of which are not publicly
traded, and in real property, for development and rental income. Some of the
real property is owned solely by Hampshire Investments.
It is the intention of Hampshire Investments to concentrate future investments
in businesses in which either substantial influence or control may be exercised.
Ludwig Kuttner, Chairman and Chief Executive Officer of the Company, who has
privately invested both in diversified operating businesses and in real property
developments over the past 25 years, actively participates in the investment
decisions of Hampshire Investments.
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.
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
$42.8 million as of March 2, 1998, compared with approximately $38.5 as of March
7, 1997. 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 one-half being shipped
in two to five days and the remaining one-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 19% and 14% of consolidated sales for
1997 and 1996, respectively. The Company's five largest sweater customers and
five largest hosiery customers accounted for approximately 41% and 7%,
respectively, of the Company's total consolidated sales in 1997, compared with
39% and 12% in 1996.
CREDIT AND COLLECTIONS
- ----------------------
The Company manages its credit and collection functions on a consolidated basis
by evaluating, approving and monitoring the credit lines of its customers.
Credit limits are 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 2, 1998, the Company had approximately 2,500 full-time employees and
45 part-time employees. The Company and its employees are not parties to any
collective bargaining agreements except for the hourly employees of San
Francisco Knitworks, Inc. The UNITE Labor Union represents approximately 110
such employees under an agreement expiring in May 1998.
6
<PAGE>
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.
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.
The General Agreement on Trade and Tariffs ("GATT") was approved in 1994 by the
United States and 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 New
York 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
and Hampshire Brands owns its distribution facility.
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 08/31/11
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 Brands:
Distribution Facility-Winona, Minnesota 36,000 Owned
Hampshire Hosiery:
Knitting and Sewing Plant-Spruce Pine, North Carolina 37,000 Owned
Finishing Plan 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 15,600 10/31/09
(1) Assuming the exercise of all options to renew.
7
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company's management 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 1997.
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 1997 and 1996 are presented on Page F-28 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 17, 1998 was 990.
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. The Senior Note Agreement, which is expected to be
closed in April 1998, will contain covenants placing limitations on "restricted
payments" which includes payment of cash dividends See Note 17 to the
consolidated financial statements.
8
<PAGE>
<TABLE>
ITEM 6 - SELECTED FINANCIAL DATA
Selected Consolidated Financial Data
(in thousands, except per share data)
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995(1) 1994 1993
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C>
Net sales $164,428 $148,305 $112,450 $83,595 $93,843
Cost of goods 127,631 114,475 85,553 63,925 74,884
---------------------------------------------
Gross profit 36,797 33,830 26,897 19,670 18,959
Commission revenue - 942 1,357 - -
---------------------------------------------
36,797 34,772 28,254 19,670 18,959
Selling, general & admin expenses 24,170 23,691 20,464 12,486 15,158
---------------------------------------------
12,627 11,081 7,790 7,184 3,801
Hosiery restructuring
gain (provision) - - - 818 (7,500)
---------------------------------------------
Income (loss) from operations 12,627 11,081 7,790 8,002 (3,699)
Other income (expense):
Interest income 320 216 310 39 -
Interest expense (1,343) (1,319) (944) (797) (1,089)
Other (98) (82) 312 254 (324)
---------------------------------------------
Income (loss) before income taxes 11,506 9,896 7,468 7,498 (5,112)
Income tax (provision) benefit:
Current (2,700) (1,900) (1,028) (1,109) (500)
Deferred 200 3,900 278 109 -
---------------------------------------------
Net income (loss) $ 9,006 $11,896 $ 6,718 $ 6,498 ($5,612)
---------------------------------------------
Net income (loss) applicable
to common stock $ 8,839 $11,712 $ 6,577 $ 6,375 ($4,435)
=============================================
Net income (loss) per share-basic $2.29 $3.10 $1.85 $1.81 ($1.33)
---------------------------------------------
Net income (loss) per share-diluted $2.02 $2.72 $1.68 $1.73 ($1.33)
---------------------------------------------
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 1996 1995(1) 1994 1993
- --------------------------------------------------------------------------------
BALANCE SHEET DATA
Cash and cash equivalents $12,003 $20,385 $10,034 $10,712 $ 2,433
Working capital 36,303 37,220 29,675 22,349 15,344
Total assets 80,585 71,930 66,438 42,966 41,132
---------------------------------------------
Long-term debt (less current portion)
and redeemable preferred stock 7,166 10,869 13,817 7,270 6,223
Total debt (2) 10,577 14,364 18,569 8,860 8,782
Common stockholders'equity (3) 57,710 47,275 34,755 25,863 18,489
---------------------------------------------
Book value per share $13.96 $12.17 $9.21 $7.47 $5.57
---------------------------------------------
<FN>
(1) Includes the results of operations of Winona Knitting Mills from October
11, 1995
(2) Includes long-term debt, current portion thereof, borrowings under lines of
credit, related party debt and redeemable preferred stock
(3) There were no cash dividends declared on common stock during any of the
periods presented above
</FN>
</TABLE>
9
<PAGE>
<TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth information with respect to the segments of the
Company's business - Sweaters, Hosiery and Investments.
RESULTS OF OPERATIONS OF COMPANY SEGMENTS
<CAPTION>
Year ended December 31, (in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales Sweaters $140,807 $117,575 $84,924
Hosiery 23,621 30,730 27,526
--------------------------------
164,428 148,305 112,450
- --------------------------------------------------------------------------------
Gross profit Sweaters 33,081 29,180 22,763
Hosiery 3,716 4,650 4,134
--------------------------------
36,797 33,830 26,897
- --------------------------------------------------------------------------------
Commission revenue Sweaters - 942 1,357
- --------------------------------------------------------------------------------
Selling, general and Sweaters 18,350 17,040 14,727
administrative expenses Hosiery 3,114 3,530 3,603
Corporate 2,706 2,454 2,134
--------------------------------
24,170 23,024 20,464
- --------------------------------------------------------------------------------
Operating profit Sweaters 14,731 12,415 9,393
Hosiery 602 1,120 531
Corporate (2,706) (2,454) (2,134)
--------------------------------
Income from operations 12,627 11,081 7,790
Interest income 320 216 310
Interest expense (1,343) (1,319) (944)
Other income (expense) (98) (82) 312
Income before income taxes $11,506 $ 9,896 $ 7,468
- --------------------------------------------------------------------------------
Depreciation and amortization Sweater $3,459 $3,445 $2,556
Hosiery 459 408 451
Investments 21 - -
Corporate 28 26 25
-------------------------------
$3,967 $3,879 $3,032
- --------------------------------------------------------------------------------
Capital expenditures Sweaters $4,346 $2,829 $2,824
Hosiery 816 837 108
Corporate 54 18 3
-------------------------------
$5,216 $3,684 $2,935
- --------------------------------------------------------------------------------
Identifiable assets Sweaters $49,778 $41,277 $48,270
Hosiery 7,131 8,455 9,341
Investments 8,290 - -
Corporate 15,386 22,198 8,827
-------------------------------
$80,585 $71,930 $66,438
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
The following table sets forth selected operating data as a percentage of net
sales for the periods indicated.
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales Sweaters 85.6% 79.3% 75.5%
Hosiery 14.4 20.7 24.5
-----------------------------
Consolidated 100.0 100.0 100.0
- -------------------------------------------------------------------------------
Gross profit Sweaters 23.5 24.8 26.8
Hosiery 15.7 15.1 15.0
-----------------------------
Consolidated 22.4 22.8 23.9
- -------------------------------------------------------------------------------
Commission revenue Sweaters - 0.8 1.6
- -------------------------------------------------------------------------------
Selling, general & administrative Consolidated 14.7 16.0 18.2
- -------------------------------------------------------------------------------
Operating profit Consolidated 7.7% 7.5% 6.9%
- -------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
1997 Compared To 1996
- ---------------------
The consolidated net income of the Company was $9,006,000 or $2.02 per share on
a diluted basis. This represents an increase of $1,010,000 or 12.6% when
compared with the $7,996,000 or $1.83 per share earned in the prior year,
excluding the $3,900,000 deferred tax benefit or $0.89 per share recorded in
1996.
Consolidated net sales of the Company increased 10.9% to $164,428,000 from
$148,305,000 in 1996. The increase in sales was attributable to the sweater
segment.
Net sales of the sweater segment increased 19.8% to $140,807,000, as compared to
$117,575,000 in 1996. The increased sales consists primarily of the imported
products sold under the Designers Original Studio and Designers Originals Sport
labels and men's sweaters. Of the 19.8% overall increase, growth in unit volume
accounted for 19.3% while the changes in product mix to higher priced goods
accounted for 0.5%.
Net sales of the hosiery segment declined to $23,621,000 due to the loss of a
major customer. The customer loss was partially offset by the addition of two
new customers who accounted for over 10% of the sales and increased sales to
other customers. Unit volume for the year decreased 13% while a shift in mix to
lower priced goods resulted in a decrease in the average selling price of 10.1%.
Consolidated gross profit of the Company increased $2,967,000 or 8.8%, but as a
percentage of net sales, the gross margin decreased by 0.4% to 22.4%. The
decrease resulted from lower gross profit percentage of the sweater segment.
The sweater segment gross profit as a percentage of sales decreased by 1.4%,
resulting from several factors. First, a decrease in sales of Designers Original
sweaters resulted in lower favorable volume variances versus the prior year.
Second, greater than expected close-out volume in the imported, novelty sweater
line resulted in lower margins, as a percentage of sales, than in prior years.
This overall decrease was partially offset by higher gross profits, as a
percentage of net sales, in men's sweaters resulting from having the
efficiencies of the consolidated manufacturing facilities.
Gross profit in the hosiery segment increased, as a percentage of net sales, by
0.6% from the prior year. The increase, which was accomplished in spite of a
23.1% decrease in sales, resulted from blending domestic production with lower
cost imported products.
In prior years, a subsidiary of the Company acted as agent for certain of its
customers in arranging for the sourcing and importation of sweaters and received
commissions. Commencing in 1997, management decided to source and import the
products as a principal.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales decreased by 0.8% for 1997 compared to 1996, excluding the write-off of
impaired goodwill of $667,000 with respect to San Francisco Knitworks, which
occurred in 1996. The sweater segment was the leading contributor to the
decrease with a 1.5% decrease from 14.5% in 1996 to 13.0% in 1997, principally
due to the increase in volume spreading the fixed cost over a larger base of
sales.
11
<PAGE>
Income from operations increased 14% to $12,627,000. The increase in the sweater
segment was 18.7%.
The provision for income taxes net increased to $2,500,000 in 1997 compared with
$1,900,000 in 1996, excluding the $3.9 million adjustment to the Company's
deferred asset account. The 2.5% increase in effective tax rate from 19.2% in
1996 to 21.7% for 1997 is primarily the result of a larger percentage of taxable
income being generated in the United States.
Certain net operating loss carryforwards ("NOL") 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 plus any credit unused from a previous year.
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 alternative minimum tax
credit ("AMT") 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.
Substantially 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 11 to the consolidated
financial statements.
1996 Compared To 1995
- ---------------------
In 1996, the consolidated net income of the Company, excluding the net tax
benefit of $3.9 million, was $7,996,000 or $1.83 per share on a diluted basis.
This represented an increase of $1,278,000 or 19% when compared with the
$6,718,000 or $1.68 per share earned in 1995. Including the deferred tax
benefit, the net income of the Company was $11,896,000 or $2.72 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.
In 1996, net sales for the sweater segment increased 38.4% to $117,575,000.
Approximately 60% of this increase is attributable to sales in the men's
division, which was acquired in October 1995. Sales of the pre-acquisition
sweater business increased by 16.8%.
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%.
Consolidated gross profit of the Company for 1996 increased 25.8% to $33,830,000
compared to $26,897,000 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
segment's gross profit percentage.
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. The men's sweater business had an
adverse impact on overall segment gross profit, resulting primarily to the
expense of consolidating the manufacturing facilities and costs attributable to
introducing the branded men's sweater business.
Hosiery segment gross profit increased by $516,000 but, as a percentage of net
sales, increased only 0.1% compared to 1995. This limited increase reflects the
intense price competition within the industry.
A subsidiary of the Company 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.
Selling, general and administrative (SG&A) expenses as a percentage of net sales
decreased by 2.2% for 1996. Included in the 1996 amount is a $667,000 charge
against income for the recognition of the impairment of goodwill of San
Francisco Knitworks in accordance with SFAS 121 as more fully explained in Note
8 to the consolidated financial statements.
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.
12
<PAGE>
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.
At December 31, 1996, the Company 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.
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
other investments made from time to time by Hampshire Investments. The primary
resources to meet the liquidity and capital requirements include funds generated
by operations, long-term equipment financing, revolving credit lines and other
long-term financing.
The Company ended 1997 with cash and cash equivalents totaling $12,003,000, down
$8,382,000 from December 31, 1996. Net cash was impacted by a $3,855,000
increase in inventory and a $3,161,000 increase in accounts receivable from
1996. Inventory levels were higher in part due to the carrying requirements
associated with projected first quarter 1998 sales and in part due to the low
levels of inventory carried at the end of 1996. Accounts receivable increases
are attributable to the customers requesting shipments of goods later in the
year in order to minimize their carrying costs. This has the effect of pushing
shipments to later in the year, which in turn moves the due date into the
subsequent period.
Net cash used to fund capital expenditures and Hampshire Investments totaled
$13,443,000. It is the Company's policy to generally reinvest an amount
approximating current year depreciation charges in improving and replacing
machinery and equipment and operating facilities. In addition, in 1997 the
company incurred approximately $1,800,000 in capital expenditures associated
with the start-up of the new Hampshire Brands division ("Brands"). Hampshire
Investments invested $8 million in 1997. The investments were in publicly traded
apparel and textile businesses, in entertainment, industrial and service
businesses, some of which are not publicly traded, and in real property, for
development and rental income. Some of the real property is owned solely by
Hampshire Investments.
The Board of Directors of the Company has authorized management to purchase from
time-to-time in the open market up to 140,000 shares of its common stock. The
Company intends to use approximately 50% of such shares for employee benefit
programs.
The Company has a principal credit facility which expires May 31, 1998. The
credit facility consists of $20 million line of credit and an $8 million letter
of credit facility, not to exceed $25 million in the aggregate. 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 and
(ii) a seasonal adjustment of $6 million during the period from March 1 to
October 31.
Loans under the facility bear interest at the bank's prime rate or, at the
option of the company, a fixed rate for a fixed term. The loans are secured by
the trade accounts receivable of Hampshire Designers and are guaranteed by
Hampshire Group, Limited. Letters of credit issued under the facility are
secured by the inventory shipped pursuant to the letters of credit.
The Company has received a commitment from several banks for a revolving credit
facility to accommodate its short-term financing needs. Advances under the new
facility will be limited to 85% of eligible accounts receivable, plus a seasonal
over-advance from March through October, not to exceed $42 million at any time.
The line will be secured by the receivables and common stock of all subsidiaries
of the Companies except Hampshire Investments.
The Company also has other credit facilities which in the aggregate allow the
Company to borrow an additional $8 million of which $3.5 million is limited to
use for international letters of credit. The maximum amount outstanding under
all lines of credit during 1997 was $23,920,000 and the average amount
outstanding was approximately $7,078,000.
13
<PAGE>
The Company has also received a commitment from two insurance companies for a
term loan ("Senior Note") of $15 million at 7.05% with repayment terms of seven
equal annual installments commencing January 2002. Interest shall be payable
semi-annually and the loan shall be secured pari passu with the Company's bank
revolving credit facility. The Senior Note is expected to be delivered in April
1998.
Management believes that cash flow from operations, available borrowings under
the credit facilities and available borrowing under the Senior Note will provide
adequate resources to meet the Company's capital requirements and operational
needs for the foreseeable future.
YEAR 2000 COMPLIANCE
- --------------------
In March 1996, the Company began converting its computer systems to be year 2000
compliant (e.g., to recognize the difference between '99 and '00 as one year
instead of negative 99 years). At December 31, 1997, approximately 75 percent of
the Company's systems were compliant, with all systems expected to be compliant
by mid-year 1999.
The Company was in process of replacing the systems at two of its operating
divisions; therefore, the new software did not require modification. Secondly,
some of the operating software is under maintenance agreements and updated
versions of such operating systems have been received.
The total cost of the project is estimated to be $500,000 and is being funded
through operating cash flows. The Company is expensing all costs associated with
these system changes as incurred. As of December 31, 1997, the project is
approximately 50% completed.
OUTLOOK
- -------
The Company has experienced substantial growth in net sales over the past few
years, and anticipates a similar increase in 1998. The growth in sales is
attributable to the acquisition and business development strategy of the sweater
segment. The Company does not expect a similar increase in net income. The sale
of sweaters under the Jantzen, Geoffrey Beene, Robert Stock and Ron Chereskin
brands is expected to add in excess of $20 million in 1998. The Company expects
the costs associated with the integration of the branded sweaters will reduce
the contribution of such sales to the sweater segment income in 1998.
The Company continues to believe that a primary reason for its success in recent
years has been its ability to offer new products and 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. Management is also very
cognizant of the pricing pressures within the market which could adversely
effect earnings of the Company.
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
There were no changes in or disagreements with accountants on accounting and
financial disclosure in 1997.
14
<PAGE>
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 1998 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 1998 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 1998 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 1998 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:
(10)(H)(10) Fourth Amended and Restated loan Agreement between
Hampshire Designers, Inc. and NatWest Bank N.A.
dated as of March 31, 1996 1
(10)(H)(11) Amendment Number Two to Fourth Amended and Restated
Loan Agreement between Hampshire Designers, Inc.,
The Chase Manhattan Bank and Fleet Bank dated
June 1, 1997 2
(10)(H)(12) Amendment Number Three to Fourth Amended and Restated
Loan Agreement between Hampshire Designers, Inc.,
The Chase Manhattan Bank and Fleet Bank, N.A. dated
June 30, 1997 3
(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 1
(10)(P)(1) Revolving Line of Credit Agreement between Banco Popular
and Glamourette Fashion Mills, Inc. dated May 23, 1996. 1
(10)(P)(2) First Amendment to Financing Agreement between Banco
Popular and Glamourette Fashion Mills, Inc. dated
September 16, 1996. 1
(10)(S) Revolving Line of Credit Agreement between Merchants
National Bank and Hampshire Group, Limited
dated April 1, 1996. 1
(10)(T) Amendment to Credit Agreement between MTB Bank and
Segue (America) Limited dated June 19, 1996. 1
- -------------------------------------------------------------------------------
(1) Incorporated by reference to the Company's 1996 Annual Report on Form 10-K.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
June 28, 1997.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for September 27, 1997.
16
<PAGE>
EXHIBITS FILED HEREWITH:
(3)(A) Restated Certificate of Incorporation of Hampshire
Group, Limited
(3)(A)(1) Certificate of Amendment to the Certificate of
Incorporation of Hampshire Group, Limited
(3)(A)(2) Amended and Restated By-Laws of Hampshire Group, Limited
(3)(B)(2) Agreement of Merger between Hampshire Hosiery, Inc. and
Hampshire Designers, Inc. dated June 26, 1995
(3)(B)(3) Agreement of Merger between Segue (America) Limited
and H.G. Knitwear, Inc. dated December 26, 1995
(3)(B)(4) Agreement and Plan of Merger among Hampshire Group,
Limited, The Winona Knitting Mills, Inc. and Pete and
Joyce Woodworth dated June 5, 1995
(3)(B)(5) Asset Purchase Agreement among Segue (America) Limited,
Segue, Ltd. and Neil Friedman dated February 15, 1995
(10)(A)(1) Employment Agreement between Hampshire Group, Limited
and Ludwig Kuttner dated May 6, 1992
(10)(A)(2) Employment Agreement between Hampshire Designers, Inc.
and Pete Woodworth dated October 10, 1995
(10)(B)(1) Form of Hampshire Group, Limited 1992 Stock Option Plan
Amended and Restated effective June 7, 1995
(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
(10)(D)(1) Form of Hampshire Group, Limited and Subsidiaries
401(k) Retirement Savings Plan
(10)(D)(2) Form of Hampshire Group, Limited Voluntary Deferred
Compensation Plan for Directors and Executives Amended and
Restated December 30, 1997
(10)(J)(1) Lease Agreements between Hampshire Designers, Inc. and
Commerce Center Associates for the Company's Anderson,
South Carolina corporate offices dated May 1, 1994
(10)(J)(2) Lease Agreements between Hampshire Designers, Inc. and
Commerce Center Associates for the Company's Anderson,
South Carolina distribution center dated May 1, 1994
(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
17
<PAGE>
(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
(10)(K) Loan and Security Agreement between Hampshire Hosiery, Inc.
and MetLife Capital Corporation, dated July 30, 1993
(10)(K)(1) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated May 13, 1994
(10)(K)(2) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated October 12, 1994
(10)(K)(3) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated September 22, 1995
(10)(M) Agreement between Glamourette Fashion Mills, Inc. and
The Commonwealth of Puerto Rico on Repatriation of Earnings
(the "Closing Agreement"), dated June 30, 1993
(10)(N) Loan and Security Agreement between Hampshire Designers, Inc.
and SouthTrust Bank of Alabama, N.A. dated May 1, 1994
(10)(O) Loan and Security Agreement between Hampshire Designers, Inc.
and Central Fidelity National Bank dated February 8, 1995
(10)(Q) Loan Agreement between Hampshire Designers, Inc. and
NationsBank of South Carolina, N.A. dated June 27, 1995
(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 1997.
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 20th 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 20, 1998
Ludwig Kuttner President and Chief Executive Officer
(Principal Executive Officer)
/s/ CHARLES W. CLAYTON Vice President, Secretary, Treasurer March 20, 1998
Charles W. Clayton and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ HERBERT ELISH Director March 20, 1998
Herbert Elish
/s/ HARVEY L. SPERRY Director March 20, 1998
Harvey L. Sperry
/s/ EUGENE WARSAW Director March 20, 1998
Eugene Warsaw
/s/ PETER W. WOODWORTH Director March 20, 1998
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-21
Financial Statement Schedules
I. Condensed Financial Information of Registrant F-22 - F-24
II. Valuation and Qualifying Accounts F-25
III. Real Estate and Accumulated Depreciation F-26 - F-27
Quarterly and Financial Stock Data F-28
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, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the 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 27, 1998
F-2
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<CAPTION>
ASSETS
December 31, 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,003 $20,385
Available-for-sale securities 914 203
Accounts receivable trade - net 16,227 13,101
Inventories 18,728 14,873
Deferred tax asset 3,198 1,631
Other current assets 942 813
---------------------------
Total current assets 52,012 51,006
Property, plant and equipment - net 15,093 13,596
Real property investments - net 4,127 -
Long-term investments 3,051 300
Available-for-sale securities 547 -
Deferred tax asset 2,326 3,640
Intangible assets - net 3,385 3,161
Other assets 44 227
---------------------------
$80,585 $71,930
- -------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 2,911 $ 2,618
Current portion of notes payable to
related parties 500 877
Accounts payable 4,068 3,722
Accrued liabilities and other liabilities 8,230 6,569
---------------------------
Total current liabilities 15,709 13,786
Long-term debt 6,084 6,643
Notes payable to related parties 125 625
Deferred compensation 957 307
Commitments and contingencies - -
PREFERRED STOCK
Redeemable, convertible preferred stock,
at redemption value: - 3,294
---------------------------
COMMON STOCKHOLDERS EQUITY
Common stock, $.10 par value; 4,191,721 and
3,891,503 shares issued and 4,135,125 and
3,885,503 outstanding 419 389
Additional paid-in capital 27,322 23,853
Retained earnings 31,038 23,111
Unrealized loss on available-for-sale
securities - net (89) -
Treasury stock, 59,210 and 6,000 shares at cost (980) (78)
---------------------------
Total stockholders' equity 57,710 47,275
---------------------------
$80,585 $71,930
- -------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated 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, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $164,428 $148,305 $112,450
Cost of goods sold 127,631 114,475 85,553
-------------------------------
Gross profit 36,797 33,830 26,897
Commission revenue - 942 1,357
36,797 34,772 28,254
Selling, general and administrative expenses 24,170 23,691 20,464
-------------------------------
Income from operations 12,627 11,081 7,790
Other income (expenses):
Interest income 320 216 310
Interest expense (1,343) (1,319) (944)
Other (98) (82) 312
-------------------------------
Income before provision for income taxes 11,506 9,896 7,468
Benefit (provision) for income taxes:
Current (2,700) (1,900) (1,028)
Deferred 200 3,900 278
-------------------------------
Net income 9,006 11,896 6,718
Preferred stock dividend requirements (167) (184) (141)
-------------------------------
Net income applicable to common stock $ 8,839 $11,712 $ 6,577
- --------------------------------------------------------------------------------
Net income per share: Basic $2.29 $3.10 $1.85
-------------------------------
Diluted $2.02 $2.72 $1.68
-------------------------------
Weighted average number
of shares outstanding: Basic 3,856 3,778 3,560
-------------------------------
Diluted 4,465 4,379 3,992
- --------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,006 $11,896 $ 6,718
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,967 3,879 3,032
Loss on impairment of asset - 667 -
Loss (gain) on sale of assets (3) 50 (37)
Deferred income taxes (200) (3,900) (278)
Tax benefit relating to common stock plans 100 122 -
Net change in operating assets and liabilities,
net of effects of acquired companies:
Receivables (3,126) 3,784 (300)
Inventories (3,855) 4,507 (1,144)
Accounts payable 346 (992) 701
Other liabilities 2,385 (1,518) 1,681
Other (16) (57) (337)
-------------------------------
Net cash provided by operating activities 8,604 18,438 10,036
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (5,216) (3,684) (2,935)
Proceeds from sales of property and equipment 73 110 852
Purchase of available-for-sale securities - net (1,400) - -
Real property and other investments (6,900) (503) -
Cash used for business acquisitions - - (5,691)
-------------------------------
Net cash used in investing activities (13,443) (4,077) (7,774)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,421 711 4,640
Repayment of debt (3,562) (4,915) (7,448)
Proceeds from issuance of common stock 90 764 9
Repurchase of common stock warrants (1,000) - -
Redemption of preferred stock - (308) -
Cash dividends on preferred stock (167) (184) (141)
Purchase of treasury stock - net (1,325) (78) -
------------------------------
Net cash used in financing activities (3,543) (4,010) (2,940)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (8,382) 10,351 (678)
Cash and cash equivalents - beginning of year 20,385 10,034 10,712
------------------------------
Cash and cash equivalents - end of year $12,003 $20,385 $10,034
- --------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 and 1997
(in thousands, except share data)
<CAPTION>
Unrealized
Loss on
Additional Available Trea-
Common Stock Paid-In Retained for-sale sury
Shares Amount Capital Earnings Securities Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Balance-Beginning
of period 3,460,583 $346 $20,695 $4,822 - - $25,863
Net income - - - 6,718 - - 6,718
Issuance of common
stock for business
acquisition 240,000 24 1,761 - - - 1,785
Shares issued under
the common stock
plans 71,041 7 523 - - - 530
Deferred compensation
payable in Company
shares 205,961 - - 1,348 - - 1,348
Shares held in trust
for deferred compen-
sation liability (205,961) - - (1,348) - - (1,348)
Dividends on
preferred stock - - - (141) - - (141)
- --------------------------------------------------------------------------------
Balance-
December 31, 1995 3,771,624 377 22,979 11,399 - - 34,755
Net income - - - 11,896 - - 11,896
Purchase of treasury
stock (62,500) - - - - ($746) (746)
Shares issued under
the common stock
plans 176,379 12 752 - - 668 1,432
Tax benefit relating to
common stock plans - - 122 - - - 122
Deferred compensation
payable in Company
shares 245,763 - - 1,835 - - 1,835
Shares held in trust
for deferred compen-
sation liability (245,763) - - (1,835) - - (1,835)
Dividends on preferred
stock - - - (184) - - (184)
- --------------------------------------------------------------------------------
Balance-December
31, 1996 3,885,503 389 23,853 23,111 - (78) 47,275
Net income - - - 9,006 - - 9,006
Additional shares issued
for business
acquisition 14,223 1 264 - - - 265
Preferred stock
conversion 276,995 27 3,267 - - - 3,294
Purchase of treasury
stock (91,615) - - - - (1,443)(1,443)
Shares issued under the
common stock plans 50,019 2 88 (92) - 541 539
Repurchase of stock
warrant - - (98) (902) - - (1,000)
Repurchase of subsidiary
stock - - - (70) - - (70)
Tax benefit relating to
common stock plans - - 100 - - - 100
Deferred compensation
payable in Company
shares 276,616 - - 2,456 - - 2,456
Shares held in trust
for deferred compen-
sation liability (276,616) - - (2,456) - - (2,456)
Unrealized loss on
available-for-sale
securities - net - - - - ($89) - (89)
Dividends on preferred
stock - - - (167) - - (167)
- --------------------------------------------------------------------------------
Balance December
31, 1997 4,135,125 $419 $27,490 $30,870 ($89) ($980)$57,710
- --------------------------------------------------------------------------------
F-6
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<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
in the manufacture and sale of knitted sweaters and legwear and investing in and
holding of real estate. 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 subsidiaries, Hampshire Designers, Inc. and its subsidiaries (collectively,
"Hampshire Designers") and Hampshire Investments, Limited and its subsidiaries
(collectively, "Hampshire Investments"). 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.
Available-For-Sale Securities
- -----------------------------
The Company owns certain equity securities which it has classified as
available-for-sale. These securities are stated at fair value, with unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. Realized gains and losses on the disposal of available-for-sale
securities are determined using the specific-identification method and are
included in the results of operations for the period of the transaction.
Management determines the appropriate classification of securities at the time
of purchase.
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 the results of
operations for the period of the transaction.
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 or upon
confirmation of a security trade. Rental income is recognized on a straight-line
basis.
F-7
<PAGE>
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.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Presentation of Prior Year Data
- -------------------------------
Certain reclassifications have been made to prior-year data to conform with the
current-year presentation.
Earnings Per Common Share
- -------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 supersedes APB Opinion No. 15, "Earnings Per Share." SFAS 128
requires dual presentation of basic and diluted earnings per share on the face
of the income statement for entities with complex capital structures. SFAS 128
is effective for annual and interim periods ending after December 15, 1997.
Earnings per share for prior years have been restated to provide comparable
information to 1997.
Basic earnings per common share is computed by dividing net income by the
weighted-average number of shares outstanding for the year. Diluted earnings per
common share is computed similarly; however, it is adjusted for the effects of
the assumed exercise of the Company's outstanding options and warrants and
conversion of the preferred stock.
Recent Accounting Standards
- ---------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company currently has
one item, unrecognized gain or loss on available-for-sale securities, that would
be considered a component of comprehensive income. SFAS 130 is effective for the
Company in 1998.
Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131") "Disclosures About Segments of an Enterprise and Related
Information." SFAS 131, which is also effective in 1998, requires that public
business enterprises report financial and descriptive information about its
reportable operating segments using the "management approach." This approach
focuses on financial information that an enterprise's management uses to make
decisions about operating matters. Management has not yet determined the impact
SFAS 131 will have on the reporting of the Company.
Note 2 - Acquisition
In October 1995, The Winona Knitting Mills, Inc. (Winona), principally a
private-label manufacturer of better men's sweaters, was merged into 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 such payments will be made
one-half in cash and one-half in restricted common stock of the Company. No
additional amount was earned in 1996 and $530,000 was earned in 1997. In
connection with the acquisition, the Company recorded goodwill in the amount of
$2,288,000 and as a result of the additional payments to be made, the Company
has recorded an additional $530,000 in goodwill. The Company estimates that an
additional contingent payment of $470,000 will be required in 1998; hence an
additional $470,000 of goodwill will be recorded then.
The above transaction was accounted for using the purchase method. The operating
results of Winona are included in the consolidated financial statements of the
Company from the date of acquisition.
F-8
<PAGE>
Had the acquisition of Winona been consummated as of January 1, 1995, the
Company's consolidated pro forma results of operations for the year ended
December 31, 1995 would have been as set forth in the table below:
Pro Forma
(in thousands, except per share data) (unaudited)
- ------------------------------------------------------------
Net sales $130,545
- ------------------------------------------------------------
Net income applicable to common stock $4,624
- ------------------------------------------------------------
Net income per share: Basic $1.23
Diluted $1.18
- ------------------------------------------------------------
Note 3 - Available-for-Sale Securities
A summary of available-for-sale securities at December 31, 1997 and 1996 is set
forth in the table below.
(in thousands)
Unrealized Holdings
------------------- Fair
1997 Cost Gain Losses Value
- ---------------------------------------------------------------------
Current:
Equity securities $1,056 $2 ($144) $914
Long-term:
Mutual funds (1) 547 - - 547
- ---------------------------------------------------------------------
$1,603 $2 ($144) $1,461
- ---------------------------------------------------------------------
Unrealized Holdings
------------------- Fair
1996 Cost Gain Losses Value
- ---------------------------------------------------------------------
Current:
Equity securities $203 - - $203
- ---------------------------------------------------------------------
(1) The investment in mutual funds has been made to fund the liability of a
deferred compensation plan. (See Note 14.)
Note 4 - Accounts Receivable and Major 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
$3,295,000 and $2,847,000 at December 31, 1997 and 1996, respectively. At
December 31, 1997, and 1996, 55% and 53%, respectively, of the trade receivables
were due from five customers.
The Company sells principally to department 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 (defined as sales in
excess of 10% of total sales) which as a percentage of total sales accounted
for approximately 17%, 14% and 13% for 1997, 1996 and 1995, respectively.
Note 5 - Inventories
The components of inventories at December 31, 1997 and 1996 are set forth in the
table below.
(in thousands) 1997 1996
- -----------------------------------------------------
Finished goods $11,512 $ 8,767
Work-in-progress 6,938 6,063
Raw materials and supplies 4,393 4,176
- -----------------------------------------------------
22,843 19,006
Less - Excess of current cost
over LIFO carrying value (4,115) (4,133)
- -----------------------------------------------------
$18,728 $14,873
- -----------------------------------------------------
Approximately 58% and 49% of total inventories were valued using the LIFO method
at December 31, 1997 and 1996, respectively.
F-9
<PAGE>
Note 6 - Property, Plant and Equipment
The components of property, plant and equipment for December 31, 1997 and 1996
are set forth in the table below.
Estimated
(in thousands) Useful Lives 1997 1996
- -----------------------------------------------------------------
Land $ 225 $ 83
Buildings and improvements 15-45 years 3,301 1,310
Leasehold improvements 5-10 years 4,980 4,683
Machinery and equipment 3-7 years 28,126 25,767
Furniture and fixtures 3-7 years 1,179 907
Transportation equipment 3-5 years 233 219
Construction in progress 76 673
- -----------------------------------------------------------------
38,120 33,642
Less-Accumulated depreciation (23,027) (20,046)
- -----------------------------------------------------------------
$15,093 $13,596
- -----------------------------------------------------------------
Depreciation expense was $3,661,000, $3,387,000, and $2,519,000, respectively,
for the years ended December 31, 1997, 1996 and 1995.
Note 7 - Real Property Investments
The Company, through its investments subsidiary, has made direct investments in
real property for the purposes of generating rental revenue. These properties
consist of commercial facilities in the United States and abroad and are carried
at capitalized cost with depreciation being provided for over the estimated
useful lives of the property, 15 years.
(in thousands) 1997 1996
- ---------------------------------------------------------
Commercial property: - -
United States $1,687 -
Foreign 2,461 -
- ---------------------------------------------------------
4,148
Less:Accumulated depreciation (21) -
- ---------------------------------------------------------
Total - $4,127 -
- ---------------------------------------------------------
Note 8 - Intangible Assets
In connection with the merger of Winona Knitting Mills, the Company recorded an
additional $530,000 in goodwill as a result of certain payments to be made in
accordance with the contingent purchase price agreement. 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 $667,000 to its estimated fair value.
Activity in intangible assets for the years ended December 31, 1997 and 1996 is
summarized in the table below.
(in thousands) 1997 1996
- -----------------------------------------------------------------
Balance - beginning of year $3,161 $4,320
Amortization during year (306) (492)
Addition from contingent purchase price
of Winona Knitting Mills 530 -
Impairment write-down of goodwill of
San Francisco Knitworks - (667)
- -----------------------------------------------------------------
Balance - end of year $3,385 $3,161
- -----------------------------------------------------------------
F-10
<PAGE>
Note 9 - Accrued Liabilities
Accrued liabilities at December 31, 1997 and 1996 are summarized in the
table below.
(in thousands) 1997 1996
- ---------------------------------------------------------------
Accrued compensation $2,799 $2,210
Income taxes 1,678 1,434
Accrued medical claims 836 764
Other accrued liabilities 2,917 2,161
- ---------------------------------------------------------------
$8,230 $6,569
- ---------------------------------------------------------------
Note 10 - Borrowings
Revolving Credit Facility
- -------------------------
The Company has renewed its principal credit facility through May 31, 1998. The
credit facility consists of $20 million line of credit and an $8 million letter
of credit facility, not to exceed $25 million in the aggregate. 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 and
(ii) a seasonal adjustment of $6 million during the period from March 1 to
October 31.
Loans under the facility bear interest at the bank's prime rate or, at the
option of the company, a fixed rate for a fixed term. The loans are secured by
the trade accounts receivable of Hampshire Designers and are guaranteed by
Hampshire Group, Limited. Letters of credit issued under the facility are
secured by the inventory shipped pursuant to the letters of credit.
The Company maintains a $3.5 million facility with a bank for Segue, Limited, a
subsidiary of Hampshire Designers, which is used primarily to fund international
letters of credit. Advances on the facility bear interest at the bank's prime
rate and are secured by the inventory purchased pursuant thereto and are
guaranteed by Hampshire Group, Limited. Outstanding letters of credit totaled
approximately $1.1 million at December 31, 1997.
At December 31, 1997, Glamourette Fashion Mills, Inc., a subsidiary of Hampshire
Designers, had available an unsecured $2 million credit facility from a
commercial bank which is guaranteed by Hampshire Designers. The facility is
available for short-term borrowing not to exceed 180 days and to fund letters of
credit. Advances on the facility bear interest at the lower of the bank's prime
rate or the one-month LIBOR rate plus 1.75%. No advances were outstanding under
the line at December 31, 1997 or 1996.
The Company maintains an unsecured $2.5 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 to fund letters of credit. Advances on the
facility bear interest, at the option of the Company, at the bank's prime rate
or the one-month LIBOR rate plus 1.87%. No advances were outstanding under the
line at December 31, 1997 or 1996.
Factoring Agreement
- -------------------
The Winona Division has a factoring agreement pursuant to which it sells
approximately 40% 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.
F-11
<PAGE>
Long -Term Debt
- ---------------
Long-term debt at December 31, 1997 and 1996 is comprised of:
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Notes payable to insurance company in monthly installments
of $96,000, including interest at rates from 7.55% to
9.03%, through 2000. $3,568 $4,882
Note payable to bank in monthly installments of approximately
$31,800, including interest at 7.70% through 1999. 511 840
Note payable to bank, in monthly installments of approximately
$20,500, plus interest at LIBOR rate plus 1.75%, adjusted
quarterly through 2000. 641 887
Note payable to bank in monthly installments of $9,650, plus
interest at LIBOR plus 1.75%, adjusted quarterly through 2001. 435 551
Note payable to bank in monthly installments of approximately
$31,100, including interest at 7.97% through 1999. 386 723
Note payable to bank in monthly installments of $15,800,
including interest at 8.25% through 2002. 733 -
Note payable to bank in monthly installments of approximately
$12,350, including interest at 8.4% through 2007, secured
by certain real estate. 989 -
Note payable to bank in monthly installments of approximately
$8,300, including interest at 10% through 2008, secured by
certain real estate. The interest rate is adjustable every
five years with the next adjustment coming April 1, 1998. 637 -
Notes payable to mortgage company in monthly installments of
approximately $1,750, including interest at 7.25% through
2000, secured by certain real estate. 251 254
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. 414 450
Other notes payable in monthly installments of approximately
$28,000, including interest ranging from 5.88% to 10.4%,
through 2001. 430 674
- --------------------------------------------------------------------------------
8,995 9,261
Less - Amount payable within one year (2,911) (2,618)
- --------------------------------------------------------------------------------
Amount payable after one year $6,084 $6,643
- --------------------------------------------------------------------------------
Unless otherwise disclosed, the notes are secured by certain machinery and
equipment of the respective companies.
Maturities of long-term debt as of December 31, 1997 are summarized in the
table below.
Year (in thousands)
- ------------------------------------
1998 $2,911
1999 2,379
2000 1,520
2001 474
2002 579
Thereafter 1,132
- ------------------------------------
$8,995
- ------------------------------------
F-12
<PAGE>
Notes Payable to Related Parties
- --------------------------------
Notes payable to related parties at December 31, 1997 and 1996 (all of which
were part of the acquisition purchase price) are set forth below:
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
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 1996 $625 $1,125
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
- --------------------------------------------------------------------------------
625 1,502
Less - Amount payable within one year (500) (877)
- --------------------------------------------------------------------------------
Amount payable after one year $125 $ 625
- --------------------------------------------------------------------------------
Note 11 - Income Taxes
The components of income tax expense for the years ended December 31, 1997, 1996
and 1995 are set forth in the table below.
(in thousands) 1997 1996 1995
- -----------------------------------------------------------
Current:
Federal $2,246 $1,430 $ 504
State 317 290 300
Puerto Rico 137 180 224
- -----------------------------------------------------------
2,700 1,900 1,028
Deferred:
Federal (200) (3,900) (278)
- ------------------------------------------------------------
Total $2,500 ($2,000) $ 750
- ------------------------------------------------------------
The domestic and Puerto Rico components of income before income taxes are set
forth in the table below.
(in thousands) 1997 1996 1995
- ------------------------------------------------------------
Domestic $ 6,368 $4,161 $1,187
Puerto Rico 5,138 5,735 6,281
- ------------------------------------------------------------
Income before income taxes $11,506 $9,896 $7,468
- ------------------------------------------------------------
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) 1997 1996 1995
- ----------------------------------------------------------------------
Tax provision at federal statutory rate $3,912 $3,365 $2,539
Increase (decrease) in tax arising from:
Effect of exemption of Puerto Rico
earnings from United States tax (1,747) (1,950) (2,136)
Puerto Rico taxes on income,
including withholding taxes 137 180 224
State taxes, less federal income
tax benefit 178 191 199
Change in valuation allowance - (4,618) (596)
Other 20 832 520
- ----------------------------------------------------------------------
$2,500 ($2,000) $ 750
- ----------------------------------------------------------------------
F-13
<PAGE>
A summary of the temporary differences carryforwards giving rise to deferred
income tax assets and liabilities as of December 31, 1997 and 1996 is set forth
in the table below.
(in thousands) 1997 1996
- ------------------------------------------------------------------------------
Deferred income tax assets:
Inventories $ 249 -
Allowances for receivables 1,055 $ 996
Accrued liabilities and other temporary
differences 1,840 1,221
Unrealized losses on available-for-sale securities 53 -
Net operating loss carryforwards 3,633 4,227
AMT credit carryforwards 1,034 1,116
- ------------------------------------------------------------------------------
Gross deferred income tax assets 7,864 7,560
- ------------------------------------------------------------------------------
Deferred income tax liabilities:
Inventories - (8)
Property, plant and equipment (471) (412)
- ------------------------------------------------------------------------------
Gross deferred income tax liabilities (471) (420)
- ------------------------------------------------------------------------------
Valuation allowance for deferred income tax assets (1,869) (1,869)
- ------------------------------------------------------------------------------
$5,524 $5,271
- ------------------------------------------------------------------------------
The net operating loss carryforwards for income tax purposes expire as set forth
in the table below.
(in thousands) Year Regular Tax
--------------------
1998 $ 1,095
1999 648
2000 164
2001 1,344
2002 1,384
2003-2009 6,051
--------------------
$10,686
--------------------
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 $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. Substantially all of the income of Glamourette Fashion Mills,
Inc. ("Glamourette") 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 2010 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
Section 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
F-14
<PAGE>
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.
The Company has approximately $9.0 million of Glamourette's undistributed
earnings which it considers permanently invested and for which it has not
provided any deferred taxes. The Company received dividends from Glamourette of
approximately $5.0 million, $5.0 million and $5.5 million in 1997, 1996 and
1995, respectively.
Note 12 - Commitments and Contingencies
The Company leases premises and equipment under operating leases having terms
from monthly to 12 years. At December 31, 1997, future minimum lease payments
under leases having an initial or remaining non-cancelable term in excess of one
year were as set forth in the table below:
Year (in thousands)
- ---------------------------------
1998 $1,362
1999 1,288
2000 1,190
2001 877
2002 294
Thereafter 1,162
- ---------------------------------
Total $6,173
- ---------------------------------
Rent expense on operating leases was $1,596,000, $1,636,000 and $1,475,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
During November 1997, the Company's subsidiary, Glamourette Fashion Mills, Inc.,
received notice from the Internal Revenue Service of a pending examination of
the year 1995. The examination has not been completed. However, the Company
believes any assessment would be without merit, and that any adjustment which
might result would not have a material effect on the consolidated financial
position of the Company.
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 13 - 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 $0.10 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 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. The Series A stock
was convertible, at the option of the holder 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 was also subject to mandatory redemption by the Company at its
stated value plus a premium and any accrued but unpaid dividends in 20 equal
quarterly installments beginning on January 1, 2001.
In 1992, the Company issued 41,039 shares (including 36,039 shares 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 was 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 was also subject to mandatory redemption at its stated value plus
a premium and any accrued but unpaid dividends in 20 quarterly installments
beginning April 1, 1996. During 1996, the Company redeemed 6,156 shares of
Series D stock at its stated value. During 1997, subject to the mandatory
quarterly redemptions, the holders elected to convert 8,208 shares of Series D
stock into 36,000 shares of Hampshire Group, Limited common stock.
In the fourth quarter of 1997, the Company gave notice to the holders of record
of its intent to redeem all of the outstanding shares of both Series A and
Series D stock at the required redemption price. The Company was notified by the
holders of all of the Series A and Series D stock of their intent to convert the
F-15
<PAGE>
shares into common stock of the Company. Effective December 30, 1997, all shares
of Series A and Series D stock were converted into 240,995 shares of Hampshire
Group, Limited common stock in the aggregate.
A summary of the activity in redeemable Preferred Stock for the three years
ended December 31, 1997 is set forth in the table below.
Preferred Stock
(in thousands) Series A Series D
- -------------------------------------------------------
Balance - Beginning of period - $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
Preferred dividends accrued 78 89
Preferred dividends paid (78) (89)
Conversion of preferred stock (1,550) (1,744)
- -------------------------------------------------------
Balance December 31, 1997 - -
- -------------------------------------------------------
Note 14 - Stock Options, Warrants and Compensation Plans
In November 1994, the Company registered 750,000 shares of its common stock
under the Securities Act of 1933, as amended. This action was in regards to the
Hampshire Group, Limited 1992 Stock Option Plan and the Hampshire Group, Limited
Common Stock Purchase Plan for Directors and Executives. Of these shares,
292,000 have been issued under these plans.
Beginning in 1996, the Board of Directors of the Company authorized the
repurchase of shares of the Company's common stock, some of which would be used
to offset the dilution caused by the issuance of shares under the Stock Option
Plan and Stock Purchase Plan. The Company's repurchase of shares of common stock
are recorded as "Treasury Stock" and result in a reduction of "Stockholders'
Equity". When treasury shares are reissued, the Company uses a specific
identification method and the excess of repurchase cost over reissuance price is
treated as a reduction of "Retained Earnings".
Stock Options
- -------------
Options to purchase Hampshire Group, Limited Common Stock are granted at the
direction of the Company's Board of Directors to executives and key employees of
the Company and its subsidiaries. No option may be granted with an exercise
price less than fair market value per share of common stock at the date of
grant. All options have a maximum term of 10 years and become fully exercisable
after a maximum of 5 years from the date of grant.
F-16
<PAGE>
Stock option activity is set forth in the table below.
Number of Weighted Average
Options Exercise Price
- ---------------------------------------------------------------------
Outstanding - Beginning of period 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
Granted 50,000 14.50
Exercised (29,556) 6.98
Canceled or expired (45,625) 14.16
- ----------------------------------------------------------------------
Outstanding December 31, 1997 430,632 $ 8.33
- ----------------------------------------------------------------------
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.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), was issued by the Financial Accounting Standards
Board during 1995 and was effective for the Company in 1996. SFAS 123 allows
companies to adopt the fair value based method of accounting or to continue
using the intrinsic value based method of accounting prescribed by APB 25. Since
the Company has elected to continue applying APB 25 in accounting for its plans,
no compensation expense has been recognized in 1997, 1996 or 1995. Additionally,
in accordance with SFAS 123, the Company is required to disclose fair value
information about its stock-based employee compensation plans for periods
beginning after January 1, 1995. Had compensation expense for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS 123,
the Company's net income and earnings per share would have been reduced .
In order to estimate compensation cost, the Black-Scholes model was employed
using the assumptions set forth in the table below.
1997 1996 1995
- ------------------------------------------------------------
Dividend yield 0.00% 0.00% 0.00%
Expected life (years) 4.37 5.11 4.16
Expected volatility 18.60% 21.40% 25.90%
Risk-free interest rate 6.54% 5.37% 7.56%
Weighted-average fair values
of options granted $5.07 $3.38 $2.40
- -------------------------------------------------------------
The table below sets forth the effect on net income and diluted earnings per
share had compensation cost been determined under SFAS 123.
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------
Net income: As reported $9,006 $11,896 $6,718
Proforma $8,930 $11,813 $6,459
- -----------------------------------------------------------------
Diluted earnings As reported $2.02 $2.72 $1.68
per share: Proforma $2.00 $2.70 $1.62
- -----------------------------------------------------------------
F-17
<PAGE>
The table below is a summary of the status of options outstanding at
December 31,1997:
Options Outstanding Options Exercisable
- ----------------------------------------------- ---------------------------
Weighted Weighted
Range of Number Average Average Number Weighted
Exercise Outstanding Remaining Exercise Exercisable Average
Prices 12/31/97 Life Price 12/31/97 Exercise Price
- ----------------------------------------------- ---------------------------
$ 5.750-$5.750 4,274 1.00 $ 5.750 4,274 $ 5.750
5.812- 5.813 77,092 2.00 5.813 77,092 5.813
6.000- 6.190 47,273 3.34 6.150 42,273 6.168
7.500- 7.500 50,653 3.22 7.500 50,653 7.500
7.870- 7.870 65,909 1.53 7.870 52,728 7.870
8.250- 8.250 15,000 2.00 8.250 15,000 8.250
9.900- 9.900 109,091 2.00 9.900 109,091 9.900
10.625-11.750 44,565 5.40 11.173 24,724 11.129
12.100-12.500 8,000 4.56 12.125 4,250 12.147
14.500-14.500 8,775 6.50 14.500 2,194 14,500
------- ---------- ---------------------------
430,632 $ 8.332 382,279 $ 8.085
------- ---------- ---------------------------
Warrants to Purchase Common Stock
- ---------------------------------
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. As of July
1, 1997, the Company repurchased from a former director, for $1 million ($7.534
per share), 132,728 of these warrants leaving a balance of 205,454 outstanding
at December 31, 1997.
Common Stock Purchase Plan
- --------------------------
In 1992, the Company adopted the Hampshire Group, Limited Common Stock Purchase
Plan for Directors and Executives ("SPP"). Pursuant to the plan, which was
amended June 7, 1995, non-employee 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 number of shares of common stock to be delivered is determined, with respect
to non-employee directors, by dividing the amount of director fees elected to be
used to purchase common stock in each quarter by 95% of the fair market value of
the Company's common stock at the end of the calendar quarter. The number of
shares of common stock to be delivered with respect to annual bonuses of 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. The number of shares of common stock to be delivered with respect to
annual salaries of key executives is determined by dividing the amount so
elected to be used for the purchase of common stock by 90% of the Company's
common stock at the end of the calendar quarter.
The participating directors and executives, in the aggregate, elected to use
approximately $735,000, $560,000 and $534,000 of their compensation for 1997,
1996 and 1995, respectively, to purchase common stock of the Company under the
SPP. The Company has established a trust to which it delivers the shares of the
Company's common stock to satisfy such elections following the end of each 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.
Voluntary Deferred Compensation Plan
- ------------------------------------
In 1997, the Company adopted the Hampshire Group, Limited Deferred Voluntary
Compensation Plan for Directors and Executives (the "Top Hat Plan"). Pursuant to
the plan, key executives may elect to defer up to 20% of the total compensation
in each year with said deferrals being invested in mutual funds external to the
Company. In 1997, the participants deferred $547,000 with the
F-18
<PAGE>
resulting liability being included in deferred compensation. To assist in
funding the deferred compensation liability, the Company has invested in certain
mutual funds. The market value of these mutual funds was $547,000 and are
presented as assets of the Company in the accompanying balance sheets.
Note 15 - Retirement Savings Plan
In 1988, the Company adopted the Hampshire Group, Limited and Subsidiaries
401(k) Retirement Savings Plan under which all employees may participate after
having completed at least one year of service and having reached the age of
twenty years. The Company's matching contribution is determined annually at the
discretion of the Board of Directors and was $346,000, $313,000 and $225,000 in
1997, 1996 and 1995, respectively. Such matching contributions vest fully over
seven years of employment.
Note 16 - Related Party Transactions
The Company leases certain buildings from an affiliated company. Rent expense
under such leases was $200,000, $192,000 and $184,000 in 1997, 1996 and 1995,
respectively. The Company also leases certain buildings from a director of the
Company and certain of his relatives. Rent expense under such leases was
$162,000, $135,000 and $28,500 for 1997, 1996 and 1995. The terms of these
leases were approved by the Board of Directors of the Company based on
independent confirmation that the leases are fair and reasonable and are at
market terms.
The Company has notes receivable from certain key executives of a subsidiary
amounting to $1,425 and $109,000 at December 31, 1997 and 1996, respectively.
The notes are secured by subsidiary preferred stock owned by the executives.
In 1996 the Company granted an option to a key executives of the Hosiery
Division of Hampshire Designers, Inc. to purchase 20% of the equity interest of
the division for $1,200,000. In the opinion of management, the option price
currently meets or exceeds the fair market value. The option terminates the
earlier of: a) December 31, 1999, or b) upon termination of the executive for
any reason.
Note 17 - Subsequent Event
Subsequent to December 31, 1997, the Company received a commitment from two
insurance companies for a term loan of $15 million (the "Senior Notes") with
repayment terms of seven equal annual installments commencing January 2002. The
outstanding balance shall bear interest at 7.05% per annum, payable
semi-annually, and shall be secured parri passu with the Company's revolving
credit facility by a pledge of the accounts receivable and common stock of the
subsidiaries of the Company other than Hampshire Investments which shall be
defined as an Unrestricted Subsidiary of the Company.
The note agreement shall contain certain covenants which, among other things,
limit the amount of additional funded indebtedness which may be incurred by the
Company and restricts unsecured indebtedness of the Restricted Subsidiaries of
the Company. The agreement shall also contain provisions which shall limit
restricted payments including cash dividend payments and advances to and
investments in Hampshire Investments; and shall require the Company to maintain
certain minimum financial ratios and tangible net worth for the Company and
Restricted Subsidiaries.
Management expects the agreement to be closed and the loan to be funded in April
1998.
F-19
<PAGE>
Note 18 - Earnings Per Share
Set forth in the tables below is a reconciliation by year of the numerator
and the denominator of the basic and diluted earnings per share ("EPS")
computation.
Income Shares Per-Share
For the Year Ended 1997 (in thousands) (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
Net income $9,006
Less: Preferred stock dividends (167)
- -----------------------------------------------------
Basic EPS:
Income available to common stockholders 8,839 3,856 $2.29
Effect of dilutive securities:
Convertible preferred stock 167 254 -
Options/warrants - 355 -
- --------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders
plus assumed conversions $9,006 4,465 $2.02
- --------------------------------------------------------------------------------
Income Shares Per-Share
For the Year Ended 1996 (in thousands) (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
Net income $11,896
Less: Preferred stock dividends (184)
- -----------------------------------------------------
Basic EPS:
Income available to common stockholders 11,712 3,778 $3.10
Effect of dilutive securities:
Convertible preferred stock 184 321 -
Options/warrants - 280 -
- --------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders
plus assumed conversions $11,896 4,379 $2.72
- --------------------------------------------------------------------------------
Income Shares Per-Share
For the Year Ended 1995 (in thousands) (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
Net income $6,718
Less: Preferred stock dividends (141)
- -----------------------------------------------------
Basic EPS:
Income available to common stockholders 6,577 3,560 $1.85
Effect of dilutive securities:
Convertible preferred stock 141 207 -
Options/warrants - 225 -
- --------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders
plus assumed conversions $6,718 3,992 $1.68
- --------------------------------------------------------------------------------
F-20
<PAGE>
Note 19 - Supplementary Disclosure of Cash Flow Information
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------
Cash paid during the year for:
Interest $1,329 $1,304 $974
Income taxes 2,152 1,952 551
- ---------------------------------------------------------------------
Schedule of non-cash investing and
financial activities:
Issuance of stock under the
Common Stock Purchase Plan for
Directors and Executives - - $521
- ---------------------------------------------------------------------
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 (500)
Notes and other obligations (3,537)
Preferred stock exchanged (1,550)
Common stock exchanged (1,785)
- ------------------------------------------------
Liabilities assumed $ 9,974
- ------------------------------------------------
The Company purchased the assets of Segue Limited and Babette & Partners, Ltd.
in January 1995. In conjunction with these 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
- ------------------------------------------------
Note 20 - Financial Information About Industry Segments
Business segment information appears on Pages 10 and 11 of this Annual Report on
Form 10-K.
F-21
<PAGE>
<TABLE>
SCHEDULE I
1 of 3
HAMPSHIRE GROUP, LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
(in thousands)
<CAPTION>
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 9,494 $16,211
Due from subsidiaries 26,525 20,612
Deferred tax asset 3,145 1,631
Other current assets 55 412
------------------------
Total current assets 39,219 38,866
Notes receivable from and investments in subsidiaries 20,631 12,101
Deferred tax asset 2,326 3,640
Other assets 617 304
------------------------
$62,793 $54,911
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable - related parties $ 500 $ 877
Accounts payable and accrued expenses 3,501 2,533
------------------------
Total current liabilities 4,001 3,410
Note payable - related parties 125 625
Deferred compensation 957 307
Redeemable preferred stock - 3,294
Common stock and other stockholders' equity:
Common stock, $0.10 par value 419 389
Additional paid-in capital 27,322 23,853
Retained earnings 30,949 23,111
Treasury stock (980) (78)
-------------------------
Total stockholders' equity 57,710 47,275
-------------------------
$62,793 $54,911
=========================
</TABLE>
F-22
<PAGE>
<TABLE>
SCHEDULE I
2 of 3
HAMPSHIRE GROUP, LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME
(in thousands)
<CAPTION>
Year ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue
Management fees charged to subsidiaries $2,466 $ 2,241 $1,707
Interest charged to subsidiaries 2,388 2,717 1,589
-------------------------------
4,854 4,958 3,296
General and administrative expenses 2,706 2,454 2,134
-------------------------------
Income from operations 2,148 2,504 1,162
Other income (expense)
Equity in earnings of subsidiaries 7,440 5,980 5,586
Interest income 272 141 152
Interest expense (111) (149) -
Other income (expense) 7 - 3
------------------------------
Income before income taxes 9,756 8,476 6,903
Income taxes (provision) benefit (750) 3,420 (185)
------------------------------
Net income 9,006 11,896 6,718
Preferred dividend requirements (167) (184) (141)
------------------------------
Net income applicable to common stock $8,839 $11,712 $6,577
==============================
</TABLE>
F-23
<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,
-------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,006 $11,896 $6,718
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Equity in earnings of consolidated
subsidiaries (7,440) (5,980) (5,586)
Dividends received from subsidiaries 6,500 8,629 9,492
Depreciation and amortization 28 26 25
Tax benefits from employee stock plans 100 122 -
Deferred income taxes (200) (3,900) (278)
Net change in operating assets and liabilities:
Receivables from subsidiaries (13,360) 129 (534)
Receivables 36 (76) (133)
Other assets (2) 21 (345)
Accounts payable and accrued expenses 1,946 126 1,608
-------------------------------
Net cash provided (used) by operating activities (3,386) 10,993 10,967
-------------------------------
Cash flows from investing activities:
Capital expenditures (52) (18) (3)
Pre-acquisition advances to Winona - - (3,060)
Cash paid in business acquisition - - (500)
-------------------------------
Net cash used in investing activities (52) (18) (3,563)
-------------------------------
Cash flows from financing activities
Repayment of long-term debt (877) (2,248) -
Purchase of stock warrants (1,000) - -
Proceeds from issuance of common stock 90 764 9
Redemption of preferred stock - (308) -
Purchase of treasury stock - net (1,325) (78) -
Cash dividends on preferred stock (167) (184) (141)
-------------------------------
Net cash used in financing activities (3,279) (2,054) (132)
-------------------------------
Net increase (decrease) in cash (6,717) 8,921 7,272
Cash at beginning of period 16,211 7,290 18
-------------------------------
Cash at end of period $ 9,494 $16,211 $7,290
===============================
</TABLE>
F-24
<PAGE>
<TABLE>
SCHEDULE II
HAMPSHIRE GROUP, LIMITED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<CAPTION>
Balance Charged Charged
at to sales to Balance
beginning and other Deduc- end of
of year expenses accounts tions year
------------------------------------------------
Year Ended December 31, 1995
- ----------------------------
<S> <C> <C> <C> <C> <C>
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
Year Ended December 31, 1997
- ----------------------------
Allowance for doubtful
accounts $ 797 $ 223 - ($ 204) $ 816
Allowance for returns and
adjustments 2,050 3,925 - (3,496) 2,479
</TABLE>
F-25
<PAGE>
<TABLE>
SCHEDULE III
1 of 2
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
<CAPTION>
Initial Cost
--------------------------------
Land
Encum- and
brances Land Buildings Buildings
-------------------------------------------
<S> <C> <C> <C> <C>
Charlottesville-Commercial Bldg.
Charlottesville, Virginia $285 $ 397 $ 682
Amity Mall-Shopping Center
Amityville, New York $637 187 664 851
Project #1-Apartment Units
St. Petersburg, Russia - - 152 152
Project #2-Apartment Units
St. Petersburg, Russia - - 330 330
Project #5-Apartment Units
St. Petersburg, Russia - - 255 255
Project #6-Apartment Units
St. Petersburg, Russia - - 182 182
Project #7-Apartment Units
St. Petersburg, Russia - - 210 210
Project #8-Apartment Units
St. Petersburg, Russia - - 155 155
Project #9-Apartment Units
St. Petersburg, Russia - - 182 182
Project #10-Apartment Units
St. Petersburg, Russia - - 110 110
Deposits and Other - - 254 254
------------------------------------------
$637 $472 $2,891 $3,363
==========================================
</TABLE>
F-26
<PAGE>
<TABLE>
SCHEDULE III Page 1 of 2 (continued)
---------
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
<CAPTION>
Cost Capitalized Subsequent
to Acquisition
-------------------------------------------
Land and
Land Building Building
Improvements Improvements Improvements
-------------------------------------------
<S> <C> <C> <C>
Charlottesville-Commercial Bldg.
Charlottesville, Virginia - $ 1 $ 1
Amity Mall-Shopping Center
Amityville, New York - 3 3
Project #1-Apartment Units
St. Petersburg, Russia - 184 184
Project #2-Apartment Units
St. Petersburg, Russia - 142 142
Project #5-Apartment Units
St. Petersburg, Russia - 182 182
Project #6-Apartment Units
St. Petersburg, Russia - 120 120
Project #7-Apartment Units
St. Petersburg, Russia - 10 10
Project #8-Apartment Units
St. Petersburg, Russia - 114 114
Project #9-Apartment Units
St. Petersburg, Russia - 29 29
Project #10-Apartment Units
St. Petersburg, Russia - - -
Deposits and Other - - -
------------------------------------------
- $785 $785
==========================================
</TABLE>
F-26
<PAGE>
<TABLE>
SCHEDULE III Page 1 of 2 (continued)
---------
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
<CAPTION>
Gross Amount at Which Carried
at End of Period
------------------------------
Building
and Accumulated
Land Improvements Total Depreciation
------------------------------ ------------
<S> <C> <C> <C> <C>
Charlottesville-Commercial Bldg.
Charlottesville, Virginia $285 $ 398 $ 683 ($13)
Amity Mall-Shopping Center
Amityville, New York 187 667 854 (8)
Project #1-Apartment Units
St. Petersburg, Russia - 336 336 -
Project #2-Apartment Units
St. Petersburg, Russia - 472 472 -
Project #5-Apartment Units
St. Petersburg, Russia - 437 437 -
Project #6-Apartment Units
St. Petersburg, Russia - 302 302 -
Project #7-Apartment Units
St. Petersburg, Russia - 220 220 -
Project #8-Apartment Units
St. Petersburg, Russia - 269 269 -
Project #9-Apartment Units
St. Petersburg, Russia - 211 211 -
Project #10-Apartment Units
St. Petersburg, Russia - 110 110 -
Deposits and Other - 254 254 -
------------------------------------------
$472 $3,676 $4,148 ($21)
==========================================
</TABLE>
F-26
<PAGE>
SCHEDULE III
2 of 2
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
Depreciation and amortization of the Company's investment in buildings and
improvements reflected in the statements of operations are calculated over the
estimated useful lives of the assets as follows:
Base Building 15 years
Improvements Over remaining useful lives of the building
The aggregate cost for federal income tax purposes was approximately $4.15
million at December 31, 1997.
The changes in total real estate assets and accumulated depreciation for the
period ending December 31, 1997 are as follows:
Total Real Estate Assets Accumulated Depreciation
- ------------------------ ------------------------
Balance, beginning of period - Balance, beginning of period -
Acquisitions $3,363 Depreciation ($21)
Additions and improvements 785 Disposals -
- --------------------------------------- ----------------------------------
Balance, end of period $4,148 Balance, end of period ($21)
======================================= ==================================
F-27
<PAGE>
<TABLE>
Quarterly Financial and Stock Data (unaudited)
<CAPTION>
(in thousands, except per share data and stock prices)
<S> <C> <C> <C> <C>
In 1997 Quarter Ended Mar.29 Jun.28 Sept.27 Dec.31
------ ------ ------- -------
Net sales $23,580 $21,466 $61,008 $58,374
Gross profit 4,691 4,374 13,769 13,963
- -------------------------------------------------------------------------------
Income (loss) from operations (92) (255) 6,811 6,163
Income (loss) applicable to common stock (304) (277) 5,069 4,351
- -------------------------------------------------------------------------------
Income (loss) per common and
common equivalent share - basic ($0.08) ($0.07) $1.31 $1.13
Income (loss) per common share - diluted ($0.08) ($0.07) $1.16 $0.99
- -------------------------------------------------------------------------------
Common stock price: High $15.75 $15.75 $17.50 $20.00
Low $12.75 $14.00 $14.75 $17.50
- -------------------------------------------------------------------------------
In 1996 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(1)
- -------------------------------------------------------------------------------
Income (loss) per common and
common equivalent share - basic ($0.15) ($0.17) $1.27 $1.99(1)
Income (loss) per common share -diluted ($0.15) ($0.17) $1.11 $1.83(1)
- -------------------------------------------------------------------------------
Common stock price: High $12.00 $13.00 $12.75 $13.50
Low $10.38 $10.75 $11.50 $12.25
- --------------------------------------------------------------------------------
In 1995 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 - basic ($0.08) ($0.03) $1.21 $0.73
Income (loss) per common share - diluted ($0.08) ($0.03) $1.08 $0.63
- -------------------------------------------------------------------------------
Common stock price: High $9.25 $9.25 $11.00 $13.00
Low $7.00 $8.25 $8.50 $10.00
- -------------------------------------------------------------------------------
<FN>
(1) Income applicable to common stock for the fourth quarter of 1996 includes
$3.9 million adjustment to the Company's deferred tax account; and basic and
diluted earnings per share for the period includes $0.89 per share relating to
the adjustment.
</FN>
</TABLE>
F-28
<PAGE>
HAMPSHIRE GROUP, LIMITED
1997 EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------------------------------------------------------------
(3)(A) Restated Certificate of Incorporation of Hampshire Group, Limited
(3)(A)(1) Certificate of Amendment to the Certificate of Incorporation of
Hampshire Group, Limited
(3)(A)(2) Amended and Restated By-Laws of Hampshire Group, Limited
(3)(B)(2) Agreement of Merger between Hampshire Hosiery, Inc. and
Hampshire Designers, Inc. dated June 26, 1995
(3)(B)(3) Agreement of Merger between Segue (America) Limited
and H.G. Knitwear, Inc. dated December 26, 1995
(3)(B)(4) Agreement and Plan of Merger among Hampshire Group,
Limited, The Winona Knitting Mills, Inc. and Pete and
Joyce Woodworth dated June 5, 1995
(3)(B)(5) Asset Purchase Agreement among Segue (America) Limited,
Segue, Ltd. and Neil Friedman dated February 15, 1995
(10)(A)(1) Employment Agreement between Hampshire Group, Limited
and Ludwig Kuttner dated May 6, 1992
(10)(A)(2) Employment Agreement between Hampshire Designers, Inc.
and Pete Woodworth dated October 10, 1995
(10)(B)(1) Form of Hampshire Group, Limited 1992 Stock Option Plan
Amended and Restated effective June 7, 1995
(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
(10)(D)(1) Form of Hampshire Group, Limited and Subsidiaries
401(k) Retirement Savings Plan
(10)(D)(2) Form of Hampshire Group, Limited Voluntary Deferred Compensation
Plan for Directors and Executives Amended and Restated
December 30, 1997
(10)(J)(1) Lease Agreements between Hampshire Designers, Inc. and
Commerce Center Associates for the Company's Anderson,
South Carolina corporate offices dated May 1, 1994
(10)(J)(2) Lease Agreements between Hampshire Designers, Inc. and
Commerce Center Associates for the Company's Anderson,
South Carolina distribution center dated May 1, 1994
(Exhibits continued on next page)
<PAGE>
(Exhibits continued from previous page)
(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
(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
(10)(K) Loan and Security Agreement between Hampshire Hosiery, Inc.
and MetLife Capital Corporation, dated July 30, 1993
(10)(K)(1) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated May 13, 1994
(10)(K)(2) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated October 12, 1994
(10)(K)(3) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated September 22, 1995
(10)(M) Agreement between Glamourette Fashion Mills, Inc. and
The Commonwealth of Puerto Rico on Repatriation of Earnings
(the "Closing Agreement"), dated June 30, 1993
(10)(N) Loan and Security Agreement between Hampshire Designers, Inc.
and SouthTrust Bank of Alabama, N.A. dated May 1, 1994
(10)(O) Loan and Security Agreement between Hampshire Designers, Inc.
and Central Fidelity National Bank dated February 8, 1995
(10)(Q) Loan Agreement between Hampshire Designers, Inc. and
NationsBank of South Carolina, N.A. dated June 27, 1995
(11) Statement Re Computation of Income per Share
(21) Subsidiaries of the Company
(23) Consent of Price Waterhouse LLP
(27) Financial Data Schedule
State of Delaware
Office of Secretary of State
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF RESTATED
CERTIFICATE OF INCORPORATION OF HAMPSHIRE GROUP, LIMITED FILED IN THIS OFFICE ON
THE THIRTY-FIRST DAY OF DECEMBER, A.D. 1990, AT 10:30 O'CLOCK A.M.
/s/ Michael Harkins, Secretary of State
- ---------------------------------------
AUTHENTICATION: *2922580
DATE: 01/15/1991
Department of State (Seal)
Delaware
721015080
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
HAMPSHIRE GROUP, LIMITED
PURSUANT TO SECTIONS 242 AND 245
OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
HAMPSHIRE GROUP, LIMITED, a Delaware corporation, the original Certificate
of Incorporation of which was filed with the Secretary of the State of Delaware
on October 27, 1976 under the name of Stahl Instruments, Inc., HEREBY CERTIFIES
that this Restated Certificate of Incorporation, restating, integrating and
amending its Certificate of Incorporation, was duly proposed by its Board of
Directors and adopted by the written consent of its stockholders in accordance
with Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware, that any required written notice has been provided to stockholders in
accordance with Section 228 of the General Corporation Law of the State of
Delaware and that the capital of the Corporation is not being reduced under or
by reason of any amendment in this Restated Certificate of Incorporation.
FIRST: The name of this corporation (the "Corporation") is: HAMPSHIRE
GROUP, LIMITED
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The nature of the business or purpose for which the Corporation is
to be conducted or promoted is: To engage in the manufacture and sale of all
types of textile products and apparel; and To engage in any other lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
In general, to possess and exercise all of the powers and privileges
granted by the General Corporation Law of Delaware or by any other law of
Delaware or by this Restated Certificate of Incorporation together with any
powers incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
of the Corporation.
FOURTH: A. AUTHORIZED SHARES
The total number of shares of stock which the Corporation shall have
authority to issue is Ten Million One Hundred and Fifty Thousand (10,150,000)
shares, of which Ten Million (10,000,000) shares shall have a par value of Ten
Cents ($.10) each and shall be designated "Common Stock", and One Hundred Fifty
Thousand (150,000) shares shall have a par value of Ten Cents ($.10) each and be
Serial Preferred Stock ("Preferred Stock"). The Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of this
Restated Certificate of Incorporation, to provide for the issuance of shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series and to fix the designations,
voting powers, preferences and relative, participating, optional or other
special rights of the shares of each such series, and the qualifications,
limitations or restrictions thereof.
1. COMMON STOCK
(a) Dividends. Subject to the preferences and other rights
of the Preferred Stock, the holders of Common Stock shall be entitled to receive
dividends when and as declared by the Board of Directors out of the funds
legally available therefor.
<PAGE>
(b) Liquidation. In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, voluntary or involuntary, after payment or
provision for payment to the holders of Preferred Stock of the amounts to which
they may be entitled, the remaining assets of the Corporation available to
shareholders shall be distributed equally per share to the holders of Common
Stock.
(c) Voting. The holders of Common Stock shall be entitled to one vote in
respect of each share held on all matters submitted to a vote of shareholders.
B. RECLASSIFICATION
On the date on which this Restated Certificate of Incorporation shall be
filed with the Secretary of the State of Delaware (the "Effective Date"), shares
of capital stock of the Corporation which were issued and outstanding prior to
the reclassifications and amendments contemplated hereby shall be converted into
shares of capital stock of the Corporation resulting from such reclassifications
and amendments on the basis and in the manner described below:
(1) Each share of Class A Preferred Stock, $100 par value, except for such
shares represented by stock certificates numbered 13, 19, 21 and 23, that shall
be outstanding on the Effective Date and all rights in respect thereof shall be
changed and converted into 53.055 shares of Common Stock;
(2) Each share of Class A Preferred Stock, $100 par value, represented by
certificates numbered 13, 19, 21 and 23 that shall be outstanding on the
Effective Date and all rights in respect thereof shall be changed and converted
into one share of Series C Preferred Stock, $50 par value, which series shall be
created by the Board of Directors of the Corporation on the Effective Date by
the filing of a Certificate of Designation with the Secretary of State of the
State of Delaware pursuant to the law of the State of Delaware;
(3) Each share of Class B Convertible Preferred Stock, $1 par value, that
shall be outstanding on the Effective Date and all rights in respect thereof
shall be changed and converted into one share of Common Stock;
(4) No fractional shares shall be issued in connection with the conversion
described in subparagraphs (1), (2) and (3) above nor shall any monetary or
other consideration be given in lieu thereof. In the event that any fractional
share results from any calculation required by this reclassification, the number
of shares to be issued shall be rounded-up to the next whole number if the
fraction is greater than or equal to one-half or rounded-down to the next lesser
whole number if the fraction is less than one-half; and
(5) Until a certificate or certificates theretofore representing shares of
stock converted pursuant to subparagraphs (1), (2) and (3) above have been
surrendered to the Corporation in exchange for a certificate or certificates
representing the number of shares of stock to be issued pursuant to this
reclassification, the certificates evidencing the outstanding shares of Class A
Preferred Stock, $100 par value, and Class B Convertible Preferred Stock, $1.00
par value, shall be treated for all corporate purposes as evidencing the
ownership of shares of Series C Preferred Stock, $50 par value, or Common Stock
as applicable, as though such surrender and exchange had taken place.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the By-Laws of the Corporation may be made, altered, amended or
repealed by the stockholders or by the Board of Directors.
SEVENTH: Meetings of the stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statues) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
<PAGE>
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, I have signed this Restated Certificate of
Incorporation this 27th day of December 1990.
HAMPSHIRE GROUP, LIMITED
/s/ Ludwig Kuttner
- ------------------------------------
By: Ludwig Kuttner
Chairman of the Board of Directors
and Chief Executive Officer
ATTEST:
/s/ Charles Clayton
- ------------------------------------
By: Charles W. Clayton
Secretary
<PAGE>
State of Delaware
Office of Secretary of State
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CORRECTION
OF HAMPSHIRE GROUP, LIMITED FILED IN THIS OFFICE ON THE ELEVENTH DAY OF JANUARY,
A.D. 1991, AT 10 O'CLOCK A.M.
/s/ Michael Harkins, Secretary of State
- ----------------------------------------
AUTHENTICATION: *2922582
DATE: 01/15/1991
Department of State (Seal)
Delaware
721015081
<PAGE>
CERTIFICATE OF CORRECTION FILED TO CORRECT
THE RESTATED CERTIFICATE OF INCORPORATION
OF HAMPSHIRE GROUP, LIMITED FILED IN THE
OFFICE OF THE SECRETARY OF STATE OF
DELAWARE ON DECEMBER 31, 1990
HAMPSHIRE GROUP, LIMITED, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
1. The name of the corporation is Hampshire Group, Limited.
2. That a Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on December 31, 1990 and that said
Restated Certificate of Incorporation requires correction as permitted by
Section 103 of the General Corporation Law of the State of Delaware.
3. The inaccuracy of said Restated Certificate of Incorporation is
contained in Article Fourth, Paragraph B and consists of an incorrect
description of a series of preferred stock of Hampshire Group, Limited as having
a "par value" of $50 per share instead of the correct description of said stock
as having a "stated value" of $50 per share.
4. Article Fourth of the Restated Certificate of Incorporation is hereby
amended and corrected by deleting the word "par" appearing before the word
"value" in the sixth line of subparagraph (2) of Paragraph B and in the twelfth
line of subparagraph (5) of Paragraph B and by substituting the word "stated" in
its stead.
IN WITNESS WHEREOF, I have signed this Certificate of Correction this 11th
day of January 1991.
HAMPSHIRE GROUP, LIMITED
/s/ Charles W. Clayton
- ----------------------------
By: Vice President
ATTEST:
/s/ Harvey Sperry
- ----------------------------
Assistant Secretary
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
HAMPSHIRE GROUP, LIMITED
HAMPSHIRE GROUP, LIMITED, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), by the Chairman of its Board of Directors, Ludwig Kuttner, and
its Secretary, Charles W. Clayton, DOES HEREBY CERTIFY:
FIRST: The provisions of Article Fourth, Subdivision A of the Restated
Certificate of Incorporation of the Corporation (the "Restated Certificate") are
amended by deleting the first paragraph thereof and inserting the following to
read as follows:
The total number of shares of stock which the Corporation shall have authority
to issue its Eleven Million Shares (11,000,000), of which Ten Million
(10,000,000) shares shall have a par value of Ten Cents ($0.10) each and shall
be designated "Common Stock," and One Million (1,000,000) shares shall be Serial
Preferred Stock ("Preferred Stock"). The Board of Directors is authorized,
subject to limitations prescribed by law and the provisions of this Restated
Certificate of Incorporation, to provide for the issuance of shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares to be
included in each such series and to fix the designations, voting powers,
preferences and relative, participating, optional or other special rights of the
shares of each such series, and the qualifications, limitations or restrictions
thereof.
SECOND: The provisions of Article Fourth, Subdivision B of the Restated
Certificate are amended by deleting the current provisions thereof in their
entirety and inserting the following to read as follows:
B. RECLASSIFICATION
On the date on which this Certificate of Amendment shall be filed with the
Secretary of State of the State of Delaware (the "Effective Date"), shares of
capital stock of the Corporation which were issued and outstanding prior to the
reclassifications and amendments contemplated hereby shall be converted into
shares of capital stock of the Corporation resulting from such reclassifications
and amendments on the basis and in the manner described below:
(1) Each share of Series C Preferred Stock, $50 stated value per share (the
"Series C Stock"), that shall be outstanding on the Effective Date and all
rights in respect thereof shall be changed and converted into one share of
Series D Convertible Preferred Stock, $50.00 stated value per share, $1.00 par
value (the "Series D Stock"), which series shall be created by the Board of
Directors of the Corporation on the Effective Date by the filing of a
Certificate of Designation with the Secretary of State of the State of Delaware
pursuant to the law of the State of Delaware; and
(2) Until a certificate or certificates theretofore representing shares of
stock converted pursuant to subparagraph (I) above have been surrendered to the
Corporation in exchange for a certificate or certificates representing the
number of shares of stock to be issued pursuant to this reclassification, the
certificates evidencing the outstanding shares of Series C Stock shall be
treated for all corporate purposes as evidencing the ownership of shares of
Series D Stock as though such surrender and exchange had taken place.
<PAGE>
THIRD: Article Fourth, Subdivision C shall be added as follows:
C. CANCELLATION AND CONVERSION OF COMMON STOCK.
On the Effective Date, each share of Common Stock issued and outstanding
immediately prior to the Effective Date shall, without any action on the part of
any holder of shares of Common Stock, be canceled, and one new share of Common
Stock described herein will be issued for each 2.75 shares of Common Stock
outstanding immediately prior to the Effective Date. Each certificate
representing shares of Common Stock outstanding immediately prior to the
Effective Date, and all rights in respect thereof, shall be canceled and will
not be recognized thereafter except for the purpose of causing such shares to be
exchanged for shares of the Common Stock described herein. No fractional shares
of Common Stock will be issued nor shall any monetary or other consideration be
given in lieu thereof. In the event that any fractional share results from any
calculation required by this reclassification, the number of shares to be issued
shall be rounded-up to the next whole number if the fraction is greater than or
equal to one-half or rounded-down to the next lesser whole number if the
fraction is less than one-half.
FOURTH: Article Ninth shall be added as follows:
NINTH:
A. The Corporation shall indemnify to the fullest extent permitted under
and in accordance with the laws of the State of Delaware any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of or in any
other capacity with another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The indemnification and
other rights set forth in this paragraph shall not be exclusive of any
provisions with respect thereto in the By-laws or any other contract or
agreement between the Corporation and any other officer, director, employee or
agent of the Corporation.
B. No director shall be personally liable to the Corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director (a) shall be liable
under Section 174 of the General Corporation Law of the State of Delaware or any
amendment thereto or successor provision thereto, or (b) shall be liable by
reason that, in addition to any and all other requirements for liability, he:
(i) shall have breached his duty of loyalty to the Corporation or its
stockholders;
(ii) shall not have acted in good faith or, in failing to act, shall
not have acted in good faith;
(iii) shall have acted in a manner involving intentional misconduct or
a knowing violation of law or, in failing to act, shall have acted in a
manner involving intentional misconduct or a knowing violation of law; or
(iv) shall have derived an improper personal benefit. If the General
Corporation Law of the State of Delaware is amended after July 1, 1990 to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended.
<PAGE>
FIFTH: The amendments to the Restated Certificate set forth above were duly
adopted by the Board of Directors of the Corporation and subsequently approved,
by written consent, by the affirmative vote of a majority of the outstanding
shares of the Corporation's Common Stock, par value $.l0 per share, entitled to
vote thereon, in accordance with Section 242 of the General Corporation Law of
the State of Delaware. The amendment reclassifying and converting the Series C
Stock into Series D Stock was approved, by written consent, by the affirmative
vote of at least two-thirds of the outstanding shares of the Corporation's
Series C Stock, stated value $50 per share, entitled to vote thereon, in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Hampshire Group, Limited has caused this certificate to be
executed on its behalf by Ludwig Kuttner, the Chairman of its Board of
Directors, and Charles W. Clayton, its Secretary, on May 5, 1992.
/s/ Ludwig Kuttner
- -----------------------------
Ludwig Kuttner
Attest:
/s/ Charles W. Clayton
- -----------------------------
Charles W. Clayton
HAMPSHIRE GROUP, LIMITED
Incorporated Under the Laws of the
State of Delaware
AMENDED AND RESTATED
BY-LAWS
ARTICLE I
OFFICES
The registered office of the Corporation in Delaware shall be at 1209
Orange Street, in the City of Wilmington, County of New Castle, in the State of
Delaware, and The Corporation Trust Company shall be the resident agent of this
Corporation in charge thereof. The Corporation may also have such other offices
at such other places, within or without the State of Delaware, as the Board of
Directors may from time to time designate or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS.
Section 1. Annual Meeting: The annual meeting of stockholders for the election
of directors and the transaction of any other business shall be held on the last
Thursday in July of each year, or as soon after such date as may be practicable,
in such City and State and at such time and place as may be designated by the
Board of Directors, and set forth in the notice of such meeting. If said day be
a legal holiday, said meeting shall be held on the next succeeding business day.
At the annual meeting any business may be transacted and any corporate action
may be taken, whether stated in the notice of meeting or not, except as
otherwise expressly provided by statute or the Certificate of Incorporation.
Section 2. Special Meetings: Special meetings of the stockholders for any
purpose may be called at any time by the Board of Directors, or by the
President, and shall be called by the President at the request of the
stockholders of a majority of the outstanding shares of capital stock entitled
to vote. Special meetings shall be held at such place or places within or
without the State of Delaware as shall from time to time be designated by the
Board of Directors and stated in the notice of such meeting. At a special
meeting no business shall be transacted and no corporate action shall be taken
other than that stated in the notice of the meeting.
Section 3. Notice of Meetings: Written notice of the time and place of any
stockholder's meeting, whether annual or special, shall be given to each
stockholder entitled to vote thereat, by personal delivery or by mailing the
same to him at his address as the same appears upon the records of the
Corporation at least ten (10) days but not more than sixty (60) days before the
day of the meeting. Notice of any adjourned meeting need not be given other than
by announcement at the meeting so adjourned, unless otherwise ordered in
connection with such adjournment. Such further notice, if any, shall be given as
may be required by law. Section 4. Quorum: Any number of stockholders, together
holding at least a majority of the capital stock of the Corporation issued and
outstanding and entitled to vote, who shall be present in person or represented
by proxy at any meeting duly called, shall constitute a quorum for the
transaction of all business, except as otherwise provided by law, by the
Certificate of Incorporation or by these By-laws.
Section 5. Adjournment of Meetings: If less than a quorum shall attend at the
time for which a meeting shall have been called, the meeting may adjourn from
time to time by a majority vote of the stockholders present or represented by
proxy and entitled to vote, without notice other than by announcement at the
<PAGE>
meeting until a quorum shall attend. Any meeting at which a quorum is present
may also be adjourned in like manner and for such time or upon such call as may
be determined by a majority vote of the stockholders present or represented by
proxy and entitled to vote. At any adjourned meeting at which a quorum shall be
present, any business may be transacted and any corporate action may be taken
which might have been transacted at the meeting as originally called.
Section 6. Voting List: The Secretary shall prepare and make, at least ten days
before every election of directors, a complete list of the stockholders entitled
to vote, arranged in alphabetical order and showing the address of each
stockholder and the number of shares of each stockholder. Such list shall be
open at the place where the election is to be held for said ten days, to the
examination of any stockholder, and shall be produced and kept at the time and
place of election during the whole time thereof, and subject to the inspection
of any stockholder who may be present.
Section 7. Voting: Each stockholder entitled to vote at any meeting may vote
either in person or by proxy, but no proxy shall be voted on after three years
from its date, unless said proxy provides for a longer period. Each stockholder
entitled to vote shall at every meeting of the stockholders be entitled to one
vote for each share of stock registered in his name on the record of
stockholders. At all meetings of stockholders all matters, except as otherwise
provided by statute, shall be determined by a majority vote of the stockholders
present or represented by proxy and entitled to vote. All voting shall be by
ballot.
Section 8. Record Date of Stockholders: The Board of Directors is authorized to
fix in advance a date not exceeding sixty (60) days nor less than ten (10) days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining the consent of stockholders for any purpose as
a record date for the determination of the stockholders entitled to notice of,
and to vote at, any such meeting, and any adjournment thereof, or entitled to
receive payment of any such dividend, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, or to give such consent, and, in such case, such stockholders and
only such stockholders as shall be stockholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, and any
adjournment thereof, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, or to give such consent, as the
case may be, notwithstanding any transfer of any stock on the books of the
Corporation, after such record date is fixed as aforesaid.
Section 9. Action Without Meeting: Any action required or permitted to be taken
at any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
<PAGE>
Section 10. Conduct of Meetings: The Chairman of the Board of Directors or, in
his absence the President or any Vice-President designated by the Chairman of
the Board, shall preside at all regular or special meetings of stockholders. To
the maximum extent permitted by law, such presiding person shall have the power
to set procedural rules, including but not limited to rules respecting the time
allotted to stockholders to speak, governing all aspects of the conduct of such
meetings.
ARTICLE III
DIRECTORS.
Section 1. Number and Qualifications: The directors shall initially be four in
number, and thereafter shall consist of such number as may be fixed from time to
time by resolution of the Board. The directors need not be stockholders.
Section 2. Election of Directors: The directors shall be elected by the
stockholders at the annual meeting of stockholders. If the election of directors
shall not be held on the day designated by the by-laws, the directors shall
cause the same to be held as soon thereafter as may be convenient.
Section 3. Duration of Office: The directors chosen at any annual meeting shall,
except as hereinafter provided, hold office until the next annual election and
until their successors are elected and qualify.
Section 4. Removal and Resignation of Directors: Any director may be removed
from the Board of Directors, with or without cause, by the holders of a majority
of the shares of capital stock entitled to vote, either by written consent or at
any special meeting of the stockholders called for that purpose, and the office
of such director shall forthwith become vacant.
Any director may resign at any time. Such resignation shall take effect at the
time specified therein, and if no time be specified, at the time of its receipt
by the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless so specified therein.
Section 5. Filing of Vacancies: Any vacancy among the directors, occurring from
any cause whatsoever, may be filled by a majority of the remaining directors,
though less than a quorum, provided, however that the stockholders removing any
director may at the same meeting fill the vacancy caused by such removal, and
provided further, that if the directors fail to fill any such vacancy, the
stockholders may at any special meeting called for that purpose fill such
vacancy. In case of any increase in the number of directors, the additional
directors may be elected by the directors in office prior to such increase.
Any person elected to full a vacancy shall hold office, subject to the right of
removal as hereinbefore provided, until the next annual election and until his
successor is elected and qualifies.
Section 6. Regular Meetings: The Board of Directors shall hold an annual meeting
for the purpose of organization and the transaction of any business immediately
after the annual meeting of the stockholders, provided a quorum of directors is
present. Other regular meetings may be held at such times as may be determined
from time to time by resolution of the Board of Directors.
Section 7. Special Meetings: Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors or by the President or by any
two directors at any time.
<PAGE>
Section 8. Notice and Place of Meetings: Meetings of the Board of Directors may
be held at the principal office of the Corporation, or at such place as shall be
stated in the notice of such meeting. Notice of any special meeting, and, except
as the Board of Directors may otherwise determine by resolution, notice of any
regular meeting also, shall be mailed to each director addressed to him at his
residence or usual place of business at least two days before the day on which
the meeting is to be held, or if sent to him at such place by telegraph or
cable, or delivered personally or by telephone, not later than the day before
the day on which the meeting is to be held. No notice of the annual meeting of
directors shall be required if held immediately after the annual meeting of the
stockholders and if a quorum is present.
Section 9. Business Transacted at Meetings, etc.: Any business may be transacted
and any corporate action may be taken at any regular or special meeting of the
Board of Directors at which a quorum shall be present, whether such business or
proposed action be stated in the notice of such meeting or not, unless special
notice of such business or proposed action shall be required by statute.
Section 10. Action Without a Meeting: Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board or committee.
Section II. Meetings Through Use of Communications: Equipment: Members of the
Board of Directors, or any committee designated by the Board of Directors,
shall, except as otherwise provided by law, the Certificate of Incorporation or
these By-laws, have the power to participate in a meeting of the Board of
Directors, or any committee, by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at the meeting.
Section 13. Quorum: A majority of the Board of Directors at any time in office,
shall constitute a quorum. At any meeting at which a quorum is present, the vote
of a majority of the members present shall be the act of the Board of Directors
unless the act of a greater number is required by law or be the Certificate of
Incorporation or by these By-laws. The members of the Board shall act only as
the Board and the individual members thereof shall not have any powers as such.
Section 14. Compensation: The directors shall not receive any stated salary for
their services as directors, but by resolution of the Board of Directors a fixed
fee and expenses of attendance may be allowed for attendance at each meeting.
Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.
Section 15. Liability: No director shall be personally liable to the Corporation
or any stockholder for monetary damages for breach of fiduciary duty as a
director, except for any matter in respect of which such director (A) shall be
liable under Section 174 of the General Corporation Law of the State of Delaware
or any amendment thereto or successor provision thereto, or (B) shall be liable
by reason that, in addition to any and all other requirements for liability, he:
(i) shall have breached his duty of loyalty to the Corporation or its
stockholders;
(ii) shall not have acted in good faith or, in failing to act, shall not
have acted in good faith;
(iii) shall have acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law;
<PAGE>
(iv) shall have derived an improper personal benefit; or
(v) shall have paid dividends or approved stock purchases or redemptions
that are unlawful under Delaware law.
ARTICLE IV
COMMITTEES.
Section 1. Executive Committee: The Board of Directors may, by resolution passed
by a majority of the whole Board, designate two or more of their number to
constitute an Executive Committee to hold office at the pleasure of the Board,
which Committee shall, during the intervals between meetings of the Board of
Directors, have and exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, subject only to such
restrictions or limitations as the Board of Directors may from time to time
specify, or as limited by the Delaware Corporation Law, and shall have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it.
Any member of the Executive Committee may be removed at any time, with or
without cause, by a resolution of a majority of the whole Board of Directors.
Any person ceasing to be a director shall ipso facto cease to be a member of the
Executive Committee.
Any vacancy in the Executive Committee occurring from any cause whatsoever may
be filled from among the directors by a resolution of a majority of the whole
Board of Directors.
Section 2. Other Committees: Other committees, whose members need not be
directors, may be appointed by the Board of Directors or the Executive
Committee, which committees shall hold office for such time and have such powers
and perform such duties as may from time to time be assigned to them by the
Board of Directors or the Executive Committee.
Any member of such a committee may be removed at any time, with or without
cause, by the Board of Directors or the Executive Committee. Any vacancy in a
committee occurring from any cause whatsoever may be filled by the Board of
Directors or the Executive Committee.
Section 3. Resignation: Any member of a committee may resign at any time. Such
resignation shall be made in writing and shall take effect at the time specified
therein, or, if no time be specified, at the time of its receipt by the
President or Secretary. The acceptance of a resignation shall not be necessary
to make it effective unless so specified therein.
Section 4. Quorum: A majority of the members of a committee shall constitute a
quorum. The act of a majority of the members of a committee present at any
meeting at which a quorum is present shall be the act of such committee. The
members of a committee shall act only as a committee, and the individual members
thereof shall have no powers as such.
Section 5. Record of Proceedings, etc.: Each committee shall keep a record of
its acts and proceedings, and shall report the same to the Board of Directors
when and as required by the Board of Directors.
Section 6. Organization, Meetings, Notices, etc.: A committee may hold its
meetings at the principal office of the Corporation, or at any other place which
a majority of the committee may at any time agree upon. Each committee may make
such rules as it may deem expedient for the regulation and carrying on of its
meetings and proceedings. Unless otherwise ordered by the Executive Committee,
any notice of a meeting of such committee may be given by the Secretary or by
the Chairman of the committee and shall be sufficiently given if mailed to each
member at his residence or usual place of business at least two days before the
day on which the meeting is to be held, or if sent to him at such place by
telegraph or cable, or delivered personally or by telephone not later than 24
hours prior to the time at which the meeting is to be held.
<PAGE>
Section 7. Compensation: The members of any committee shall be entitled to such
compensation as may be allowed them by resolution of the Board of Directors,
ARTICLE V
OFFICERS.
Section 1. Number: The officers of the Corporation shall be a Chairman of the
Board, a President, one or more Vice-Presidents, a Secretary and a Treasurer,
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article V.
Section 2. Election, Term of Office and Qualifications: The officers, except as
provided in Section 3 of this Article V, shall be chosen annually by the Board
of Directors. Each such officer shall, except as herein otherwise provided, hold
office until his successor shall have been chosen and shall qualify. The
Chairman of the Board of Directors shall be a director of the Corporation, and
should the Chairman of the Board of Directors cease to be a director, he shall
ipso facto cease to be such officer. Except as otherwise provided by law, any
number of offices may be held by the same person.
Section 3. Other Officers: Other officers, including, but not limited to, one or
more additional vice-presidents, assistant secretaries or assistant treasurers,
may from time to time be appointed by the Board of Directors, which other
officers shall have such powers and perform such duties as may be assigned to
them by the Board of Directors or the officer or committee appointing them.
Section 4. Removal of Officers: Any officer of the Corporation may be removed
from office, with or without cause, by a vote of a majority of the Board of
Directors.
Section 5. Resignation: Any officer of the Corporation may resign at any time.
Such resignation shall be in writing and shall take effect at the time specified
therein, and if no time be specified, at the time of its receipt by the
President or Secretary. The acceptance of a resignation shall not be necessary
in order to make it effective, unless so specified therein.
Section 6. Filling of Vacancies: A vacancy in any office shall be filled by the
Board of Directors or by the authority appointing the predecessor in such
office.
Section 7. Compensation: The compensation of the officers shall be fixed by the
Board of Directors, or by any committee upon whom power in that regard may be
conferred by the Board of Directors.
Section 8. Chairman of the Board of Directors: The Chairman of the Board of
Directors shall be a director and shall preside at all meetings of the Board of
Directors at which he shall be present, and shall have such power and perform
such duties as may from time to time be assigned to him by the Board of
Directors. He shall have power to call special meetings of the stockholders or
of the Board of Directors or of the Executive Committee at any time. The
Chairman of the Board of Directors shall, at the request of the President or in
his absence, or in case of his inability to perform his duties from any cause,
perform the duties of the President, and, when so acting, shall have all the
powers of, and be subject to all restrictions upon, the President, and shall
have the power to execute documents in the name of and on behalf of the
Corporation.
Section 9. President: The President shall, when present, preside at all meetings
of the stockholders, and, in the absence of the Chairman of the Board of
Directors, at meetings of the Board of Directors. He shall be the chief
executive officer of the Corporation, and shall have the general direction of
the business, affairs and property of the Corporation, and of its several
officers, and shall have and exercise all such powers and discharge such duties
as usually pertain to the office of President.
<PAGE>
Section 10 Vice-Presidents: The Vice-Presidents, or any of them, shall, subject
to the direction of the Board of Directors, at the request of the President or
in his absence, or in case of his inability to perform his duties from any
cause, perform the duties of the President, and, when so acting, shall have all
the powers of, and be subject to all restrictions upon, the President. The
Vice-Presidents shall also perform such other duties as may be assigned to them
by the Board of Directors, and the Board of Directors may determine the order of
priority among them.
Section 11. Secretary: The Secretary shall perform such duties as are incident
to the office of Secretary, or as may from time to time be assigned to him by
the Board of Directors, or as are prescribed by these By-laws.
Section 12. Treasurer: The Treasurer shall perform such duties and have powers
as are usually incident to the office of Treasurer or which may be assigned to
him by the Board of Directors.
ARTICLE VI
CAPITAL STOCK.
Section 1. Issue of Certificates of Stock: Certificates of capital stock shall
be in such form as shall be approved by the Board of Directors. They shall be
numbered in the order of their issued and shall be signed by the Chairman of the
Board of Directors, the President or one of the Vice-Presidents, and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and the seal of the Corporation or a facsimile thereof shall be impressed or
affixed or reproduced thereon, provided, however, that where such certificates
are signed by a transfer agent or an assistant transfer agent or by a transfer
clerk acting on behalf of the Corporation and a registrar, the signature of any
such Chairman of the Board of Directors, President, Vice-President, Secretary,
Assistant Secretary, Treasurer or Assistant Treasurer may be facsimile. In case
any officer or officers who shall have signed, or whose facsimile signature or
signatures shall have been used on any such certificate or certificates shall
cease to be such officer or officers of the Corporation, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate or certificates, or whose
facsimile signature or signatures shall have been used thereon have not ceased
to be such officer or officers of the Corporation.
Section 2. Registration and Transfer of Shares: The name of each person owning a
share of the capital stock of the Corporation shall be entered on the books of
the Corporation together with the number of shares held by him, the numbers of
the certificates covering such shares and the date of issue of such
certificates. The shares of stock of the Corporation shall be transferable on
the books of the Corporation by the holders thereof in person, or by their duly
authorized attorneys or legal representatives, on surrender and cancellation of
certificates for a like number of shares, accompanied by an assignment of power
of transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require. A record shall be made of each transfer.
The Board of Directors may make other and further rules and regulations
concerning the transfer and registration of certificates for stock and may
appoint a transfer agent or registrar or both and may require all certificates
of stock to bear the signature of either or both.
Section 3. Lost, Destroyed and Mutilated: Certificates: The holder of any stock
of the Corporation shall immediately notify the Corporation of any loss, theft,
destruction or mutilation of the certificates therefor. The Corporation may
issue a new certificate of stock in the place of any certificate theretofore
issued by it alleged to have been lost, stolen or destroyed, and the Board of
Directors may, in its discretion, require the owner of the lost, stolen or
destroyed certificate, or his legal representatives, to give the Corporation a
<PAGE>
bond, in such sum not exceeding double the value of the stock and with such
surety or sureties as they may require, to indemnify it against any claim that
may be made against it by reason of the issue of such new certificate and
against all other liability in the premises, or may remit such owner to such
remedy or remedies as he may have under the laws of the State of Delaware.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
Section 1. General Discretion of Directors: The Board of Directors shall have
power to fix and vary the amount to be set aside or reserved as working capital
of the Corporation, or as reserves, or for other proper purposes of the
Corporation, and, subject to the requirements of the Certificate of
Incorporation, to determine whether any, if any, part of the surplus or net
profits of the Corporation shall be declared in dividends and paid to the
stockholders, and to fix the date or dates for the payment of dividends.
ARTICLE VIII
MISCELLANEOUS PROVISIONS.
Section 1. Fiscal Year: The fiscal year of the Corporation shall commence on the
first day of January and end on the thirty-first day of December.
Section 2. Corporate Seal: The corporate seal shall be in such form as approved
by the Board of Directors and may be altered at their pleasure. The corporate
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
Section 3. Notices: Except as otherwise expressly provided any notice required
by these By-laws to be given shall be sufficient if given by depositing the same
in a post-office or letter box in a sealed post-paid wrapper addressed to the
person entitled thereto at his address, as the same appears upon the books of
the Corporation, or by telegraphing or cabling the same to such person at such
addresses; and such notice shall be deemed to be given at the time it is mailed,
telegraphed or cabled.
Section 4. Waiver of Notice: Any stockholder or director may at any time, by
writing or by telegraph or by cable, waive any notice required to be given under
these By-laws, and if any stockholder or director shall be present at any
meeting his presence shall constitute a waiver of such notice.
Section 5. Checks, Drafts, etc.: All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation, shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner, as shall from time to time be designated by
resolution of the Board of Directors.
Section 6. Deposits: All funds of the Corporation shall be deposited from time
to time to the credit of the Corporation in such bank or banks, trust companies
or other depositories as the Board of Directors may select, and, for the purpose
of such deposit, checks, drafts, warrants and other orders for the payment of
money which are payable to the order of the Corporation, may be endorsed for
deposit, assigned and delivered by any officer of the Corporation, or by such
agents of the Corporation as the Board of Directors or the President may
authorize for that purpose.
Section 7. Voting Stock of Other Corporations: Except as otherwise ordered by
the Board of Directors or the Executive Committee, the President or the
Treasurer shall have full power and authority on behalf of the Corporation to
attend and to act and to vote at any meeting of the stockholders of any
Corporation of which the Corporation is a stockholder and to execute a proxy to
any other person to represent the Corporation at any such meeting, and at any
such meeting the President or the Treasurer or the holder of any such proxy, as
the case may be, shall possess and may exercise any and all rights and powers
incident to ownership of such stock and which, as owner thereof, the Corporation
might have possessed and exercised if present. The Board of Directors or the
Executive Committee may from time to time confer like powers upon any other
person or persons.
<PAGE>
Section 8. Indemnification of Officers and Directors: The Corporation shall
indemnify any and all of its directors or officers, including former directors
or officers, and any employee, who shall serve as an officer or director of any
Corporation at the request of this Corporation, to the fullest extent permitted
under and in accordance with the laws of the State of Delaware.
ARTICLE IX
AMENDMENTS.
The Board of Directors shall have the power to make, rescind, alter, amend and
repeal these By-laws, provided, however, that the stockholders shall have power
to rescind, alter, amend or repeal any by-laws made by the Board of Directors,
and to enact by-laws which if so expressed shall not be rescinded, altered,
amended or repealed by the Board of Directors. No change of the time or place
for the annual meeting of the stockholders for the election of directors shall
be made except in accordance with the laws of the State of Delaware.
DATED: May 5, 1992
AGREEMENT OF MERGER
AGREEMENT OF MERGER, dated as of June 26, 1995, between Hampshire Hosiery,
Inc., and Hampshire Designers, Inc., both Delaware corporations. Hampshire
Designers and Hampshire Hosiery are hereinafter sometimes collectively referred
to as the "Constituent Corporations."
W I T N E S S E T H:
WHEREAS, Hampshire Designers and Hampshire Hosiery are corporations duly
organized and existing under the laws of the State of Delaware;
WHEREAS, on the date hereof each of Hampshire Designers and Hampshire
Hosiery are wholly-owned subsidiaries of Hampshire Group, Limited, a Delaware
corporation ("Hampshire Group");
WHEREAS, the respective Boards of Directors of Hampshire Designers and
Hampshire hosiery have determined that it is advisable and in the best interests
of each of them that Hampshire Designers merge with and into Hampshire Hosiery
upon the terms and subject to the conditions herein provided;
WHEREAS, the Board of Directors of Hampshire Designers has duly adopted
and approved this Agreement and directed that it be executed by the undersigned
officers of Hampshire Designers and submitted to a vote of the sole shareholder
of Hampshire Designers;
WHEREAS, the sole shareholder of Hampshire Designers has duly adopted and
approved this Agreement;
WHEREAS, the Board of Directors of Hampshire Hosiery has duly adopted and
approved this Agreement and directed that it be executed by the undersigned
officers of Hampshire Hosiery and submitted to a vote of the sole shareholder of
Hampshire Hosiery; and
WHEREAS, the sole shareholder of Hampshire Hosiery has duly adopted and
approved this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Hampshire Designers and Hampshire Hosiery hereby agree as follows:
1. Merger. A merger (the "Merger") shall be effected whereby Hampshire
Designers shall be merged with and into Hampshire Hosiery, and Hampshire
Hosiery, with its name changed as provided in Section 3 of this agreement, shall
be the surviving corporation (hereinafter referred to as the "Surviving
Corporation"). The Merger shall become effective on the 1st day of July, 1995
(the "Effective Time").
2. Capital Stock prior to Effective Time. On the date hereof, (a) Hampshire
Designers has the authority to issue 1,000 shares of common stock, par value $1
per share (the "Hampshire Designers Common Stock"), of which 1,000 shares are
issued and outstanding, and 1,000 shares of preferred stock, par value $1 per
share (the "Hampshire Designers Preferred Stock" and together with the Hampshire
Designers Common Stock, the "Hampshire Designers Stock"), of which no shares are
issued and outstanding, and (b) Hampshire Hosiery has the authority to issue
1,000 shares of common stock, par value $1 per share (the "Hampshire Hosiery
Common Stock"), of which 1,000 shares are issued and outstanding, and 1,000
shares of preferred stock, par value $1 per share (the "Hampshire Hosiery
Preferred Stock" and together with the Hampshire Hosiery Common Stock, the
"Hampshire Hosiery Stock"), of which no shares are issued and outstanding. On
the date hereof, all of the issued and outstanding shares of Hampshire Designers
Stock and Hampshire Hosiery Stock are owned by Hampshire Group.
3. Directors, Officers and Governing Documents. The directors of
Hampshire Hosiery immediately prior to the Effective Time shall be the directors
of the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation. The
officers of Hampshire Hosiery immediately prior to the Effective Time shall be
the officers of the Surviving Corporation, each to hold officer in accordance
with the By-laws of the Surviving Corporation. The Certificate of Incorporation
and By-laws of Hampshire Hosiery, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation without change or amendment until thereafter amended in
accordance with he provisions thereof and applicable law; provided that
Paragraph First of such Certificate of Incorporation is to be amended to read:
The name of the Corporation is: HAMPSHIRE DESIGNERS, INC.
<PAGE>
4. Effect of Merger on Stock and Stock Certificates. At and after the
Effective Time, all of the issued and outstanding shares of Hampshire Hosiery
Stock shall remain unchanged in the hands of Hampshire Group as issued and
outstanding shares of the Surviving Corporation. No cash or other consideration
shall be paid or delivered for shares of Hampshire Designers Stock and all of
such shares and the certificates representing such shares shall be canceled and
retired without any action on the part of the holder of record thereof.
5. Succession and Assumption. (a) Property. At and after the Effective
Time, the separate corporate existence of Hampshire Designers shall cease and
the Surviving Corporation shall be vested with and possess all of Hampshire
Designer's right title and interest in and to the business, assets and
liabilities of Hampshire Designers, including without limitation, all personal
and real property in which Hampshire Designers had an interest before the
Effective Time.
(b) Corporate Acts, Employees etc. All corporate acts and agreements
of Hampshire Designers that were duly authorized and effective prior to the
Effective Time shall be taken for all purposes as the acts and agreements
of the Surviving Corporation. The employees, agents and independent
contractors of Hampshire Designers shall become the employees, agents and
independent contractors of the Surviving Corporation.
(c) Creditors' Rights. Notwithstanding anything to the contrary
herein, the rights of bona fide creditors of Hampshire Designers and any
liens of such creditors upon any of the business or property of Hampshire
Designers prior to the Effective Time shall be preserved and unimpaired and
all debts, liabilities and duties of Hampshire Designers shall become the
debts, liabilities and duties of the Surviving Corporation.
6. Further Assurances. From time to time, as and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Hampshire Designers such deeds and other instruments,
and there shall be taken or caused to be taken by the Surviving Corporation all
such further and other actions, as shall be appropriate or necessary in order to
vest, perfect or confirm in the Surviving Corporation the title to and
possession of all property, interests, assets, rights, privileges, immunities,
powers and authority of Hampshire Designers, and otherwise to carry out the
purposes of this Agreement. The officers and directors of the Surviving
Corporation are fully authorized in the name and on behalf of Hampshire
Designers or otherwise to take any and all such actions and to execute and
deliver any and all such deeds, documents and other instruments.
7. Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented by written agreement of the parties hereto at the
direction of their respective Boards of Directors at any time prior to the
Effective Time with respect to any of the terms contained herein.
8. Termination and Abandonment. At any time prior to the Effective Time,
this Agreement may be terminated and the Merger may be abandoned by the Boards
of Directors of either Hampshire Hosiery or Hampshire Designers, or both,
notwithstanding approval of this Agreement by the shareholders of Hampshire
Hosiery and/or Hampshire Designers.
<PAGE>
IN WITNESS HEREOF, the undersigned have executed this Agreement as of the
date first above written.
HAMPSHIRE HOSIERY, INC.
By: /s/ Ludwig Kuttner
- ----------------------------
Name: Ludwig Kuttner
Title: Chief Executive Officer
HAMPSHIRE DESIGNERS, INC.
By: /s/ Ludwig Kuttner
- -----------------------------
Name: Ludwig Kuttner
Title: Chairman
CERTIFICATE OF MERGER
MERGING
H.G. KNITWEAR, INC.
INTO
SEGUE (AMERICA) LIMITED
(PURSUANT TO SECTION 251 OF
THE DELAWARE GENERAL CORPORATION LAW)
Segue (America) Limited, a Delaware corporation, does hereby certify that:
1. The name and state of incorporation of each of the constituent
corporations is as follows:
Name State of Incorporation
-------- -------------------------
H. G. Knitwear, Inc. Delaware
Segue (America) Limited Delaware
2. An Agreement of Merger has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in accordance with
Section 251 of the General Corporation Law of the State of Delaware.
3. The name of the surviving corporation of the merger is Segue (America)
Limited, a Delaware corporation,
4. The Certificate of Incorporation of Segue (America) Limited, a Delaware
corporation, shall be the Certificate of Incorporation of the surviving
corporation;
5. The executed Agreement of Merger is on file at the principal place of
business of the surviving corporation, the address of which is 102 West 38th
Street, New York, New York 10018.
6. A copy of the Agreement of Merger will be furnished on request and
without cost to any shareholder of any constituent corporation.
7. The merger shall become effective on the 26th day of December, 1995.
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 5, 1995 by and among Hampshire
Group, Limited, a Delaware corporation ("Hampshire"), The Winona Knitting Mills,
Inc., a Minnesota corporation (the "Company") and Pete and Joyce Woodworth,
individuals (the "Principal Shareholders").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Hampshire and the Company have approved the
acquisition of the Company by Hampshire;
WHEREAS, the Board of Directors of Hampshire and the Company have approved the
merger of the Company into Hampshire (the "Merger"), upon the terms and subject
to the conditions set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368 (a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and mutual agreements herein set forth, the parties hereby
agree as follows:
DEFINITIONS.
As used herein the following terms shall have the following meanings:
"Accounts Receivable" shall mean all accounts and notes receivable of the
Company;
"Berwick" shall mean Berwick Knitwear Division;
"Berwick Goodwill" shall mean the portion of the purchase price paid by the
Company for the Berwick assets in excess of the fair market value of such
assets, not to exceed $50,000;
"Berwick Property" shall mean the real property, buildings, fixtures and
improvements located at 232 South Poplar Street, Berwick, Pennsylvania, as more
particularly described in Exhibit A.
"Business Day" shall mean any day which is not a Saturday or a Sunday or a day
on which banks in the State of Delaware are authorized or required by law to
close;
"Chatfield Mortgage" shall mean the mortgage dated February 27, 1987 made in
favor of Merchants in the original principal amount of $104,000 and encumbering
only the property located at 54-60 Chatfield Street, Winona, Minnesota.
"Closing Date" shall mean the first Business Day on which the Closing can occur
in compliance with Rule 14c-2 of the Exchange Act or such other date as the
parties shall mutually agree upon in writing;
<PAGE>
"Company Goodwill" shall mean the portion of the purchase price paid by
Hampshire in the Winona merger in excess of the fair market value of the Winona
assets as of the purchase date;
"Contracts" shall mean, collectively, the Purchase Orders, Sales Orders,
Employment and Labor Agreements and Other Contracts, including, without
limitation, those described in Section 5.15 hereto;
"Convertible Preferred Stock" means the preferred stock issued to the Principal
Shareholders pursuant to Section 3.1, a form of which is annexed hereto as
Exhibit B.
"Employment and Labor Agreements" -- See Section 5.21 (a).
"Environmental, Health or Safety Laws" --- Section 5.23;
"Equipment and Machinery" shall mean any and all of the machinery and equipment,
including, but not limited to, sewing machines and other machines, hand tools,
tooling, owned or used by the Company in the design, marketing and distribution
of Products, or located at or on the Premises, including, without limitation,
those items listed on Schedule 5.10, annexed hereto and made a part hereof, and
in which the Company had any rights, title or interest as of the Closing Date,
plus additions thereto through the Closing Date, and all of the replacement
parts for any of the foregoing in which the Company had or shall have as of such
dates any rights, title or interest, together with all information, patents,
drawings, manuals and data relating to the operation of the machinery and
equipment and the manufacture of Products and any rights of the Company in and
to the warranties and licenses, if any, received from manufacturers and vendors
of the aforesaid items and any related claims, credits, rights of recovery and
set-off with respect to the Equipment and Machinery;
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended;
"Exchange Act" shall mean the Securities Exchange Act of 1934;
"Files and Records" shall mean all files and records, whether in hard copy or
magnetic format, of the Company, including, without limitation, the following
types of files and records: customer and supplier files, equipment maintenance
records, equipment warranty information, plant plans, specifications and
drawings, equipment drawings, trade secrets and customer specifications and all
files relating to employees of the Company, correspondence with national, state
and local governmental agencies relating to the Company and related files and
records of the Company;
"Financial Statements" means the audited balance sheets of the Company as of
December 31, 1994 and the related statements of operations, shareholders' equity
and cash flows for the year then ended, together with reports thereon of
McGladery & Pullen, independent auditors and the unaudited balance sheets of the
Company as of March 4, 1995 and the related statements of operations for the
period then ended.
"Finished Inventory" shall mean the Company's inventory of finished Products on
Purchase Date, plus additions thereto through the Closing Date, including such
finished Products in transit and held at contractors;
"GAAP" shall mean United States generally accepted accounting principals;
"Government" shall mean any agency, division, subdivision, audit group or
procuring office of the federal and any state or local government in the United
States or any foreign government, including the employees or agents thereof;
"Hampshire Notes" shall mean the promissory notes of Hampshire in the forms of
Exhibit C and Exhibit D hereto;
<PAGE>
"Hazardous Material" shall mean any element, substance or material defined as
hazardous or toxic pursuant to CERCLA, 42 U.S.C. 9601 et seq. or the Clean Water
Act, 33 U.S.C. 1321 et seq. (and any regulations promulgated pursuant to these
statues); any hazardous waste as defined under the Solid Waste Disposal Act, 42
U.S.C. 6921 or the Clean Water Act (and any regulations promulgated pursuant to
these statues); and hazardous air pollutant listed under the Clean Air Act, 42
U.S.C. 7412 et seq. (any regulations promulgated pursuant thereto); and any
imminently hazardous chemical substance or mixture defined or identified within
the Toxic Substance Control Act; 15 U.S.C. 2606 (and any regulations promulgated
pursuant thereto); petroleum or petroleum products, natural gas, urea
formaldehyde insulation, friable asbestos or asbestos containing material and
polychlorinated biphenyl in excess of 50 parts per million.
"Intangible Assets" shall mean all intangible personal property rights,
including, without limitation, all rights on the part of the Company to proceeds
of any insurance policies and all claims on the part of the Company for
recoupment, reimbursement and coverage under any insurance policies, and all
goodwill of the Company;
"Intellectual Property" shall mean all letters patent, patent qualifications,
trademarks, service marks, trade names, brands, private labels, copyrights,
know-how, trade secrets and licenses and rights with respect to the foregoing
that the Company owns or possesses the rights to use, including, without
limitation, all Intellectual Property listed on Schedule 5.11;
"La Crescent Mortgages" shall mean (x) the mortgage dated December 29, 1988 made
by the Principal Shareholders in favor of Merchants in the original principal
amount of $180,000 and (y) the mortgage dated June 19, 1989 made by the
Principal Shareholders in favor of Merchants in the original principal amount of
$72,847, each encumbering the La Crescent Property.
"La Crescent Property" shall mean the real property, buildings, fixtures and the
improvements located at 190 Main Street, La Crescent, Minnesota, all as more
particularly described in Exhibit E.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
(statutory or other) deed of trust, title defect, easement, encroachment,
covenant running with the land or conditional sale agreement;
"Main Plant Property" shall mean the real property, buildings, fixtures and
improvements located at 902 East Second Street, Winona, Minnesota, and the
parking lot adjacent thereto, all as more particularly described in Exhibit F.
"Merchants" shall mean The Merchants National Bank of Winona, a national banking
association.
"Other Contracts" shall mean all Equipment and Machinery leases, and all
indentures, loan agreements, security agreements, partnership or joint venture
agreements, license agreements, service contracts, and commission agreements,
suretyship contract, letters of credit, reimbursement agreements, distribution
agreements, contracts or commitments limiting or restraining the Company from
engaging or competing in any lines of business or with any person, firm or
corporation, documents granting the power of attorney with respect to the
affairs of the Company, agreements not made in the ordinary course of the
business of the Company, options to purchase any assets or property rights of
the Company, working capital maintenance or other forms of guaranty agreements,
and all other agreements to which the Company is a party, but excluding
Employment and Labor Agreements, Purchase Orders, and Sales Orders;
<PAGE>
"Other Inventory" shall mean all samples, work-in-process and raw materials
relating to the design, manufacture and distribution of Products, and packaging
and empty cartons, located on the Premises and held at contractors on the
Purchase Date, for use in connection with the operations, plus additions thereto
through the Closing Date, in which the Company had or shall have any rights,
title or interest, together with any rights of the Company to the warranties
received from vendors with respect to such inventory and any related claims,
credits, rights of recovery and set-off with respect thereto.
"Outlying Building Property" shall mean the real property, buildings, fixtures
and the improvements located at 121 Steuben Street and 54-60 Chatfield Street,
Winona, Minnesota and any parking lots adjacent thereto, all as more
particularly described in Exhibit G.
"Person" shall mean any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
Government;
"Products" shall mean the products manufactured and/or distributed by the
Company as of the Closing Date (including, but not limited to, any product
necessary and useful for the performance of any Contract);
"Purchase Date" shall mean as of 12:01 A.M. Eastern Standard Time, March 4,
1995;
"Purchase Orders" shall mean all of the Company's outstanding purchase orders,
contract or other commitments to suppliers of goods and services for materials,
supplies or other items;
"Sales Orders" shall mean all of the Company's sales orders, contracts or other
commitments to purchasers of goods and services;
"SEC" shall mean the Securities and Exchange Commission;
"Taxes" shall mean for all purposes of this Agreement all taxes however
denominated, including any interest, penalties or additions to tax that may
become payable in respect thereof, imposed by any governmental body, which taxes
shall include, without limiting the generality of the foregoing, all income
taxes, payroll and employee withholding taxes, unemployment insurance, social
security, sales and use taxes, excise taxes, franchise taxes, gross receipts
taxes, occupation taxes, real and personal property taxes, stamp taxes, transfer
taxes and other obligations of the same or a similar nature, whether arising
before, on or after the Closing; and "Tax" shall mean any one of them;
"Tax Returns" shall mean any return, report, information return or other
document (including any related or supporting information) filed or required to
be filed with any governmental body in connection with the determination,
assessment, collection or administration of any Taxes;
"WARN" shall mean the Worker Adjustment and Retraining Notification Act, as
codified at 29 U.S.C., 2101-2109, and the regulations promulgated thereunder;
"Winona Knitting Mills Division" shall have the meaning ascribed to such term in
Section 1.1 herein; and
"Winona NIBT" shall mean the operating income of Winona Knitting Mills Division,
after giving effect to (i) all bonuses to the Winona/Berwick management group
and employees, (ii) acquisition interest incurred in the Company's acquisition
of the assets of Berwick Knitwear, Inc., and (iii) amortization of Berwick
Goodwill, but without giving effect to (i) acquisition interest incurred in
Hampshire's acquisition of the Company, (ii) amortization of Company Goodwill
(iii) any management fees paid to Hampshire or any of its affiliates;
<PAGE>
1. THE MERGER.
1.1. The Merger. Upon the terms and subject to the conditions hereof, on the
Closing Date (or as soon as practicable thereafter), the Company shall be merged
into Hampshire in compliance with the provisions of the Delaware General
Corporation Law (the "DGCL") and the Minnesota Corporations Law (the "MCL") and
the separate existence of the Company shall thereupon cease. Hampshire shall be
the surviving corporation in the Merger and the operations of the Company shall
continue as a division of Hampshire (the "Winona Knitting Mills Division").
1.2. Effective Date of the Merger. The parties hereto shall file properly
executed Articles of Merger with the Secretary of State of the State of
Minnesota and properly executed Certificate of Merger with the Secretary of
State of the State of Delaware, which filings shall be made on the Closing Date
(or as soon as practicable thereafter).
1.3. State Law. On the Closing Date, the Merger shall have the effects set forth
herein and the effects set forth in Section 252 of the DGCL and Section 302A.651
of the MCL.
2. THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. The Certificate of Incorporation of Hampshire
shall be the Certificate of Incorporation of the surviving corporation after the
Closing Date, and thereafter may be amended in accordance with its terms and as
provided by law and this Agreement.
2.2. By-Laws. The By-laws of Hampshire as in effect on the Closing Date shall be
the By-laws of the surviving corporation and thereafter may be amended in
accordance with their terms and as provided by law and this Agreement.
2.3. Board of Directors; Officers. The directors and officers of Hampshire
immediately prior to the Closing Date shall be the directors and officers of the
surviving corporation until their respective successors are duly elected and
qualified.
3. MERGER VALUE.
3.1. Payment of Purchase Price. The aggregate value of the consideration
deliverable by Hampshire in the Merger (the "Merger Value") shall be:
(i) $2,197,338 in cash on the Closing Date deliverable by wire
transfer of immediately available funds to the Principal Shareholders'
account designated at least two Business Days prior to the Closing Date by
the Principal Shareholders;
(ii) the Contingent Payment (s) (as described below);
(iii) the Hampshire Notes in the principal amounts of $1,019,188 and
$230,812;
(iv) Convertible Preferred Stock having a stated value of $1,550,000;
and
(v) 231,114 shares (subject to Section 3.5 herein), of common stock of
Hampshire, $0.10 par value per share plus additional shares, if any,
delivered pursuant to Section 3.5 (the "Hampshire Shares").
3.2. Contingent Payment (s). In the event that Winona NIBT in one or more of the
years 1996, 1997 or 1998 exceeds $1,000,000 as determined by Hampshire's
independent auditors, Hampshire shall pay to the Principal Shareholders in
respect of each such year in which Winona NIBT exceeds $1,000,000, and amount (a
"Contingent Payment") as follows:
<PAGE>
i) for 1996, an amount equal to 33.33% of Winona NIBT in excess of
$1,000,000;
ii) for 1997, an amount equal to 26.67% of Winona NIBT in excess of
$1,000,000; and
iii) for 1998, an amount equal to 20% of Winona NIBT in excess of
$1,000,000.
Each Contingent Payment shall be paid to the Principal Shareholders within 120
days of fiscal year end respecting the year for which the Contingent Payment was
calculated. Each Contingent Payment shall be paid to the Principal Shareholders
50% in cash and 50% in common stock of Hampshire (the "Contingent Shares"); the
Contingent Shares shall be valued for this purpose at the average closing price
of Hampshire common stock as quoted on NASDAQ, or, if such stock were not to be
traded on NASDAQ then on such exchange as it shall be traded, for the sixty
business days immediately preceding the date the Contingent Payment is made. The
operation of San Francisco Knitworks ("SFK") shall be included in the
calculation of Winona NIBT for each such year (accounted for in a manner
consistent with that used by SFK for the prior year), but any loss of SFK shall
not be deducted therefrom. Notwithstanding the above, in no event shall
Hampshire pay, in the aggregate, more than $1,333,333 pursuant to this Section
3.2.
3.3. Certificate Legend. The certificates representing the Hampshire Shares
shall bear the following legend:
"The shares of stock represented by this Certificate are subject to the terms of
an Agreement and Plan of Merger dated as of June 5, 1995 between and among
Hampshire Group, Limited, The Winona Knitting Mills, Inc., Pete Woodworth and
Joyce Woodworth (the "Merger Agreement"), including, without limitation, certain
rights of set-off in favor of the issuer.
The shares of stock represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, (the "Act") and may not be
transferred unless a registration statement has been declared effective with
respect to such shares, except in a transaction which, in the opinion of counsel
to the issuing company qualifies as an exempt transaction under the Act and the
rules and regulations promulgated thereunder. Subject to Section 3.5 of the
Merger Agreement, the shares of stock represented by this Certificate are
subject to an absolute restriction on sale for two (2) years from issue."
3.4. Restriction on Sale of Shares. Subject to Section 3.5 herein, each of the
Principal Shareholders agrees not to sell or transfer the Hampshire Shares
(other than to each other or to one or more of either of their children, so long
as such transferee remains subject to the restrictions set forth in this Section
3.4) for a period of two (2) years from the Closing Date.
3.5. Additional Hampshire Shares. (a) If on the second anniversary of the
Closing Date (the "Determination Date"), the average bid/asked price of
Hampshire common stock as reported by NASDAQ for the sixty days preceding the
Determination Date is less than $10.00 per share, Hampshire shall within five
Business Days provide to the Principal Shareholders the number of shares (based
on the average bid/asked price of such stock as reported by NASDAQ for the sixty
days preceding the Determination Date) necessary so that the value of such
shares together with the shares of Hampshire common stock delivered on the
Closing Date equals $2,311,140. Notwithstanding the above, the number of
additional Hampshire Shares to be delivered subject to this Section 3.5 shall
not exceed 231,114.
<PAGE>
(b) Notwithstanding the above, at any time prior to the Determination Date and
upon 20 days notice to the Principal Shareholders, Hampshire may, at its sole
discretion, accelerate the Determination Date (the "New Determination Date") and
give to the Principal Shareholders the number of shares of Hampshire common
stock necessary so that the value of such shares together with the shares of
Hampshire common stock delivered on the Closing Date equals $2,311,140 as of the
New Determination Date; provided, however, that if Hampshire elects to
accelerate the Determination Date, as of the New Determination Date, the
Principal Shareholders may require the Company to register all of the Hampshire
Shares which registration will eliminate the restriction on transfer and sale
set forth in Section 3.4 herein.
3.6. Registration Rights. (a) Hampshire agrees to provide, at its expense
(excluding any underwriting fees and discounts, if any) for registration of the
Hampshire Shares delivered pursuant to this Section 3 and all of the common
stock of Hampshire issuable upon conversion of the Convertible Preferred Stock
on any registration statement (other than a registration on Form S-4 or S-8)
that Hampshire files under the Securities Act of 1933, as amended.
(b) Upon the demand of the Principal Shareholders pursuant to Section 3.5 (b)
herein, Hampshire agrees to provide, at its expense (excluding any underwriting
fees and discounts, if any) for registration of the Hampshire Shares delivered
pursuant to Section 3.5 (b) by filing of any registration statement (other than
a registration on Form S-4 or S-8) under the Securities Act of 1933, as amended.
(c) The Principal Shareholders and Hampshire shall provide standard
indemnification to each other with respect to any registration of the Hampshire
Shares pursuant to Section 3.6 (a) or (b).
3.7. Conversion of Shares. On the Closing Date, by virtue of the Merger and
without any action on the part of any holder of any common stock of the Company:
(a) Cancellation of Shares. All shares of common stock of the Company ("Company
Common Stock") which are held by the Company or any subsidiary of the Company,
shall be canceled.
(b) Conversion Numbers. Each share of Company Common Stock issued and
outstanding immediately prior to the Merger (except shares subject to Section
3.7 (a) shall be converted into the pro-rata portion of the Merger Value.
3.8. Shareholders' Approval. The Company has taken all action necessary, in
accordance with applicable law and its Certificate of Incorporation and By-laws,
to have this Agreement and the transaction contemplated hereby approved by the
holders of capital stock of the Company.
3.9. Closing of the Company's Transfer Books. On the Closing Date, the stock
transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall be made thereafter. In the event that, after the
Closing Date, Certificates are presented to Hampshire, they shall be canceled
and exchanged for the pro-rata portion of the Merger Value as provided in
Section 3.1.
3.10. Assistance in Consummation of the Merger. Each of Hampshire, the Company
and the Principal Shareholders shall provide all reasonable assistance to, and
shall cooperate with, each other to bring about the consummation of the Merger
as soon as possible in accordance with the terms and conditions of this Merger
Agreement.
<PAGE>
4. CLOSING.
The closing under this Agreement (the "Closing") shall take place at the offices
of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York, at 1:30 P.M., Eastern Standard Time, on the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS.
The Principal Shareholders and the Company hereby jointly and severally
represent and warrant to Hampshire as follows:
5.1. Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has all requisite corporate power and authority to own its properties and
assets and to conduct its businesses as now conducted.
5.2. Qualification to Do Business. Except as set forth on Schedule 5.2, the
Company is duly qualified to do business as a foreign corporation and is in good
standing in every jurisdiction (other than the State of Incorporation) in which
the character of the properties owned or leased by it or the nature of the
business conducted by it makes such qualification necessary except where such
failure to be so qualified would not have a material adverse effect on the
business of the Company.
5.3. Authorization and Validity of Agreement. The Principal Shareholders and the
Company have all requisite power and authority to enter into this Agreement and
to carry out their obligations hereunder. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized and approved by the Board of
Directors of the Company and no other corporate proceedings on the part of the
Company or shareholders of the Company are necessary to authorize and approve
this Agreement and the transactions contemplated hereby. This Agreement has been
duly executed by the Principal Shareholders and the Company and constitutes the
Principal Shareholders' and the Company's valid and binding obligation,
enforceable against the Principal Shareholders and the Company in accordance
with its terms.
5.4. No Conflict or Violation. The execution, delivery and performance by the
Principal Shareholders and the Company of this Agreement do not and will not
violate or conflict with any provision of the Certificate or Articles of
Incorporation or By-laws (or equivalent documents) of the Company and do not and
will not violate any provision of law, or any order, judgment or decree of any
court or other governmental or regulatory authority, nor violate nor result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any contract, lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Principal Shareholders
or the Company is a party or by which any of them is bound or to which any of
their properties or assets is subject, nor result in the creation or imposition
of any Lien upon any of the property of the Principal Shareholders or the
Company, nor result in the cancellation, modification, revocation or suspension
of any of the Licenses and Permits.
5.5. Consents and Approvals. Except as set forth in schedule 5.5 hereto, the
transactions contemplated hereby do not require any consent, waiver,
authorization or approval of any governmental or regulatory authority, domestic
or foreign, or of any other person, firm or corporation.
<PAGE>
5.6. Financial Statements. The Financial Statements (i) have been prepared in
accordance with GAAP applied on a consistent basis, (ii) present fairly the
financial condition of the Company as of their date, and (iii) are complete,
correct and in accordance with the books of account and records of the Company.
5.7. Absence of Certain Changes or Events.
(a) Except as set forth in Schedule 5.7, since December 31, 1994, there has not
been:
(i) any material adverse change in the business, operations,
properties, assets or condition (financial or other) of the Company, or any
event that has had a material adverse effect on the foregoing, and no
factor or condition exists and no event has occurred that would be likely
to result in any such change;
(ii) any material loss, damage, destruction or other casualty to the
Company's property (whether or not insured) ;
(iii) any change in any method of accounting or accounting practice of
the Company; or
(iv) any loss of the employment, services or benefits of any key
employee.
(b) Since December 31, 1994, the business of the Company has been operated in
the ordinary course consistent with past practice and, except as set forth in
Schedule 5.7, neither the Principal Shareholders nor the Company has:
(i) incurred any material obligation or liability (whether absolute,
accrued, contingent or otherwise) relating to the operations of the Company
except in the ordinary course of business consistent with past practice;
(ii) failed to discharge or satisfy any Lien or pay or satisfy any
obligation or liability (whether absolute, accrued, contingent or
otherwise), other than liabilities being contested in good faith and for
which adequate reserves have been provided and Liens arising in the
ordinary course of business that do not, individually or in the aggregate,
interfere with the use, operation, enjoyment or marketability of any of the
Company's property;
(iii) mortgaged, pledged or subjected to any Lien any of the Company's
property (including, without limitation, any Leased Property (as defined
below), except for Liens for taxes not yet due and payable;
(iv) sold or transferred any of the assets of the Company or canceled
any debts or claims or waived any rights material to the business of the
Company, except in the ordinary course of business consistent with past
practice;
(v) disposed of any patents, trademarks or copyrights or any patent,
trademark or copyright application used in the operations of the business
of the Company;
(vi) defaulted on any obligation relating to the operations of the
business of the Company;
<PAGE>
(vii) entered into any transaction material to the business of the
Company, except in the ordinary course of business consistent with past
practice;
(viii) written down the value of any Inventory or written off as
uncollectible any Accounts Receivable except to the extent reflected in the
Financial Statements;
(ix) granted any increase in the compensation or benefits of employees
of the Company other than increases in accordance with past practice not
exceeding 5% or entered into any employment or severance agreement or
arrangement with any of them;
(x) made any capital expenditure in excess of $10,000, or additions to
property, plant and equipment used in the operations of the business of the
Company other than ordinary repairs and maintenance;
(xi) laid off any employees;
(xii) discontinued sale of any Products or Product line or program;
(xiii) incurred any obligation or liability for the payment of
severance benefits;
(xiv) paid any dividend on or with respect to the capital stock of the
Company; or
(xv) entered into any agreement or made any commitment (including any
guarantee) to do any of the foregoing.
5.8. Tax Matters. Except as set forth in Schedule 5.8, all Tax Returns required
to be filed before the Closing Date in respect of the Company have been (or will
have been by the Closing Date) filed, and the Company has (or will have by the
Closing Date) paid, accrued or otherwise adequately reserved for the payment of
all Taxes required to be paid in respect of the periods covered by such returns
and has (or will have by the Closing Date) adequately reserved for the payment
of all Taxes with respect to periods ended on or before the Closing Date for
which tax returns have not yet been filed. All Taxes of the Company have been
paid or adequately provided for and the Principal Shareholders know of no
proposed additional tax assessment against the Company not adequately provided
for in the December 31, 1994 Balance Sheet. In the ordinary course, the Company
makes adequate provision on its books for the payment of Taxes (including for
the current fiscal period) owed by the Company.
5.9. Absence of Undisclosed Liabilities. The Company does not have any
indebtedness or liability, absolute or contingent, known or unknown, which is
not shown or provided for on the Financial Statements other than liabilities as
shall have been incurred or accrued in the ordinary course of business since the
date thereon. Except as shown on the Financial Statements, the Company is not
directly or indirectly liable upon or with respect to (by discount, repurchase
agreements or otherwise), or obliged in any other way to provide funds in
respect of, or to guarantee or assume, any debt, obligation or dividend of any
Person, except endorsements in the ordinary course of business in connection
with the deposit, in banks or other financial institutions, of items for
collection.
<PAGE>
5.10. Equipment and Machinery. Except as set forth in Schedule 5.10, as of the
date of this Agreement, the Company has good title, free and clear of all title
defects and objections, Liens (other than the Lien of current property taxes and
assessments not in default, if any) to the Equipment and Machinery and all other
personal properties and assets owned by it and the Company has a valid leasehold
interest in all Equipment and Machinery and all other personal properties and
assets leased by it. None of the title defects, objections or Liens (if any)
listed in Schedule 5.10 adversely affects the value of any of the items of
Equipment and Machinery or interferes with its use in the conduct of the
Company's business. Except as set forth in Schedule 5.10, the Company holds good
and transferable leaseholds in all of the Equipment and Machinery leased by it,
in each case under valid and enforceable leases. The Company is not in default
with respect to any item of Equipment and Machinery purported to be leased by
it, and no event has occurred that constitutes or with due notice or lapse of
time or both may constitute a default under any lease thereof. The Equipment and
Machinery is sufficient and adequate to carry on the Company's business as
presently conducted and as proposed by the Company to be conducted, and all
items thereof are in good operating condition and repair.
5.11. Intellectual Property; Intangible Assets.
(a) Schedule 5.11 sets forth a complete and correct listing of the Intellectual
Property. Except as described in Schedule 5.11, all Intellectual Property listed
therein is owned by the Company, free and clear of all Liens and is not known to
be the subject of any challenge. As of the date hereof, except as described in
Schedule 5.11, there are no unresolved claims made and there has not been
communicated to the Company or the Principal Shareholders the threat of any
claim that the holder of such Intellectual Property is in violation or
infringement of any service mark, patent, trademark, trade name, trademark or
trade name registration, copyright or copyright registration of any other
Person. The Company is the owner of the patents, patent licenses, trade names,
trademarks, service marks, brand marks, brand names, copyrights, know-how,
formula and other proprietary and trade rights necessary for the conduct of the
Company's business as now conducted, and without any known conflict with the
rights of others, and the Company has not forfeited or otherwise relinquished
any such patent, patent license, trade name, trademark, service mark, brand
mark, brand name, copyright, know-how, formula or other proprietary right
necessary for the conduct of its business as conducted on the date hereof. The
Company owns or has the right to use all computer software, software systems and
databases and all other information systems necessary for the operation of its
business except as such failure to own or possess the right to use would not be
material.
(b) Schedule 5.11 sets forth a true and complete list of all of the Intangible
Assets and a summary description of each such item. There is no restriction
affecting the use of any of the Intangible Assets, and no license has been
granted with respect thereto. Each of the Intangible Assets is valid, is not
currently being challenged, is not involved in any pending or threatened
administrative or judicial proceeding, and does not conflict with any rights of
any other Person, firm or corporation. The Company's rights in and to the
Intangible Assets are sufficient and adequate in all respects to permit the
conduct of the Company's business as now conducted and as proposed to be
conducted, and none of the products or operations of the Company's business
involves any infringement of any proprietary right of any other Person except as
would not be material.
<PAGE>
5.12. Licenses and Permits. Schedule 5.12 sets forth a true and complete list of
all licenses, permits, franchises, authorizations and approvals issued or
granted to the Company by the Government of the United States, any state or
local government, any foreign national or local government, or any department,
agency, board, commission, bureau or instrumentality of any of the foregoing
(the "Licenses and Permits"), and all pending applications therefor. Such list
contains a summary description of each such item and, where applicable,
specifies the date issued, granted or applied for, the expiration date and the
current status thereof. Each License and Permit has been duly obtained, is valid
and in full force and effect, and is not subject to any pending or threatened
administrative or judicial proceeding to revoke, cancel, suspend or declare such
License and Permit invalid in any respect. The Licenses and Permits are
sufficient and adequate in all respects to permit the continued lawful conduct
of the Company's business in the manner now conducted and as proposed to be
conducted, and none of the operations of the Company are being conducted in a
manner that violates any of the terms or conditions under which any License and
Permit was granted. Except as set forth in Schedule 5.12, no such License and
Permit will be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement.
5.13. Compliance with Law. Except as set forth in Schedule 5.13, (and only with
respect to matters that are not material, to the Company's and the Principal
Shareholders' knowledge), the operations of the Company (including, without
limitation, its operation of the Leased Properties) have been conducted in
accordance with all applicable laws, regulations, orders and other requirements
of all courts and other governmental or regulatory authorities having
jurisdiction over the Company and its assets, properties and operations
(including, without limitation, its operation of the Leased Properties),
including, without limitation, all such laws, regulations, orders and
requirements promulgated by or relating to consumer protection, equal
opportunity, health, environmental protection, conservation, architectural
barriers to the handicapped, fire, zoning and building, occupation safety,
product safety, pension and securities matters. Except as set forth in Schedule
5.13, the Company has not received notice of any violation of any such law,
regulation, order or other legal requirement, and is not in default with respect
to any order, writ, judgment, award, injunction or decree of any national, state
or local court or governmental or regulatory authority or arbitrator, domestic
or foreign. Neither the Principal Shareholders or the Company have knowledge of
any proposed change in any such laws, rules or regulations (other than laws of
general applicability) that would materially and adversely affect the Company or
its business (including, without limitation, its operation of the Leased
Properties) or the transactions contemplated by this Agreement.
5.14. Litigation. Except as set forth in Schedule 5.14, there are no claims,
actions, suits, proceedings, labor disputes or investigations pending or, to the
best knowledge of the Principal Shareholders or the Company, threatened, before
any national, state or local court or governmental or regulatory authority,
domestic or foreign, or before any arbitrator of any nature, brought by or
against the Principal Shareholders or the Company or any of the Company's
officers, directors, employees or agents involving, affecting or relating to the
Company's business (including, without limitation, its operation of the Leased
Properties), or the transactions contemplated by this Agreement, nor is any
basis known to the Principal Shareholders or any of the Company's directors or
officers for any such action, suit, proceeding or investigation. Schedule 5.14
sets forth a list and a summary description of all such pending actions, suits,
proceedings, disputes or investigations. The Company is not subject to any
order, writ, judgment, award, injunction or decree of any national, state or
local court or governmental or regulatory authority or arbitrator, domestic or
foreign, that affects or might affect the Company's business (including, without
limitation, its operation of the Leased Properties) or that would or might
interfere with the transactions contemplated by this Agreement.
<PAGE>
5.15. Contracts.
(a) Schedule 5.15 sets forth a complete and correct list and a summary
description of all Contracts (as in effect on the date hereof)
(b) Each Contract is valid, binding and enforceable against the parties thereto
in accordance with its terms, and in full force and effect on the date hereof.
Except as set forth in Schedule 5.15, the Company has performed all obligations
required to be performed by it to date under each Contract, and the Company is
not in default or delinquent in performance, status or any other respect
(claimed or actual) in connection with any Contract, and no event has occurred
which, with due notice or lapse of time or both, would constitute such a
default. To the best knowledge of the Principal Shareholders and the Company and
except as set forth in Schedule 5.15, no other party to any Contract is in
default in respect thereof, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a default. The Principal
Shareholders have delivered to Hampshire true and complete originals or copies
of all the Contracts.
(c) Except as set forth in Schedule 5.15, with respect to each Contract, the
Company has complied with and expects to comply with all material terms thereof,
all certifications and representations of the Company with respect thereto and
all statutes and regulations applicable thereto.
5.16. Receivables. Except as set forth in Schedule 5.16, all notes and accounts
receivable payable to or for the benefit of the Company reflected on the
December 31, 1994 Balance Sheet, or acquired by the Company after the date
thereof and before the Closing Date, have been collected or are (or will be)
current and collectible in amounts not less than the aggregate amount thereof
(net of reserves established in accordance with prior practice) carried (or to
be carried) on the books of the Company, and are not subject to any
counterclaims or set-offs.
5.17. Inventories. Inventories are stated at the lower of cost or market - cost
is determined using the first-in, first-out ("FIFO") method. Quantities on hand
or in process do not exceed normal requirements of the Company's business and
all excess inventory has been reduced to realizable value less cost of
distribution and normal gross margin. All Products manufactured by or for the
Company or sold by the Company from and after January 1, 1992, including,
without limitation, the Finished Inventory, have been manufactured in accordance
with all applicable customer specifications and standards and are fit for the
end use for which they were or hereafter are purchased. The Other Inventory is
of a type and quality usable and sellable in the ordinary course of business.
5.18. Employee Plans.
(a) Schedule 5.18(a) sets forth all pension, savings, retirement, health,
insurance, severance and other employee benefit or fringe benefit plans or
practices maintained or contributed to by the Company (collectively referred to
herein as the "Plans"). With respect to the Plans, the Company has delivered to
Hampshire copies of: (i) the plan documents, and, where applicable, related
trust agreements, and any related agreements which are in writing; (ii) summary
plan descriptions; (iii) the most recent Internal Revenue Service determination
letter relating to each Plan for which a letter of determination was obtained;
(iv) to the extent required to be filed, the most recent Annual Report (Form
5500 Series and accompanying schedules of each Plan and applicable financial
statements) as filed with the Internal Revenue Service; (v) audited financial
statements; and (vi) actuarial reports, if any.
(b) Except as set forth in Schedule 5.18(b): (i) each Plan conforms to, and its
administration is in compliance with, all applicable requirements of law,
including, without limitation, ERISA and the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) all of the Plans are in full force and effect as
written, and all premiums, contributions and other payments required to be made
by the Company under the terms of any Plan have been made or accrued.
<PAGE>
(c) Except as set forth in Schedule 5.18(c), each Plan that is intended to be
qualified under Section 401(a) of the Code is so qualified, its related trust is
exempt from taxation under Section 501(a) of the Code, and a favorable
determination letter has been issued by the Internal Revenue Service with
respect to each such qualified Plan. No Plan is funded through a "voluntary
employees' beneficiary association," as defined in Section 501(c) (9) of the
Code. No Plan is a "multiple employer plan" (within the meaning of Section 413
of the Code).
(d) Except as set forth in Schedule 5.18(d), all required installments, within
the meaning of Section 412(m) of the Code, required to be made by the Company
before the Closing Date with respect to each Plan will have been paid prior to
the Closing Date. No Plan has incurred any "accumulated funding deficiency"
(whether or not waived) as that term is defined in Section 412 of the Code or
Section 302 of ERISA. With respect to each Plan that is subject to Title TV of
ERISA: (i) As of the date hereof and on the Closing Date, the present value of
all benefit liabilities (as defined in Section 4001 (a) (16) of ERISA) will not
exceed the then current fair market value of the assets of such a plan
(determined by using the actuarial assumptions used for the most recent
actuarial valuation)
(e) Except as set forth in Schedule 5.18(e), there are no "multiemployer plans"
(as defined in Section 3(37) of ERISA) to which the Company or any other trade
or business under common control with the Company (within the meaning of Section
414(b) or (c) of the Code) (an "ERISA Affiliate") is, or at any time within the
six-year period ending on the date hereof, has been required to make a
contribution or other payment.
(f) Except as set forth in Schedule 5.18(f), no "pension plan," as defined in
Section 3(2) of ERISA, maintained by the Company or any entity which was at the
time an ERISA Affiliate has been terminated since September 1, 1974, in a
termination which results in any liability under Title IV of ERISA which has not
been fully satisfied. Except as indicated in Schedule 5.18(f), none of the Plans
that are subject to Title IV of ERISA has been partially terminated or has been
the subject of a "reportable event" as defined in Section 4043 of ERISA (other
than events for which the 30-day notice period has been waived). No proceedings
by the Pension Benefit Guaranty Corporation (the "PBGC") to terminate any of the
Plans pursuant to Subtitle C of Title IV of ERISA have been instituted or
threatened. All required premiums have been paid to the PBGC with respect to all
Plans.
(g) There has been no non-exempt prohibited transaction (within the meaning of
Section 4975 of the Code or Part 4 of Subtitle B of Title I of ERISA) with
respect to any Plan.
(h) Except as set forth in Schedule 5.18(h), or as otherwise disclosed on the
Financial Statements, the Company does not maintain any Plan providing
post-retirement benefits other than pension benefits provided under the Plans
qualified under Section 401(a) of the Code ("Post-Retirement Benefits"). The
Company is not liable for Post-Retirement Benefits under any plan not maintained
by the Company. The Company has complied in all material respects with the
requirements of Section 4980B of the Code and Sections 601 to 608 of ERISA
relating to continuation coverage for group health plans.
(i) No event has occurred and there exists no circumstances under which the
Company could incur liability under ERISA, the Code or otherwise (other than
routine claims for benefits). There are no actions, suits or claims (other than
routine claims for benefits) pending or, to the knowledge of the Seller,
threatened, with respect to any Plan or against the assets of any Plan.
<PAGE>
(j) The consummation of the transactions contemplated by this Agreement will not
(i) entitle any individual to severance pay, or (ii) accelerate the time of
payment or vesting of, or increase the amount of, compensation due to any
individual, or (iii) result in the payment of an amount subject to the deduction
limitations of Section 280G or 162(m) of the Code.
(k) There are no trades or businesses (whether or not incorporated) under common
control with the Company within the meaning of Sections 414(b), (c), (m) or (o)
of the Code.
(i) The Company has not incurred any liability or obligation under WARN or any
similar state law.
5.19. Customers and Suppliers. Schedule 5.19 sets forth a complete and correct
list of (a) all customers (listed by account and sorted by size) during the
Company's last full fiscal year; (b) the suppliers by dollar volume of the
Company and the aggregate dollar volume of purchases by the Company from such
suppliers for such fiscal year; (c) all distributors of any Products; and (d)
all representatives of the Company with respect to the business of the Company.
Except as set forth in Schedule 5.19, to the best knowledge of the Principal
Shareholders and the company, none of the customers and suppliers of the
Company, distributors of the Company's products or representatives of the
Company has or intends to terminate or change significantly its relationship
with the Company.
5.20. Insurance. Schedule 5.20 hereto sets forth a correct and complete list of
all current primary, excess and umbrella policies of insurance owned or held by
or on behalf of or providing insurance coverage to the Company and all such
policies are in full force and effect. With respect to all insurance policies
providing insurance coverage to the Company no premiums are in arrears, no
notice of cancellation or termination has been received with respect to any such
policy, other than notices of cancellation or termination routinely sent at the
end of a policy term, and all such insurance policies are valid, outstanding,
collectible and enforceable policies. The insurance coverage of the Company is
adequate and sufficient to cover claims in the ordinary course of business
beyond applicable deductibles. The Company has not been refused any insurance
with respect to any material assets or operations, nor has coverage been limited
in any respect material to the operations of the Company, by any insurance
carrier to which it has applied for any such insurance or with which they have
carried insurance during the last three years. All such insurance relating to
the business and operations of the Company will be held by the Company on the
Closing.
5.21. Labor Matters.
(a) Schedule 5.21(a) lists all of the Company's employees on the Closing Date,
together with each such employee's salary. Except as set forth in Schedule
5.21(a): (i) the Company is not a party to any outstanding employment or
consulting agreements or contracts with officers or employees of the Company
that are not terminable at will, or that provide for the payment of any bonus or
commission; (ii) the Company is not a party to any agreement, policy or practice
that requires it to pay termination or severance pay to salaried, non-exempt or
hourly employees of the Company (other than as required by law); (iii) the
Company is not a party to any collective bargaining agreement or other labor
union contract applicable to employees of the Company nor do either the
Principal Shareholders or the Company know of any activities or proceedings of
any labor union to organize any such employees currently taking place or planned
or that have occurred within the last three years. The Company has furnished to
Hampshire complete and correct copies of all such agreements (the "Employment
and Labor Agreements"). The Company has not breached or otherwise failed to
comply with any provisions of any Employment or Labor Agreement, and there are
no grievances outstanding thereunder.
<PAGE>
(b) Except as set forth in Schedule 5.21(b): (i) the Company is in compliance
with all applicable laws relating to employment and employment practices, wages,
hours, and terms and conditions of employment; (ii) there is no unfair labor
practice charge or complaint pending before the National Labor Relations Board
("NLRB"); (iii) there is no labor strike, material slow-down or material work
stoppage or lockout pending or, to the best knowledge of Principal Shareholders,
threatened against or affecting the business of the Company, and the Company has
not experienced any strike, material slow down or material work stoppage,
lockout or other collective labor action; (iv) there is no representation claim
or petition pending before the NLRB or any similar foreign agency and no
question concerning representation exists relating to the employees of the
Company; (v) there are no charges with respect to or relating to the Company
pending before the Equal Employment Opportunity Commission or any state, local
or foreign agency responsible for the prevention of unlawful employment
practices; and (vi) neither the Principal Shareholders nor the Company have
received notice from any national, state, local or foreign agency responsible
for the enforcement of labor or employment laws of an intention to conduct an
investigation of the Company and no such investigation is in progress.
5.22. Products Liability.
(a) Except as set forth in Schedule 5.22: (i) there is no notice, demand, claim,
action, suit, inquiry, hearing, proceeding, notice of violation or investigation
of a civil, criminal or administrative nature before any court or governmental
or other regulatory or administrative agency, commission or authority, domestic
or foreign, against or involving any Product, or class of claims or lawsuits
involving the same or similar Product which is pending or threatened, resulting
from an alleged defect in design, manufacture, materials or workmanship of any
Product, or any alleged failure to warn, or from any breach of implied
warranties or representations; (ii) there has not been any Occurrence (as
defined below); and (iii) there has not been, nor is there under consideration
or investigation by the Company, any Product rework, or retrofit (collectively,
"Retrofits") conducted by or on behalf of the Company concerning any products
manufactured, produced, distributed or sold by or on behalf of the Company.
(b) For purposes of this Section 5.22, the term "Occurrence" shall mean any
accident, happening or event which takes place at any time which is caused or
allegedly caused by any alleged hazard or alleged defect in manufacture, design,
materials or workmanship including, without limitation, any alleged failure to
warn or any breach of express or implied warranties or representations with
respect to, or any such accident, happening or event otherwise involving any
Product or any product distributed by or on behalf of the Company (including any
parts or components), that is likely to result in a claim or loss.
5.23. Environmental Matters. The Company has obtained and maintained in effect
all licenses, permits and other authorizations required under all federal,
state, local and foreign statutes, regulations and ordinances and other
requirements of governmental or regulatory authorities, all provisions having
the force or effect of law, all judicial and administrative orders and
determinations and all common law, in each case relating to pollution or to the
protection of the environment, health or safety (including, without limitation
all those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of or
exposure to Hazardous Material) ("Environmental, Health or Safety Laws") and is
in compliance with all Environmental, Health or Safety Laws and with all such
licenses, permits and authorizations. Neither the Principal Shareholders nor the
Company have performed or suffered any act which could give rise to, or has
otherwise incurred, liability to any Person (governmental or not) under the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601 et seq. or any other Environmental, Health or Safety Laws, nor have the
Principal Shareholders or the Company received notice of any such liability or
any claim therefor or submitted notice pursuant to section 103 of such Act to
any governmental agency with respect to any of the Company's operations or
assets. Neither the Principal Shareholders nor the Company are subject to, or
the subject of, any investigation by, enforcement order from or consent
agreement with, any governmental authority with respect to any Environmental,
Health or Safety Laws. No Hazardous Material has been released, placed, dumped
or otherwise come to be located on, at, beneath or near any property owned or
leased by the Company or any surface waters or groundwaters thereon or
thereunder. Except as set forth in Schedule 5.23, the Company does not own or
operate, and has not owned or operated, an underground storage tank or land
disposal unit nor is there or has there even been any underground storage tank
or land disposal unit located on any property owned or leased by the Company.
<PAGE>
5.24. Capitalization of the Company; Title to the Shares. The authorized capital
stock of the Company consists of 1,000,000 shares of common stock, no par value
per share. As of the Closing Date 61,125 of such shares were issued and
outstanding (the "Shares"). The Shares are the only capital stock of the
Company outstanding on the date of this Agreement. The Shares have been duly
authorized and validly issued by the Company and all of the Shares are fully
paid and non-assessable. There are no outstanding options, warrants, agreements,
conversion rights, preemptive rights, or other rights to subscribe for, purchase
or otherwise acquire any of the Shares or any unissued or treasury shares of
capital stock of the Company. Except for the 784, 554, 467, 406, 171, and 63
shares of common stock of the Company (the "Minority Shares") owned by The
Greater Winona Area Community Foundation, Inc., Everett J. Mueller, Rich A.
Christenson, Kevin J. Mahoney, Ken Deml, Richard Wantock (collectively, the
"Minority Shareholders"), respectively the Principal Shareholders have, in the
aggregate, valid and marketable title to all of the Shares, free and clear of
any liens, claims, charges, security interests or other legal or equitable
encumbrances, limitations or restrictions. Except as set forth on Schedule 5.24,
the Minority Shareholders have, in the aggregate, valid and marketable title to
the Minority Shares, free and clear of any liens, claims, charges, security
interests or other legal or equitable encumbrances, limitations or restrictions.
5.25. Real Property.
(a) Pete Woodworth has good, marketable and insurable fee title to the La
Crescent Property, free and clear of all Liens other than the La Crescent
Mortgages. Leslie R. Woodworth, Phyllis Woodworth and John F. Woodworth have
good, marketable and insurable fee title to the Main Plant Property, free and
clear of all Liens. Pete Woodworth has good, marketable and insurable fee title
to the Outlying Building Property, free and clear of all Liens other than the
Chatfield Mortgage. Komar Properties, Inc. is the landlord with respect to the
lease of the Berwick Property. The Company owns no real property.
(b) Schedule 5.25 contains a list of all leases, licenses, permits, subleases,
and occupancy agreements, together with any amendments thereto (the "Leases"),
with respect to (i) all real property leased or subleased by the Company
(individually, a "Leased Property" and, collectively, the "Leased Properties").
True, complete and accurate copies of the Leases have been delivered to
Hampshire, and each of such Leases is in full force and effect without
modification or amendment from the form delivered. The Company has a valid
leasehold interest in each Leased Property pursuant to the corresponding Lease.
No option has been exercised under any Lease, except options whose exercise has
been evidenced by a written document, a true, complete and accurate copy of
which has been delivered to Hampshire with the corresponding Lease. Except as
set forth on Schedule 5.25, no Leased Property is subject to any right or option
of any other person, firm, corporation or other entity to purchase or otherwise
obtain title to such property. Neither the Company nor, to the Company's
knowledge, any of the other parties to the Leases, is in default under any of
the Leases, and no amount due under the Leases remains unpaid, no material
controversy, claim, dispute or disagreement exists between the parties to the
Leases, and to the Company's knowledge, no event has occurred which with the
giving of notice or with the passage of time, or both, would constitute a
default thereunder.
(c) No eminent domain, condemnation, incorporation, annexation or moratorium or
similar proceeding has been commenced or, to the Company's knowledge, threatened
by an authority having the power of eminent domain to condemn any part of any
Leased Property or any improvements thereon.
<PAGE>
(d) There is no violation of a condition or agreement contained in any easement,
restrictive covenant or any similar instrument or agreement affecting any Leased
Property. No Leased Property is located in an area that has been identified as
having special flood hazards.
(e) To The Company's nor the Principal Shareholders' knowledge, there are no
proposed reassessments of any Leased Property by any taxing authority and there
are no threatened or pending special assessments or other actions or
proceedings.
(f) Each Leased Property is an independent unit which does not rely on any
facilities located on any property which is not a Leased Property.
(g) The improvements at the Leased Properties are in good condition and repair,
ordinary wear and tear excepted and have not suffered any casualty or other
material damage which has not been repaired in all material respects. Except
with respect to the Berwick Property there is no material latent or patent
structural, mechanical or other significant defect, soil condition or deficiency
in the improvements located on any Leased Property. To the Company's nor the
Principal Shareholders' knowledge, there is no material latent or patent
structural, mechanical or other significant defect, soil condition or deficiency
in the improvements located on the Berwick Property.
(h) The Company has not received any notice of any violation of any applicable
building, zoning, land use or other similar statutes, laws, ordinances,
regulations, permits or other requirements, including, without limitation, the
Americans with Disabilities Act, in respect of any Leased Property and no such
violations exist. The Company has no knowledge and has not received any notice
of any pending or contemplated rezoning proceeding affecting any Leased
Property.
(i) The Company has no notice of any defects or inadequacies in any Leased
Property which, if not corrected, would result in termination of any insurance
coverage therefore or an increase in the cost thereof.
(j) The Company has not received any notice from any utility company or
municipality of any fact or condition which could result in the discontinuation
of presently available or otherwise necessary sewer, water, electric, gas,
telephone or other utilities or services for any Leased Property.
(k) The Company has paid all brokerage and finders fees and commissions due with
respect to any Leased Property.
(1) Each New Lease has been duly and validly executed and constitutes the valid
and binding obligation of the landlord under such New Lease in accordance with
its terms.
(m) The execution and delivery of the New Leases by the landlords thereunder,
and the performance by such parties of their obligations thereunder will in no
way conflict or violate any provision of the organizational documents of such
landlords, if any, or conflict with or violate any provisions of, or result in a
default or acceleration of any obligation under, any mortgage, lease, contract,
agreement, indenture, or other instrument or undertaking, of which such counsel
has knowledge, or any order decree or judgment, of which such counsel has
knowledge, to which such parties are a party or by which any of them or their
property (including any Leased Property) is bound.
<PAGE>
(n) Each memorandum of lease and non-disturbance and attornment agreement being
delivered pursuant to Section 8.5 is in appropriate form for recording in the
appropriate land records.
(o) Except as set forth in Schedule 5.25(o), no transfer or other taxes are due
to any Government in connection with the execution of any New Lease or the
execution or recording of any memorandum of lease in connection therewith and
any such taxes shall have been paid by the Company prior to the Closing Date.
5.26. Net Assets. The Company's net assets after giving effect to the
acquisition of the assets of Berwick Knitting Mills, Inc. (excluding any
intangible assets other than $50,000 in Berwick Goodwill), were as of the
Purchase Date equal to or greater than $4,413,000.
5.27. Accuracy of Information. None of the Principal Shareholders' or the
Company's representations, warranties or statements contained in this Agreement,
or in the exhibits hereto, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make any of such
representations, warranties or statements in light of the circumstances under
which they were made not misleading. All information that is known or would on
reasonable inquiry be known to the Principal Shareholders or the Company and
that may be material to Hampshire has been disclosed in writing to Hampshire and
identified as being delivered pursuant to this Section 5.27 and any such
information arising on or before the Closing Date will forthwith be disclosed in
writing to Hampshire.
6. REPRESENTATIONS AND WARRANTIES OF HAMPSHIRE.
Hampshire represents and warrants to the Principal Shareholders and the Company
as follows:
6.1. Organization and Standing. Hampshire is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
6.2. Authority. Hampshire has full corporate power and authority to execute and
(except for compliance with Rule 14c-2 promulgated under the Exchange Act)
perform in accordance with this Agreement, and this Agreement constitutes a
valid and binding obligation of Hampshire. This Agreement and all transactions
contemplated hereby have been duly authorized by all requisite corporate
authority and all corporate proceedings required to be taken by Hampshire
(except for compliance with Rule 14c-2 promulgated under the Exchange Act) to
authorize it to carry out this Agreement and the transactions contemplated
hereby have been duly and properly taken. The execution and delivery of this
Agreement and the performance by Hampshire of its obligations hereunder will not
conflict with or violate any provision of Hampshire's Certificate of
Incorporation or By-Laws or conflict with or violate any provisions of, or
result in a default or acceleration of any obligation under, any mortgage,
lease, contract, agreement, indenture, or other instrument or undertaking or any
order, decree or judgment to which Hampshire is a party or by which it or its
property is bound.
6.3. Consents and Approvals. No characteristic of Hampshire or of the nature of
its business or operations requires any consent, approval or authorization of,
or declaration, filing or registration with, any governmental or regulatory
authority or other Person in connection with the execution and delivery of this
Agreement by Hampshire and the consummation of Hampshire's obligations
contemplated hereby.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
7.1. Survival of Representations and Warranties. The representations and
warranties made in this Agreement or in any instrument delivered pursuant to
this Agreement shall survive the Closing and the consummation of the
transactions contemplated by this Agreement and any investigation made by any
party prior to the Closing Date and shall expire upon expiration of the
applicable statute of limitations in respect of all matters; provided, however,
<PAGE>
that the representations and warranties contained in Sections 5.8 and 5.23 shall
survive indefinitely. No claim or action for breach of any representation or
warranty shall be asserted or maintained by any party hereto after the
expiration of such representation or warranty pursuant to the preceding sentence
except for claims made in writing prior to such expiration or actions (whether
instituted before or after such expiration) based on any claim made in writing
prior to such expiration. In the event of a breach of any of such
representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach available to it under the provisions of this
Agreement or otherwise, whether at law or at equity, regardless of any
disclosure to, or investigation made by or on behalf of, such party on or before
the Closing Date.
7.2. Indemnification.
(a) The Principal Shareholders jointly and severally will (i) indemnify and hold
harmless Hampshire from and against any and all losses, damages, liabilities,
costs and claims arising out of, based upon or resulting from (x) any inaccuracy
of any representation or warranty of the Principal Shareholders or the Company
which is contained in or made pursuant to this Agreement or (y) any breach by
the Principal Shareholders or the Company of any of its agreements, covenants or
obligations contained in or made pursuant to this Agreement, and (ii) reimburse
Hampshire for any and all fees, costs and expenses of any kind related thereto
(including, without limitation, any and all Legal Expenses); provided, however,
that in no event shall the Principal Shareholders be required to pay to
Hampshire pursuant to this Section 7.2(a) an aggregate amount that exceeds the
value of all common stock and all preferred stock of Hampshire received and to
be received by the Principal Shareholders pursuant to this Agreement, including
without limitation all Contingent Shares and all shares delivered or to be
delivered pursuant to Section 3.5 hereof. As used in this Section 7, "Legal
Expenses" of a Person shall mean any and all reasonable out-of-pocket fees,
costs and expenses of any kind incurred by such Person and its counsel in
investigating, preparing for, defending against or providing evidence, producing
documents or taking other action with respect to any threatened or asserted
claim of a third party or governmental entity.
(b) Hampshire will (i) indemnify and hold harmless the Principal Shareholders
from and against any and all losses, damages, liabilities, costs and claims (x)
arising out of, based upon or resulting from any inaccuracy of any
representation or warranty of Hampshire which is contained in or made pursuant
to this Agreement or (y) arising out of, based upon or resulting from any breach
by Hampshire of any of its agreements, covenants or obligations contained in or
made pursuant to this Agreement and (ii) reimburse the Principal Shareholders
for any and all fees, costs and expenses of any kind related thereto (including,
without limitation, any and all Legal Expenses)
(c) Promptly after receipt by any person entitled to indemnification under this
Section 7 (an "indemnified party") of notice of the commencement of any action
in respect of which the indemnified party will seek indemnification hereunder,
the indemnified party shall notify the person that is obligated to provide such
indemnification (the "indemnifying party") thereof in writing, but any failure
to so notify the indemnifying party shall not relieve it from any liability that
it may have to the indemnified party unless the indemnified party shall be
materially prejudiced by such failure.
(d) Neither the Principal Shareholders or Hampshire shall be required to
indemnify the other for any liability arising from the treatment of the Merger
as other than a tax-free reorganization within the meaning of Section 368(a) of
the Code.
(e) Any payments required to be made by the Principal Shareholders pursuant to
this Section 7.2 may be deducted by Hampshire from: (i) payments due the
Principal Shareholders under the Hampshire Notes; (ii) the Contingent
Payment(s); (iii) the Hampshire Shares; (iv) the Convertible Preferred Stock and
(v) the salary, bonus and dividends payable to Pete Woodworth by Hampshire
Designers, Inc. or any affiliate of Hampshire pursuant to that certain
Employment Agreement between Pete Woodworth and Hampshire Designers, Inc. or an
affiliate of Hampshire (as described below); provided, however, that, without
<PAGE>
limiting Hampshire's right to be indemnified, any deductions made pursuant to
this Section 7.2(e) shall be made first, in equal proportion, from the sources
listed in clause (i)-(iv) to the extent such sources are available.
8. DELIVERIES AT CLOSING.
The obligations of the parties hereto to consummate the transactions
contemplated by this Agreement are subject to satisfaction of the following
conditions:
8.1. Hampshire Resolutions. Hampshire shall have delivered to the Principal
Shareholders and the Company copies of the resolutions of the Board of Directors
of Hampshire authorizing the transactions contemplated herein, with such
resolutions to be certified to be true and correct by their respective
Secretaries.
8.2. Opinion of Hampshire's Counsel. Hampshire shall have delivered to the
Principal Shareholders and the Company at the Closing an opinion of Willkie Farr
& Gallagher dated the Closing Date, to the effect that according to its
knowledge:
(i) Hampshire is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(ii) Hampshire has full corporate power and authority to engage in the
transactions contemplated by the Agreement;
(iii) All corporate proceedings required to be taken by Hampshire to
authorize it to carry out this Agreement and the transactions contemplated
herein have been duly and properly taken, and this Agreement constitutes a
valid and binding obligation of Hampshire in accordance with its terms; and
(iv) The execution and delivery of this Agreement and the performance
by Hampshire of its obligations hereunder, will in no way conflict with or
violate any provision of Hampshire's Certificate of Incorporation or
By-Laws or conflict with or violate any provision of, or result in a
default or acceleration of any obligation under, any mortgage, lease,
contract, agreement, indenture, or other instrument or undertaking, of
which such counsel has knowledge, or any order, decree or judgment, of
which such counsel has knowledge, to which the Principal Shareholders or
the Company is a party or by which either of them or their property is
bound.
8.3. Opinion of the Company's and the Principal Shareholders' Counsel. The
Company and the Principal Shareholders shall have delivered to Hampshire at the
Closing an opinion of Ronald W. Benson, Esq. dated the Closing Date, to the
effect that:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota;
(ii) The Company has full power and authority to engage in the
transactions contemplated by the Agreement;
(iii) All corporate proceedings required to be taken by the
Company to authorize it to carry out this Agreement and the
transactions contemplated herein have been duly and properly taken,
and this Agreement has been duly and validly executed and constitutes
the valid and binding obligation of the Principal Shareholders and the
Company in accordance with its terms;
(iv) The execution and delivery of this Agreement, and the
performance by the Principal Shareholders and the Company of their
obligations hereunder will in no way conflict or violate any provision
of the Company's Certificate of Incorporation or its By-Laws or
conflict with or violate any provisions of, or result in a default or
acceleration of any obligation under, any mortgage, lease, contract,
agreement, indenture, or other instrument or undertaking, of which
such counsel has knowledge, or any order decree or judgment, of which
<PAGE>
such counsel has knowledge, to which the Principal Shareholders or the
Company are a party or by which any of them or their property,
(including any Leased Property) is bound;
(v) Each New Lease has been duly and validly executed and
constitutes the valid and binding obligation of the landlord under
such New Lease in accordance with its terms;
(vi) Each memorandum of leases and non-disturbance and attornment
agreement being delivered pursuant to Section 8.5 is in appropriate
form for recording in the appropriate land records.
(vii) Except as set forth on Schedule 5.25(o), no transfer or
other taxes are due to any Government in connection with the execution
of any New Lease or the execution or recording of any memorandum of
lease in connection therewith and that any such taxes shall have been
paid by the Company prior to the Closing Date.
(viii) Pete Woodworth has good, marketable and insurable fee
title to the La Crescent Property, free and clear of all Liens other
than the La Crescent Mortgages. Leslie R. Woodworth, Phyllis
Woodworth, and John F. Woodworth have good, marketable and insurable
fee title to the Main Plant Property, free and clear of all Liens.
Pete Woodworth has good, marketable and insurable fee title to the
Outlying Building Property, free and clear of all Liens other than the
Chatfield Mortgage.
8.4. Company Resolutions. The Company shall have delivered to Hampshire copies
of the resolutions of the Board of Directors of the Company authorizing the
transactions contemplated herein, with such resolutions to be certified to be
true and correct by its Secretary.
8.5. Representations and Warranties of the Principal Shareholders and Hampshire
True at Closing. All representations and warranties made by the Principal
Shareholders and Hampshire in this Agreement shall be true and correct on and as
of the Closing Date as if again made by the Principal Shareholders and
Hampshire, as the case may be, on and as of such date, and the Principal
Shareholders and Hampshire shall have received from each other a certificate
dated the Closing Date and signed by the Principal Shareholders and Hampshire,
as the case may be, to that effect.
8.6. Principal Shareholders' and Hampshire's Compliance with Agreement. The
Principal Shareholders and Hampshire shall have performed all obligations
required under this Agreement to be performed by the Principal Shareholders and
Hampshire, as the case may be, on or before the Closing Date, and the Principal
Shareholders and Hampshire shall have received a certificate from each other
dated the Closing Date and signed by the Principal Shareholders and Hampshire,
as the case may be, to that effect.
8.7. Leases.
On or prior to the Closing date, the Company shall deliver to Hampshire:
(i) A termination agreement in form and substance acceptable to
Hampshire terminating the Leases relating to the Main Plant Property,
the Outlying Building Property and the La Crescent Property.
(ii) A new lease substantially in the form attached hereto as
Exhibit H for the Main Building Property, and new leases in the forms
attached hereto as Exhibit I and Exhibit J for the Outlying Building
Property and the La Crescent Property, respectively, executed by the
respective fee owners of such properties, as lessor and Hampshire or
an affiliate thereof, as lessee, granting to Hampshire or an affiliate
thereof valid and insurable leasehold interests in such properties
(collectively, the "New Leases"), together with a Memorandum of Lease
with respect to each such New Lease and the Lease for the Berwick
Property in the forms attached as Exhibit K hereto.
<PAGE>
(iii) An estoppel certificate from the landlord under the Lease
relating to the Berwick Property certifying that such Lease is in full
force and effect; that, to such party's knowledge, there are no
defaults under such Lease by either party thereto; and the date to
which rent under such Lease has been paid.
(iv) Non-disturbance and attornment agreements from the holders
of the La Crescent Mortgage and the Chatfield Mortgage in the form
attached hereto as Exhibit L providing with respect to each New Lease
and the Lease for the Berwick Property that, among other things, for
so long as Hampshire or an affiliate thereof shall not be in default
beyond applicable notice and grace periods under such New Lease or
Lease, Hampshire's or its affiliates possession shall not in any way
be disturbed or cut off.
9. MISCELLANEOUS.
9.1. Successors and Assigns. Except as otherwise provided in this Agreement, no
party hereto shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other parties hereto and any such
attempted assignment without such prior written consent shall be void and of no
force and effect; provided, however, that Hampshire may assign its rights
hereunder to an affiliate but such an assignment will not relieve it of its
obligations; and provided, further, that no such assignment shall reduce or
otherwise vitiate any of the obligations of the Company or the Principal
Shareholders hereunder. This Agreement shall inure to the benefit of and shall
be binding upon the successors and permitted assigns of the parties hereto.
9.2. Governing Law. This Agreement shall be construed, performed and enforced in
accordance with, and governed by, the laws of the State of Delaware, without
giving effect to the principles of conflicts of laws thereof.
9.3. Expenses. Except as otherwise provided herein, each of the parties hereto
shall pay its own expenses in connection with this Agreement and the
transactions contemplated hereby.
9.4. Broker's and Finder's Fees. Except for Hampshire's dealings with John
Bessone, whose fee is to be paid by Hampshire, each of the parties represents
and warrants that it has dealt with no broker or finder in connection with any
of the transactions contemplated by this Agreement and, insofar as it knows, no
other broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
9.5. Hampshire's Distribution of Information Statement. As soon as practicable
after the execution of this Agreement, Hampshire shall, pursuant to Rule 14c-2
of Regulation 14C of the Securities and Exchange Act of 1934 (the "Exchange
Act"), transmit a written information statement (the "Information Statement")
containing the information specified in Schedule 14C of the Exchange Act to
every security holder of Hampshire entitled to receipt of the Information
Statement pursuant to Rule 14c-2 of the Exchange Act.
9.6. Covenant Not To Compete.
(a) In addition to any covenant contained in the Employment Agreement, the
Principal Shareholders agree that, for a period of three years after the Closing
Date, neither of the Principal Shareholders shall, directly or indirectly, as
sole proprietor, member of a partnership, or stockholder, investor, officer or
director of a corporation, or as an employee, agent, associate or consultant of
any person, firm or corporation:
(i) Solicit or accept business (i) from any clients or
prospects of the Company or its other affiliates who were
solicited directly by the Principal Shareholders or where the
Principal Shareholders supervised, directly or indirectly, in
whole or in part, the solicitation activities related to such
clients or prospects or (ii) from any former client who was such
within three years prior to such termination and who was
solicited directly by the Principal Shareholders or where the
Principal Shareholders supervised, directly or indirectly, in
whole or in part, the solicitation activities related to such
former client; or
<PAGE>
(ii) Engage in the business of the type performed by the
Company or its affiliates in the areas where the Company or its
affiliates is conducting such business. As used in Section 9.6,
"affiliate" shall mean any person, firm or corporation that,
directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with,
Hampshire, whether such control is through stock ownership,
contract or otherwise;
(b) The Principal Shareholders agree that a monetary remedy for a breach of the
agreement set forth in Section 9.6(a) hereof will be inadequate and
impracticable and further agree that such a breach would cause Hampshire
irreparable harm, and that Hampshire shall be entitled to temporary and
permanent injunctive relief without the necessity of proving actual damages. In
the event of such a breach, the Principal Shareholders agree that Hampshire
shall be entitled to such injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions as a court of
competent jurisdiction shall determine.
(c) If any provision of this Section 9.5 is invalid in part, it shall be
curtailed, both as to time and location, to the minimum extent required for its
validity under the laws of the United States and shall be binding and
enforceable with respect to the Principal Shareholders as so curtailed.
9.7. Non-Solicitation of Employees. Subject to the Employment Agreement, each of
the Principal Shareholders agrees, for the three-year period commencing on the
Closing Date, not to make, offer, solicit or induce to enter into, any written
or oral arrangement, agreement or understanding regarding employment or
retention as a consultant with any person who was, on the date hereof, a
full-time employee of the Company, without the written consent of Hampshire.
9.8. Employment Agreement; Nomination to Board of Directors.
(a) Pete Woodworth and Hampshire agree that, on the Closing Date, each of Pete
Woodworth and Hampshire Designers, Inc. or an affiliate thereof will execute and
deliver the Employment Agreement in the form of the Employment Agreement
attached hereto as Exhibit M (the "Employment Agreement) The Employment
Agreement will set forth Pete Woodworth's employment responsibilities and
obligations with respect to Hampshire Designers, Inc. or an affiliate thereof
and SFK.
(b) If subsequent to the Closing Date, Pete Woodworth shall own 5% or more of
the common stock of Hampshire, Hampshire agrees to nominate Pete Woodworth for
election to Hampshire's Board of Directors and recommend to the Shareholders of
the common stock of Hampshire that they vote their shares to effectuate such
election.
9.9. Maintenance of Leased Properties. From the date hereof to the Closing Date,
except as may be consented to in writing by Hampshire, or as otherwise expressly
provided for in this Agreement, the Company shall (i) maintain, or cause to be
maintained, each Leased Property in good condition and repair, reasonable wear
and tear excepted and (ii) immediately upon receipt thereof, deliver to
Hampshire any and all notices affecting any Leased Property received from any
Government or Lien holder. Moreover, the Company shall not:
(i) permit, allow or suffer any Leased Property to be
subject to any additional Lien; or
(ii) enter into any Lease affecting any Leased
Property.
9.10. Severability. In the event that any part of this Agreement is declared by
any court or other judicial or administrative body to be null, void or
unenforceable, said provision shall survive to the extent it is not so declared,
and all of the other provisions of this Agreement shall remain in full force and
effect.
<PAGE>
9.11. Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
upon delivery, if delivered in person, or on the third business day after
mailing, if mailed, by registered mail, postage prepaid, return receipt
requested, as follows:
If to the Principal Shareholders or the Company:
Pete Woodworth The Winona
Knitting Mills, Inc.
902 East Second Street
Winona, Minnesota 55987
Copy to:
Ron Benson, Esq.
Benson & Merchlewitz
174 Main Street
Winona, Minnesota 55987
If to Hampshire:
Hampshire Group, Limited
Attn: Charles W. Clayton
P.O. Box 2667
215 Commerce Boulevard
Anderson, South Carolina 29622
Copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Harvey Sperry, Esq.
Telecopy: (212) 752-2991
Any party may change its address for the purpose of this Section by giving the
other party written notice of its new address in the manner set forth above.
9.12. Amendments; Waivers. This Agreement may be amended or modified, and any of
the terms, covenants, representations, warranties or conditions hereof may be
waived, only by a written instrument executed by the parties hereto, or in the
case of a waiver, by the party waiving compliance. Any waiver by any party of
any condition, or of the breach of any provision, term, covenant, representation
or warranty contained in this Agreement, in any one or more instances, shall not
be deemed to be nor construed as further or continuing waiver of any such
condition, or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
9.13. Public Announcements. The parties agree that after the signing of this
Agreement, no party shall make any press release or public announcement
concerning this transaction without the prior written approval of the other
parties unless a press release or public announcement is required by law. If any
such announcement or other disclosure is required by law, the disclosing party
agrees to give the nondisclosing parties prior written notice and an opportunity
to comment on the proposed disclosure.
9.14. Entire Agreement. This Agreement contains the entire understanding between
the parties hereto with respect to the transactions contemplated hereby and
supersedes and replaces all prior and contemporaneous agreements and
understandings, oral or written, with regard to such transactions. All Exhibits
and schedules hereto and any documents and instruments delivered pursuant to any
provision hereof are expressly made a part of this Agreement as fully as though
completely set forth herein.
<PAGE>
9.15. Parties in Interest. Nothing in this Agreement is intended to confer any
rights or remedies under or by reason of this Agreement on any persons other
than the Principal Shareholders, the Company, Hampshire and their respective
successors and permitted assigns. Nothing in this Agreement is intended to
relieve or discharge the obligations or liability of any third persons to the
Principal Shareholders, the Company or Hampshire. No provision of this Agreement
shall give any third persons any right of subrogation or action over or against
the Principal Shareholders, the Company or Hampshire.
9.16. Section and Paragraph Headings. The section and paragraph headings in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.
IN WITNESS WHEREOF, the Principal Shareholders, the Company and Hampshire have
caused this Agreement to be executed as of the day and year first written above.
HAMPSHIRE GROUP, LIMITED
By: /s/ Ludwig Kuttner
- ------------------------------
THE WINONA KNITTING MILLS, INC.
By: /s/ Pete Woodworth
- -----------------------------------
Pete Woodworth - President
Pete Woodworth
/s/ Pete Woodworth
- ------------------------------------
Joyce Woodworth
/s/ Joyce Woodworth
- -------------------------------------
Approved:
THE WINONA KNITTING MILLS, INC.
By: /s/ Leslie R. Woodworth
- -------------------------------------
Name: Leslie R. Woodworth
Title: Chairman
AGREEMENT FOR PURCHASE OF ASSETS
THIS AGREEMENT, dated as of January 1, 1995 between and among VINTAGE,
INC., a Delaware corporation having its principal executive offices at 215
Commerce Boulevard, Anderson, South Carolina 29621 (hereinafter referred to as
"Vintage" or the "Buyer") and SEGUE, LTD., a California corporation having its
principal executive offices at 102 West 38th Street, New York, New York 10018
(hereinafter referred to as "Segue" or the "Seller") and NEIL FRIEDMAN, an
individual having his principal place of residence at 37 Hemlock Ridge Road,
Weston, Connecticut 06883 (hereinafter referred to as "Shareholder").
WHEREAS, Hampshire Designers, Inc., a Delaware Corporation having its
principal executive offices at 215 Commerce Boulevard, Anderson, South Carolina
29621, (hereinafter referred to as "Hampshire"), is the sole stockholder of
Vintage.
WHEREAS, Friedman is the president, the sole director and the sole
stockholder of Segue.
WHEREAS, Segue designs, markets and distributes fashion sweaters and
related knitted and woven apparel, the majority of which is imported through
Global Services, Ltd. and Keynote Services, Ltd.
WHEREAS, the Seller desires to sell, and the Buyer desires to purchase
certain assets of the Seller (the "Purchased Property" as hereinafter defined),
which property constitutes substantially all of the assets of Segue as of the
Purchase Date, all upon the terms, and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises, representations
warranties and mutual agreements herein set forth, the Buyer and the Seller and
the Shareholder hereby agree as follows:
1. DEFINITIONS
As used herein, the following terms shall, unless the context clearly
indicates otherwise, have the following meanings:
(a) "Purchase Date" shall mean as of 12:01 A.M. Eastern Daylight Savings
Time, January 1, 1995.
(b) "Closing" shall have the meaning set forth in Section 6 hereof.
(c) "Closing Date" shall mean 1:30 P.M. Eastern Daylight Savings Time on
February 15, 1995, or such other date as the parties shall mutually agree upon
in writing, but in any event not later than February 28, 1995.
(d) "Premises" shall mean the real property leased to Segue as described on
Exhibit 1, attached hereto and made a part hereof.
(e) "Premises Lease" shall mean that certain lease made as of the 2nd day
of September, 1992 between 38 & 6 ASSOCIATED and SEGUE, LTD., attached hereto as
Exhibit 2 and made a part hereof respecting the property (the "Property")
described thereon.
(f) "Equipment and Other Leases" shall mean any lease covering Machinery
and Equipment used by Segue at the Premises or at any other location other than
the Premises or real estate lease other than for the Premises, listed on Exhibit
3, annexed hereto and made a part hereof; copies of which have been delivered to
the Buyer.
<PAGE>
(g) "Accounts Receivable" shall mean any and all receivables of Segue,
including, but not limited to, all trade accounts receivable, balances due from
factors and other receivables acceptable to the Buyer.
(h) "Finished Inventory" shall mean Segue's inventory of finished Products
on the Purchase Date, including such finished Products in transit and held at
contractors.
(i) "Other Inventory" shall mean all samples, work-in-process and raw
materials relating to the design, manufacture and distribution of Products, and
packaging and empty cartons, located on the Premises and held at contractors on
the Purchase Date, for use in connection with the operations, plus additions
thereto through the Closing Date, in which Segue had or shall have any rights,
title or interest, together with any rights of Segue to the warranties received
from vendors with respect to such inventory and any related claims, credits,
rights of recovery and set-off with respect thereto.
(j) "Machinery and Equipment" shall mean any and all of the machinery and
equipment, including, but not limited to, sewing machines and other machines,
hand tools, tooling, owned or used by Segue in the design, marketing and
distribution of Products, or located at or on the Premises, including, without
limitation, those items listed on Exhibit 7, annexed hereto and made a part
hereof, and in which Segue had any rights, title or interest as of the Purchase
Date, plus additions thereto through the Closing Date, and all of the
replacement parts for any of the foregoing in which Segue had or shall have as
of such dates any rights, title or interest, together with all information,
patents, drawings, manuals and data relating to the operation of the machinery
and equipment and the manufacture of Products and any rights of Segue in and to
the warranties and licenses, if any, received from manufacturers and vendors of
the aforesaid items and any related claims, credits, rights of recovery and
set-off with respect to the Machinery and Equipment.
(k) "Intangible Property" shall have the meaning set forth in Section
2(a)(v) hereof.
(l) "Other Property" shall mean all Purchased Property described in Section
2(a) hereof other than Machinery and Equipment, Finished Inventory, Other
Inventory and Intangible Property.
(m) "Purchased Property" shall have the meaning set forth in Section 2(a)
hereof.
(n) "Excluded Property" shall have the meaning set forth in Section 2(a)
hereof.
(o) "Purchase Orders" shall mean those open purchase orders of Segue listed
on Exhibit 10, annexed hereto and made a part hereof, copies of which have been
delivered to the Buyer.
(p) "Sales Commitments" shall mean those open sales orders, commitments and
agreements of Segue to sell Products listed on Exhibit 11, annexed hereto and
made a part hereof, copies of which have been delivered to the Buyer.
(q) "Accounts Payable" shall mean trade accounts payable for the
manufacture or purchase of Products delivered to Segue or services rendered for
Segue (the "Accounts Payable"), but limited to those items listed on Exhibit 12,
attached hereto and made a part hereof.
(r) "Accrued Expenses and Other Liabilities" shall mean accrued expenses
and other liabilities of Segue such as accrued vacation of Transferred Employees
but excluding accrued payroll and employee benefits, and excluding liabilities
for federal and state income taxes ("Accrued Expenses and Other Liabilities"),
but limited to those items listed on Exhibit 13, attached hereto and made a part
hereof.
<PAGE>
(s) "Licenses and Permits" shall have the meaning set forth in Section
2(a)(x) hereof.
(t) "Other Contracts" shall mean those employment agreements, service
contracts and other agreements not constituting Premises Lease, Equipment and
Other Leases, Purchase Orders, Sales Commitments or Licenses and Permits, which
are listed on Exhibit 14, annexed hereto and made a part hereof, to the extent
that any of such contracts remain executory after the Purchase Date, copies of
which have been delivered to the Buyer.
(u) "Assumed Contracts" shall mean collectively the Premises Lease,
Equipment and Other Leases, Accounts Payable, Accrued Expenses and Other
Liabilities, Purchase Orders, Sales Commitments, Other Contracts and Licenses
and Permits related to the operation of Segue.
(v) "Transferred Employees" shall mean those employees of Segue engaged in
the design, marketing and distribution of Products and listed on Exhibit 16,
annexed hereto and made a part hereof, whose employment by Segue is terminated
as of the Closing Date and whose employment by Vintage, as hereinafter provided
in Section 8(e), begins on the Closing Date.
(w) "Products" shall mean men's, women's and children's sweaters and
related knitted and woven apparel, including, but not limited to, blouses, tops,
vests, dresses, skirts, slacks, suits and coats.
(x) "Vintage Preferred Stock" shall mean the Vintage, Inc. Series A
preferred stock, no par value per share, a copy of which is attached hereto as
Exhibit 27.
(y) "Vintage Common Stock" shall mean the Vintage, Inc. common stock, $0.10
par value per share, of which a copy of a certificate therefor is attached
hereto as Exhibit 29.
(z) "Hampshire Common Stock" shall mean the Hampshire Group, Limited common
stock, $0.10 par value per share, of which a copy of a certificate therefor is
attached hereto as Exhibit 30, to be delivered pursuant to Section 3(b) hereof.
(aa) "Financial Statements" shall have the meaning set forth in
Section 6(t) hereof.
(bb) "Budget" shall mean the Segue/ Vintage Budget prepared by the
Segue staff for the year ending December 31, 1995, attached hereto as
Exhibit 23 and made a part hereof.
(cc) "Escrow Agreement and Joint Escrow Instructions" shall mean the
agreement between and among the parties hereto setting forth the delivery
instructions for the "Contingent Purchase Price" as set forth in Section
3(c) hereof attached hereto as Exhibit 33 and made a part hereof.
(dd) "Escrow Agent" shall mean that individual appointed by the
parties hereto to serve in the responsibilities set forth in the Escrow
Agreement.
(ee) "Fair Market Value" shall mean the average mean between the last
quoted bid and asked prices on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), for the twenty trading days
immediately preceding the Determination Date. If the Hampshire Common Stock
is not quoted on NASDAQ, or listed on an exchange, or representative quotes
are not otherwise available, the Fair Market Value shall mean the amount
determined by the parties to be the fair market value of the Stock based
upon a good faith attempt to value the Hampshire Common Stock accurately.
(ff) "Determination Date" shall mean the date that the Hampshire
Common Stock is to be delivered in accordance with Section 3(c) hereof.
<PAGE>
2. PURCHASE AND SALE OF THE PURCHASED PROPERTY
(a) Purchase. Subject to the terms and conditions herein set forth, on the
Closing Date, the Seller shall sell, transfer and assign to the Buyer and the
Buyer shall purchase, all of the Seller's rights, title and interest in and to
the Purchased Property described below, free and clear of all mortgages, liens,
charges, encumbrances or security interests of any nature whatsoever other than
those expressly described on Exhibit 15, attached hereto and made a part hereof.
As used in this Agreement, the "Purchased Property" shall mean all tangible and
intangible assets of the Seller other than furniture and fixtures, either owned,
leased or otherwise held by the Seller on the Purchase Date, plus any and all
additions thereto through the Closing Date, including, without limitation, all
of the items described below:
(i) All Accounts Receivable including, without limitations, those
items listed on Exhibit 4, attached hereto and made a part hereof;
(ii) All Finished Inventory and Other Inventory including, without
limitation, those items listed on Exhibit 5, attached hereto and made a
part hereof (to be confirmed by audit);
(iii) All non-inventoried supplies, tooling, repair parts and other
assets located on the Premises, held at contractors or used in the
operations of Segue on the Purchase Date, plus additions thereto through
the Closing Date, excluding items consumed, abandoned or disposed of in the
normal course of operations as obsolete or worn out;
(iv) All Machinery and Equipment, including, without limitation, those
items listed on Exhibit 7. Said Exhibit 7 shall be amended to include any
additions to machinery and equipment, and tangible personal property other
than inventory and furniture and fixtures owned by the Seller and used in
the operations between the Purchase Date and the Closing Date;
(v) All intangible personal property and rights of the Seller,
including, without limitation, all patents, trademarks, service marks,
trade names, copyrights, (whether registered or unregistered) designs,
patterns, computer programs and program products, inventions, know-how,
trade secrets, customer lists, other similar rights, claims against third
parties and all other rights owned, held or leased by the Seller on the
Purchase Date, plus additions thereto through the Closing Date, and all
goodwill of the Seller relating to the business and operations of Segue
(collectively the "Intangible Property") including, without limitation
those listed on Exhibit 8, annexed hereto and made a part hereof;
(vi) All of Seller's Purchase Orders, Other Contracts or other
commitments to suppliers, of goods and services for undelivered materials,
supplies or other items to be utilized in the operations after the Purchase
Date as listed on Exhibits 10 and 14 hereof;
(vii) All Sales Commitments, contracts and orders obligating the
Seller, or outstanding proposals by Segue to sell Products to customers,
after the Purchase Date as listed on Exhibit 11 to the Agreement;.
(viii) The Premises Lease described on Exhibit 2 hereof;
(ix) All Equipment and Other Leases covering machinery and equipment
used at the Premises or in the operations of Segue and any private or
public warehouses, used in the operations of Segue, and listed on Exhibit 3
hereto;
(x) All government permits, authorizations and licenses which are
transferable and owned or held by the Seller and used in the operations,
(collectively, the "Licenses and Permits"), including, without limitation
those described on Exhibit 18. attached hereto and made a part hereof;
(xi) The parties agree that the Purchased Property includes all assets
owned by Segue and all assets used in the operations of Segue, including,
but not limited to all assets located on the Premises on the Purchase Date
and on the Closing Date except those assets specifically excluded (the
"Excluded Property") as listed on Exhibit 9, attached hereto and made a
part hereof.
<PAGE>
(b) Sale at Closing Date. The sale, transfer, assignment and delivery by
the Seller of the Purchased Property to the Buyer, as herein provided, shall be
effected on the Closing Date by bills of sale, endorsements, assignments and
such other instruments of transfer and conveyance sufficient to convey full and
clear title pursuant to Section 5 and substantially similar to those attached
hereto as Exhibit 20.
(c) Subsequent Documentation. The parties shall, at any time and from time
to time after the Closing Date, upon the reasonable request of either party and
at the expense of the requesting party, execute, acknowledge and deliver or will
cause to be executed, acknowledged and delivered, all such further acts,
assignments, transfers, conveyances and assurances as may be required for the
better assigning, transferring, granting, conveying, assuring and confirming to
the Buyer, or to its successors and assigns, or for aiding and assisting in
collecting and reducing to possession any or all of the Purchased Property to be
purchased by the Buyer as provided herein or documents for the benefit of the
Seller.
(d) Assignment and Transfer of Contracts and Warranties. On the Closing
Date, the Seller shall assign and transfer to the Buyer and the Buyer shall
acquire, all of the Seller's rights, title and interest in and to the Assumed
Contracts and all other warranties and other contractual rights as to third
parties held by or in favor of the Seller with respect to the Purchased Property
and the Premises. To the extent that the assignment of any Assumed Contract
shall require the consent of any other party thereto, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment, without
consent, would constitute a breach thereof. The Seller will use its best efforts
to obtain the consent of the other parties to such contracts for the assignment
thereof to the Buyer. If such consent is not obtained in respect of any such
Assumed Contract, the Seller will cooperate with the Buyer in any reasonable
arrangement requested by the Buyer to provide to the Buyer the benefits under
any such Assumed Contract, including enforcement, at the cost of the Seller and
for the benefit of the Buyer, of any and all rights of the Seller against the
other party thereto with respect to such Assumed Contracts.
(e) Limited Assumption of Obligations. The Buyer shall have no obligation,
direct or indirect, and shall not assume or agree to pay, perform or discharge,
nor shall the Buyer be directly or indirectly responsible or obligated for, any
debts, obligations, contracts or liabilities of the Seller wherever or however
incurred, other than those expressly set forth herein in Exhibits 2, 3, 10, 11,
12, 13, 14, 15 and 18 (the "Assumed Obligations"); it being understood that the
Seller shall remain responsible for all such other debts, obligations,
contracts, claims and liabilities of Segue. The Buyer shall have executed and
delivered to the Seller such instrument of assumption, substantially in the form
of Exhibit 21 hereto, as may be necessary to duly effectuate the assumption by
the Buyer of the Assumed Obligations.
(f) Interim Period Conduct of Business. All operations of Segue conducted
between the Purchase Date and the Closing Date (including, without limitation,
all related accounts receivable and cash sales) shall be for the account and
benefit of and at the expense of the Buyer as if this Agreement had been
consummated on the Purchase Date, provided that if the closing does not occur
hereunder all such operations shall be for the account of and at the expense of
the Seller. Promptly after the Closing Date, representatives of the Buyer and
the Seller shall prepare schedules reflecting the transactions entered into by
the Seller during such period and the expenses allocable thereto, and on the
date the adjustments described in Section 4(a) hereof are settled between the
parties, the appropriate party shall make whatever cash adjustment is necessary
to place the parties in the position they would have been in had the closing
actually occurred on the Purchase Date. If there is any dispute between the
parties as to the appropriate amount of the foregoing adjustment, then either
party will submit the dispute to Arthur Andersen, independent public
accountants, who shall resolve the dispute in the manner specified in Section
4(b) hereof.
<PAGE>
(g) The Seller hereby acknowledges that the Purchased Property includes the
name "Segue" and hereby assigns this name to the Buyer; and further the Seller
agrees that within fifteen (15) days after the Closing, the Seller will take
such actions as are necessary to change the name of Segue, Ltd., a California
corporation, to a name not including the name Segue in any form, whereby
Vintage, Inc. may use the name Segue, Inc.
3. PURCHASE PRICE AND PAYMENT
The Seller and the Buyer hereby agree:
(a) Purchase Price. The purchase price for the Purchased Property shall be
Five Hundred and Forty Thousand Dollars ($540,000), plus a contingent purchase
payment of Twenty-Six Thousand (26,000) shares of Hampshire Common Stock set
forth in Section 4(c) below (the "Purchase Price"). The Purchase Price shall be
allocated to the tangible assets of the Sellers, as compiled on the balance
sheet of Segue for December 31, 1994 (Exhibit 26) with any excess being
allocated to intangible assets.
(b) Payment of Purchase Price. On the Closing Date, the Buyer shall deliver
to the Seller a bank check payable to the order of the Seller in the amount of
Five Hundred and Forty Thousand Dollars ($540,000); and the Buyer shall deliver
to the Escrow Agent (as hereinafter defined) two stock certificates issued in
the name of the Seller representing a total of Twenty-Six Thousand (26,000)
shares of Hampshire Common Stock.
(c) Contingent Purchase Price. The Escrow Agent, pursuant to an Escrow
Agreement which is attached hereto as Exhibit 33, shall be instructed to deliver
to the Seller at the end of two years from the date hereof (the "Determination
Date"), the number of shares of Hampshire Common Stock as equals $130,000 worth
of such stock (based on the Fair Market Value of such stock) provided Vintage
achieves eighty percent (80%) of the net income as set forth in the Budget for
the Year Ending December 31, 1995 (the "1995 Financial Condition"), attached
hereto as Exhibit 23 and made a part hereof; and to deliver the number of shares
of Hampshire Common Stock as equals $130,000 worth of such Stock (based on the
Fair Market Value of such stock) provided Vintage achieves an equal income
performance for the year ending December 31, 1996 (the "1996 Financial
Condition") as required for the year ending December 31, 1995 as set forth
above. If the number of shares of Hampshire Common Stock due to Seller pursuant
to this Section 4(c) is less than 26,000 shares, the Escrow Agent shall return
the balance of such shares to the Buyer within five days. All transfers of
Hampshire Common Stock by the Escrow Agent hereunder, shall be effected by the
Escrow Agent through Hampshire. If the number of shares of Hampshire Common
Stock due to Seller pursuant to this Section 4(c) is greater than 26,000, Buyer
shall within five days provide to Seller such excess or the cash equivalent of
such excess (based on the average value of such stock for the sixty days
preceding the Determination Date). Further, if on the business day immediately
preceding the Determination Date, the closing price of the Hampshire Common
Stock as quoted on NASDAQ, or other exchange, is equal to or less than five
dollars ($5) per share, either Buyer or Seller may, on the Determination Date,
opt (the "Cash Option") that in lieu of the Escrow Agent delivering to the
Seller the escrowed Hampshire Common Stock, Buyer shall pay to Seller (i)
$130,000 if only one of either the 1995 Financial Condition or the 1996
Financial Condition is satisfied by Buyer pursuant to this Section 3(c) or (ii)
$260,000 if both the 1995 Financial Condition and the 1996 Financial Condition
are satisfied by the Buyer pursuant to this Section 3(c). In the event either
Buyer or Seller exercises the Cash Option, the Escrow Agent shall return to the
Buyer the escrowed Hampshire Common Stock within five days of such exercise.
This Section 3(c) shall be subject to the Buyer's rights under and limitations
and restrictions of Section 13 hereof. Notwithstanding the above, the shares of
Hampshire Common Stock shall not be delivered on the Determination Date without
the Seller first having made adequate financial provision for the requirements
of Section 13 hereof.
(d) Piggy - Back Registration Rights. To the extent applicable, the Company
hereby agrees to arrange through Hampshire Group, Limited a "cost-free"
registration for all Hampshire Common Stock delivered pursuant to this Section 3
providing that Hampshire Group, Limited files a registration statement (other
than a registration on Form 5-4 or S-8) under the Securities Act of 1933, as
amended.
<PAGE>
(e) Certificate Endorsements. The certificates representing the shares of
Vintage Common Stock and Hampshire Stock shall bear the following legend:
"The shares of stock represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, (the "Act") and may not be
transferred unless a registration statement has been declared effective with
respect to such shares, except in a transaction which, in the opinion of counsel
to the issuing company qualifies as an exempt transaction under the Act and the
rules and regulations promulgated thereunder."
"The shares of stock represented by this Certificate are subject to set-off as
provided in an Agreement for Purchase of Assets dated as of January 1, 1995
between and among Vintage, Inc. and Segue, Ltd. and Neil Friedman."
The certificate representing the shares of Vintage Common Stock shall also bear
the following legend:
"The shares of stock represented by this Certificate are subject to a
Stockholders Agreement dated February 15, 1995 between Hampshire Designers, Inc.
and Neil Friedman."
The certificate representing the shares of Hampshire Common Stock shall also
bear the following legend:
"The shares of stock represented by this Certificate are subject to an absolute
restriction on sale for two (2) years from issue."
(t) Restriction on Sale of Shares. Each of Seller and Shareholder agrees
not to sell or transfer the Hampshire Common Stock for a period of two (2) years
from the Closing Date. Shareholder also agrees that he will not sell, transfer
or assign the Vintage Common Stock unless sold in accordance with the
Stockholders Agreement, attached hereto as Exhibit 31.
4. ADJUSTMENTS
(a) To the extent that the Seller incurs any of the following pertaining to
use of the Premises or the manufacture of Products for the Buyer, the following
items shall be adjusted and allowed as of the Purchase Date
(i) Real and personal property taxes and sales and use taxes;
(ii) Electric, gas, telephone, water and sewer charges;
(iii) Payroll expenses and payroll taxes (including vacation pay,
whether accrued or otherwise);
(iv) Reimbursable employee business expenses;
(v) Employee benefit expenses, including, but not limited to,
workmen's' compensation claims, group benefits and medical benefits
(excluding such claims and benefits as are attributable to occurrences
prior to the Purchase Date);
(vi) Charges under maintenance and service contracts and fees under
licenses included in Assumed Contracts; and
(vii) Rentals for leased property under leases included in Assumed
Contracts.
(b) The adjustments described in Section 4(a) hereof shall be made on the
Closing Date except with respect to any such adjustments which cannot be made on
the Closing Date or as to which the parties are not in agreement on such date.
As soon as possible after the Closing Date, but in any event not later than
twenty (20) days after the Closing Date, representatives of the Seller and the
Buyer shall complete a schedule itemizing all amounts requiring adjustment
pursuant to Section 2(f) and 4(a) hereof which were not adjusted and paid for on
the Closing Date. Any amount owed by Buyer or Seller to the other by reason of
such adjustments shall be paid by corporate or personal check by the appropriate
party to the other within three (3) business days after the approval of the
schedule by the Buyer and the Seller. Any dispute between the Buyer and the
Seller as to the items described in this Section 4 or in Section 2(f) hereof
which does not exceed One Hundred Thousand Dollars ($100,000) shall be resolved
<PAGE>
by Arthur Anderson, independent certified public accountants, who shall resolve
any such dispute referred to them by the Buyer and the Seller within twenty (20)
days after such submission of the dispute, and determination of such accountants
shall be conclusive and binding upon the parties for purposes of this Agreement.
The Buyer and the Seller shall each pay fifty percent (50%) of the fee of such
accountants for resolving any such dispute.
5. CLOSING
(a) The closing under this Agreement ("The Closing") shall be effected by
the delivery by the Seller of the executed Bill(s) of Sale, endorsement,
assignments and such other instruments of transfer and conveyance sufficient to
convey full and clear title to the Purchased Property and the delivery by the
Buyer of the executed assumption agreement and the Purchase Price set forth
herein. The Closing shall take place at the offices of Willkie Farr & Gallagher,
One Citicorp Center, 153 East 53rd Street, New York, New York 10022, on the
Closing Date or at such other place as may be mutually agreed upon in writing by
the Buyer and the Seller and the Shareholder.
6. REPRESENTATIONS AND WARRANTIES OF TILE SELLER AND SHAREHOLDER
The Seller and the Shareholder jointly and severally represent and warrant
to the Buyer as follows: (a) Organization and Standing. Segue, Inc. is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and is qualified to do business as a foreign
corporation and is in good standing under the laws of each state where the
nature of its business or character of its properties make such qualification
necessary.
(b) Ownership of Segue. The Articles of Incorporation of Segue Ltd., a true
copy having been delivered to the Buyer, authorizes ten thousand (10,000) share
of capital stock of one class of which one thousand (1,000) shares are issued
and outstanding, all of which are owned by Friedman. There are no outstanding
warrants or options, written or oral, to purchase shares of Segue and there are
no understandings with present or former employees that they have any rights
whatsoever to any ownership of Segue.
(c) Corporate Authority. The Seller has full power and authority to execute
and to perform in accordance with this Agreement, and this Agreement constitutes
a valid and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms. This Agreement and all transactions contemplated
hereby have been duly authorized by all requisite corporate authority, and all
corporate proceedings required to be taken by the Seller to authorize it to
carry out this Agreement and the transactions contemplated hereby have been duly
and properly taken. The execution and delivery of this Agreement and the
performance by the Seller of its obligations hereunder will not conflict with or
violate any provision of Seller's Certificate of Incorporation or its By-Laws or
conflict with or violate any provisions of, or result in a default or
acceleration of any obligation under any mortgage, lease, contract, agreement,
indenture or other instrument or undertaking or any order, decree or judgment to
which the Seller is a party or by which its property is bound.
(d) Authority of Shareholder. The Shareholder has full power and authority
to enter into this Agreement and to carry out the transactions contemplated
hereby without the consent of any individual, agency, or governmental authority.
(e) Title to Purchased Property. The Seller owns all of the rights, title
and interest in and to all of the Purchased Property free and clear of
restrictions on, or conditions to transfer or assignment, and free and clear of
all mortgages, liens, charges, pledges, claims, encumbrances, restrictions and
security interest of any nature whatsoever other than those listed on Exhibit
15, attached hereto and made a part hereof. On the Closing Date, all of the
Purchased Property shall be free and clear of restrictions on, or conditions to
transfer or assignment, and free and clear of all mortgages, liens, charges,
pledges, claims, encumbrances and security interests, except only those liens
listed on Exhibit 14 hereto, if any.
(f) Net Worth. Segue's net assets, excluding any intangible assets, are
presently, and shall be as of the Purchase Date greater than One Hundred
Thousand Dollars ($100,000).
<PAGE>
(g) Condition of Premises and Machinery and Equipment. Neither the Seller
nor the Shareholder have any knowledge or information available to them of any
material defect in the Premises, including without limitation any material
defects which would render any part of the Premises unsuitable for the uses and
purposes for which the Seller is currently using it, or any other material
defects in the Premises, including, but not limited to, the fixtures and
improvements thereon as of the Purchase Date or as of the Closing Date. The
Machinery and Equipment are in good condition and are fit for the uses and
purposes for which the Seller is currently using them as of the Purchase Date
and the Closing Date. The Purchased Property constitutes all of the assets
necessary to run the business of the Seller.
(h) Inventory. Inventories are stated at the lower of cost or market - cost
is determined using the first-in, first-out ("FIFO") method. Quantities on hand
or in process do not exceed normal requirements of the Seller's business and all
excess inventory has been reduced to realizable value less cost of distribution
and normal gross margin. All Products manufactured by or for the Seller or sold
by the Seller from and after January 1,1992, including, without limitation, the
Finished Inventory, have been manufactured in accordance with all applicable
customer specifications and standards and are fit for the end use for which they
were or hereafter are purchased. The Seller manufactured such Products in
accordance with all applicable federal, state and local laws, rules and
regulations, including but not limited to OSHA, the Federal Food, Drug &
Cosmetic Act and the Federal Fair Labor Standards Act; and the sale by the Buyer
of any such Products manufactured by or for the Seller shall not result in the
violation of such laws, rules or regulations because of any act or omission of
the Seller in such manufacturing. The Other Inventory is of a type and quality
usable and sellable in the ordinary course of business.
(i) Compensation Due Transferred Employees. The Seller has delivered to the
Buyer Exhibit 16, which includes a true and complete list showing the names and
job descriptions of all Transferred Employees as of the Closing Date, together
with a statement as to the full amount of compensation paid or payable to, or on
behalf of, each employee of Segue, Ltd. for services rendered during the
calendar years ended December 31,1993 and 1994, the current base compensation
rate for each such person, the vacation earned but not taken, and the number of
vacation days to which each such person is entitled in 1995. Except for any such
benefits that may have accrued prior to the Closing Date, the Seller does not
have any outstanding liability with respect to the Transferred Employees for
payment of wages, vacation pay, salaries, bonuses, sick pay, severance pay,
workmen's compensation, group benefits, medical benefits, reimbursable employee
business expenses, pensions, contributions under any employee benefit plans or
any other compensation, current or deferred, under any labor or employment
contracts, whether oral or written, based upon or accruing with respect to those
services of such employees performed prior to the Purchase Date, except as
otherwise disclosed in the aforementioned Exhibit 16 and except for any payment
due for the current payment or contribution period, such payment being in the
ordinary course of business and consistent with past practices. The Seller has
not, because of past practices or previous commitments with respect to the
Transferred Employees, established any rights on the part of such employees to
receive additional compensation or anything of value, including any claim to
equity in the Seller or its assets, with respect to any period after the date
hereof except as disclosed in the Agreement.
(j) Union Agreements and Employment Agreements. The Seller is not now and
never has been a party to any union agreement or similar agreement nor does the
Seller have any agreement(s) with any Transferred Employees which are not
described in Exhibits 14 and 16 attached hereto and made a part hereof.
(k) Contracts and Agreements. The copies of the Assumed Contracts
previously furnished by the Seller to the Buyer constitute true, correct and
complete copies of all such agreements, reflecting all amendments to the Closing
Date. The Seller has performed all of its obligations under the Assumed
Contracts required to have been performed by it on or prior to the Closing Date
hereunder, and the Seller has not received any notice of default, nor is the
Seller in default, nor does any condition exist which with notice or lapse of
time, or both, would render the Seller in default under any Assumed Contract. To
the extent there are any product liability claims against either the Buyer or
<PAGE>
the Seller respecting any delivered product pursuant to a sale made by the
Seller prior to the Closing Date, such claims shall be the responsibility of
Seller and any damages suffered by Buyer in respect thereof shall be fully
indefinable by Seller and Shareholder in favor of Buyer pursuant to Section 11
hereof.
(1) Licenses and Permits. The licenses and permits listed on Exhibit 18,
annexed hereto and made a part hereof, are the only licenses and permits
currently required by Segue for the operations at the Premises and all such
licenses and permits are in effect as of the date hereof. The Seller has no
knowledge of any facts which would preclude the Buyer from obtaining any such
licenses and permits upon proper submission by the Buyer of applications
therefor, nor does the Seller have knowledge of any facts relating to the
Buyer's use of the Machinery and Equipment for the continued use of the Premises
which would require the Buyer to obtain any licenses or permits in addition to
those described in Exhibit 18. The Seller has complied with all conditions or
requirements imposed by such Licenses and Permits, and the Seller has not
received any notice, nor does the Seller have knowledge, that any appropriate
authority intends to cancel or terminate any of such Licenses or Permits or that
valid grounds for such cancellation or termination currently exits.
(m) Insurance. Exhibit 19, annexed hereto and made a part hereof, lists and
describes all insurance policies now in force with respect to the Premises, the
Purchased Property and the Transferred Employees. The Seller will continue in
full force and effect through the Closing Date all such policies of insurance.
The Seller has not been refused any insurance by any insurance carriers to which
it has applied for insurance with respect to the Premises, the Purchased
Property, or the Transferred Employees during the last two (2) years.
(n) Litigation and Labor Disputes. Except as described in Exhibit 17,
annexed hereto and made a part hereof, there are no actions, suits, proceedings
or investigations pending or, to the knowledge of the Seller, threatened against
the Seller at law or in equity or admiralty or before or by any federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality, domestic or foreign, nor has any such action, suit, proceeding
or investigation been pending during the two year period preceding the date
hereof; and except as described in Exhibit 17, the Seller is not in default with
respect to any order, writ, injunction or decree, to which Seller(s) is a party
or by which it or its property is bound, of any court or federal, state,
municipal or governmental department, commission, board, agency or
instrumentality, domestic or foreign; and except as described in Exhibit 17,
there are no pending or, to the knowledge of the Seller, threatened labor
disputes, actions or grievances between the Seller and any labor union or any
employee or former employee of the Seller.
(o) Compliance With Laws. To the best of the knowledge of the Seller and
the Shareholder, the Seller is in compliance with all laws, statutes and
ordinances and governmental requirements, relations and orders involving or
affecting any of the Purchased Property or applicable to the manufacture of
Products and the use of the Premises for such uses and purposes and, without
limiting the foregoing, the Seller is in compliance with the provisions of the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6905 et seq. (the
"Hazardous Waste Act"), applicable to all inventory, raw materials, work in
process, supplies and other materials located on the Premises on the Purchase
Date and as of the Closing Date. None of the Purchased Property constitutes, or
would if deemed discarded constitute, "hazardous waste" as defined in Section
1004(5) of the Hazardous Waste Act.
(p) Information. The Shareholder has supervised the gathering of
information necessary to complete the Agreement documentation that supports the
representations and warranties. The Seller and the Shareholder state that they
have taken all reasonable steps to verify the accuracy of all information and
documentation provided to the Buyer regarding the operation of Segue and the
representations and warranties, and that each of the representations and
warranties are true and correct as of the closing date.
(q) Insignificant and Nonsubstantial Errors. Buyer understands that, even
though the Seller and the Shareholder have exerted every effort to make the
Agreement documentation, representations and warranties completely accurate,
there could be insignificant or nonsubstantial errors, for any particular item
or in the aggregate less than $5,000 due to unintentional oversight. Such errors
shall not be considered a breach of this Agreement, but the Seller shall make
every effort to promptly correct such errors when discovered or called to its
attention and promptly reimburse the Buyer if the item was at the expense of the
Buyer.
(r) Notification Period for Shareholder. The Buyer further waives any
rights or claims arising out of any inaccuracy in the representations and
warranties of Shareholder as to which Buyer has not given written notification
to the Seller and Shareholder of an asserted breach within three (3) years after
the Closing, which notification must describe with specificity the nature of the
asserted breach and the amount of the claim, provided that the three (3) year
limitation shall not apply to a breach of Sections 6(a), (b), (c), (d), (e) or
(t).
<PAGE>
(s) Use of Name. The Buyer and any of its future affiliates shall have the
right to use the name "Segue" and the Seller and none of its present or future
affiliates shall use the name and any combination or similar name. The Buyer
shall have the right to represent that it is carrying on business in succession
to Segue. The Seller will on request of the Buyer and at the Buyer's expense,
give notices to that effect to such of the Seller's customers, suppliers and
others with whom the Seller has had business relations. The notices shall be in
a form satisfactory to the Buyer.
(t) Financial Statements. The financial condition of Segue is set forth in
(i) the unaudited financial statements for year ended December 31, 1994; and
(ii) the unaudited financial statements for year ended December 31,1993 with the
opinion of Matthews and Co., Certified Public Accountants (hereinafter referred
to jointly as the "Financial Statements"). The financial condition of Segue, as
presented by the Financial Statements, does not in any material respect differ
from the financial condition of Segue as will be presented by said audited and
certified financial statements for the year ended December 31, 1994. In
addition, on a historical basis, the financial condition of Seller on the
Closing Date will not differ in any material respect from the financial
condition of Seller as of the Purchase Date. The Seller has no liabilities not
disclosed on the Financial Statements.
(u) Freedman's Best Involvement Efforts. Friedman warrants and represents
that he will fulfill his obligations as set forth in this Agreement and in his
Employment Agreement described in Exhibit 32, attached hereto and made a part
hereof.
(v) Accredited Investors. The shares of stock are being acquired by the
Seller for investment purposes only and not as a nominee or agent for the
benefit of any person other than the Shareholder; and neither the Seller nor the
Shareholder has any intentions of distributing, reselling, or reassigning, the
shares of stock or any part thereof.
The Seller and the Shareholder understand that the shares of stock have not
been registered under the Securities Act of 1933, as amended ("The 1933 Act"),
or under the laws of any jurisdiction and that neither the Buyer nor Hampshire
does not contemplate and is under no obligation to so register the shares of
stock.
The Seller and Shareholder have been advised that Vintage, Inc. is a newly
organized company capitalized with Two Hundred Thousand Dollars ($200,000) and
that it has no operating history.
The Seller and Shareholder have sufficient financial resources available to
support the loss of all or a portion of the investment in the stock, and have no
need for liquidity in the investment in the stock and are able to bear the
economic risk of the investment. The Seller and Shareholder are sophisticated
and experienced in investment matters; as a result, they are in a position to
evaluate the investment in the stock. The Seller/Shareholder is an "accredited
investor" within the meaning of Rule 501(a) of Regulation D promulgated under
the 1933 Act.
7. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
(a) Organization and Standing. Vintage, Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and, as of the Closing Date, will be duly qualified to transact
business in the State of New York or shall have filed for and reasonably expect
to receive such qualification and good standing.
(b) Corporate Authority. The Buyer has full corporate power and authority
to execute and perform in accordance with this Agreement, and this Agreement
constitutes a valid and binding obligation of the Buyer. This Agreement and all
transactions contemplated hereby have been duly authorized by all requisite
<PAGE>
corporate authority and all corporate proceedings required to be taken by Buyer
to authorize it to carry out this Agreement and the transactions contemplated
hereby have been duly and properly taken. The execution and delivery of this
Agreement and the performance by the Buyer of its obligations hereunder will not
conflict with or violate any provision of the Buyer's Certificate of
Incorporation or its By-Laws or conflict with or violate any provisions of, or
results in a default or acceleration of any obligation under, any mortgage,
lease, contract, agreement, indenture, or other instrument or undertaking or any
order, decree or judgment to which the Buyer is a party or by which it or its
property is bound.
(c) Shares Authorized and Outstanding. The Certificate of Incorporation of
Vintage, Inc. authorizes Ten Thousand (10,000) shares of capital stock of which
Five Thousand (5,000) shares have been designated as common stock, $0.10 par
value per share (hereinafter referred to as "Vintage Common Stock"), and Five
Thousand (5,000) shares have been designated as preferred stock, no par value
(hereinafter referred to as "Vintage Preferred Stock"). As of the Closing Date,
disregarding the issuance of shares of Vintage Common Stock as provided
hereunder, there are Four Hundred (400) shares of Vintage Common Stock issued
and outstanding and One Thousand Eight Hundred (1,800) shares of Vintage
Preferred Stock issued and outstanding all of which are owned by Hampshire
Designers, Inc. ("Hampshire").
(d) Buyer's Effort to Remove Conditions. The Buyer will use its
commercially reasonable efforts to satisfy and remove any condition to the
Buyer's performance at Closing under this Agreement.
(e) Products Liability Claims. To the extent there are any products
liability claims against the Buyer respecting any products pursuant to a sale
made by the Buyer subsequent to the Closing date, such claims shall be the
responsibility of Buyer and shall not be indefinable by Seller.
8. COVENANTS
(a) Bulk Sales Compliance. Buyer agrees to waive the requirement that
Seller comply with the sections of the New York State Uniform Commercial Code
relating to bulk transfers (the "Bulk Sales Law").
(b) Records. The Seller and the Shareholder shall jointly preserve the
books and records relating to Transferred Employees and former employees of
Segue, the manufacture of Products and other matters for a period of at least
three (3) years after the Closing Date and shall, during such period and upon
reasonable notice, grant the Buyer access to such records during normal business
hours for the purpose of allowing the Buyer to verify information which the
Buyer may require in connection with the transfer from the Seller to the Buyer
of the operations and employees.
(c) Licenses and Permits. From and after the date hereof, the Seller shall
use its best efforts in arranging the transfer from the Seller to the Buyer, or
the issuance directly to the Buyer, of the Licenses and Permits described in
Exhibit 17 hereto.
(d) Operation of Business. During the period between the date hereof and
the Closing Date, the Seller shall conduct the operations with respect to the
manufacture of Products in the ordinary course of business consistent with its
prior business practices and shall not sell or encumber any item of the
Purchased Property without the prior written consent of the Buyer. The Seller
and Shareholder shall use their best efforts through the Closing Date to
preserve the business and suppliers of the Seller's with respect to the
manufacture of Products.
(e) Employees. During the period between the date hereof and the Closing
Date, the Seller and Shareholder will use their best efforts to keep available
the Seller's present employees now employed in the business for transfer to and
employment by the Buyer, without making any increase after the date hereof in
the compensation or benefits, current or deferred, provided to such employees,
without the prior written consent of the Buyer, except as required under any
contract listed on Exhibit 14 in effect as of the Purchase Date.
On and as of the Closing Date, the Buyer shall offer employment and become
the employer of all employees of the Seller listed on Exhibit 16 annexed hereto
who accept such offer and are then engaged in the operation and continue in an
active work status. The Seller shall, at the time and in the manner requested by
the Buyer, inform all Transferred Employees of the termination of their
<PAGE>
employment by Segue as of the Closing Date and the Buyer and the Seller shall
promptly notify the Transferred Employees of Buyer's offer of employment as of
the Closing Date. To the extent there exist, prior to the Closing Date, any
unpaid accrued benefits of the type referenced in Section 6(i) hereof, Seller
shall be responsible for payment thereof. Nothing in this Agreement shall be
construed so as to entitle any employee of Segue to severance or other similar
pay under any agreement or understanding with the Seller. Except as may be
specifically required by applicable law or any agreement assumed by the Buyer,
the Buyer shall not be obligated to continue the employment relationship of any
Transferred Employee.
The Seller shall be solely responsible for any liabilities, obligations and
expenses which may be suffered by the Seller or the Buyer as the result of
claims asserted against the Seller or the Buyer as a consequence of the
termination by the Seller of Transferred Employees or any other employees or
former employees or any plans or benefits applicable to any of them or as the
result of any other claims of any such employees or former employees.
Without limiting the foregoing, the Buyer will not assume and the Seller
shall indemnify and hold the Buyer harmless against:
(i) Disability, health and medical, life, safety and worker
compensation claims of present or former employees of the Seller arising
from acts or occurrences prior to the Closing Date;
(ii)NLRB or employment discrimination or grievance charges of present
or former employees arising during employment by the Seller or from the
Seller's acts or omissions prior to the Closing Date;
(iii) Savings, profit sharing, deferred compensation, retirement
benefits, incentive, bonus and termination pay payable to the Seller's
present or former employees for service with the Seller;
(iv) Any liabilities or obligations to present or former employees of
the Seller which are based on acts or omissions of Seller arising prior to
the Closing Date.
The Seller shall be responsible for the items listed in clause (i) through
(iv) above whether or not claims or charges with respect thereto were asserted
before the Purchase Date, or the employees, or former employers, of the Seller
to which the item relates become employees of the Buyer.
Any and all present or former employees of the Seller, or any entity now or
previously affiliated with the Seller, not hired by the Buyer, either at the
Closing Date or subsequent thereto, will remain the sole responsibility of the
Seller, and the Seller shall indemnify and hold the Buyer harmless from all
liabilities, obligations and expenses which may be suffered by Buyer as the
result of any claim against the Buyer by or relating to any such employee.
(f) Covenant Not To Compete. Subject to that certain Stockholder Agreement
between Hampshire Designers, Inc. and Neil Friedman dated February 15, 1995 and
that certain Employment Agreement between Vintage, Inc. and Neil Friedman dated
February 15, 1995, neither the Seller nor the Shareholder shall:
(i) Compete, either directly or indirectly, with the Buyer in the
manufacture or sale of Products in any geographic area in which the Seller
manufactured or sold Products during the two year period ended December 31,
1994, or in which the Buyer or any successor thereto then manufactures or
sells Products; or
(ii) Interfere with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between the Buyer and any customer, supplier or
employee of the Buyer.
It is the desire and intent of the parties that the provisions of this
Section 9(f) shall be enforced to the fullest extent permissible under the law
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular subsection or portion of this Section 9(f) shall
be adjudicated to be invalid or unenforceable, this Section 8(f) shall be deemed
amended to delete the portion thus adjudicated to be invalid or unenforceable;
such deletion to apply only with respect to the operation of this Section 8(1)
in the particular jurisdiction in which such adjudication is made.
(g) Removal of Hazardous Waste. Prior to the Closing Date, the Seller shall
have removed from the Premises any of its inventory, raw materials, work in
process, supplies and any other materials which constitute "Hazardous Waste" as
defined in Section 1004(5) of the Hazardous Waste Act (all of such materials
being hereinafter referred to as "Hazardous Waste"). In determining whether any
<PAGE>
of its inventory, raw materials, work in process, supplies and other materials
might constitute Hazardous Waste, Seller shall consider all of such inventory
and materials located on the Premises after the Purchase Date to be "discarded
material" for purposes of the definition of "solid waste" set forth in Section
1004(27) of the Hazardous Waste Act.
(h) Life Insurance. The Buyer may, at its election and for its benefit,
insure Friedman against accidental loss or death for an amount not to exceed Two
Million Dollars ($2,000,000) and Friedman shall agree to submit to such physical
examinations, supply such information and take such other steps as may be
required in connection therewith.
(i) Leases. From and after the date hereof, the Seller shall use its best
efforts in arranging the assignment or subletting to Vintage, or execution of
new leases in the name of Vintage on substantially as favorable terms as those
contained in, those real estate and other leases under which the Seller
conducted its business prior to the Closing Date, which is identified by the
Buyer after the date hereof as leases which it desires to assume or otherwise
operate under.
(j) Compliance with Laws. If the Seller is not in compliance to the extent
set forth in Section 6(o) hereof, the Seller shall use its best efforts to
ensure such compliance and to correct any violations of such laws, statutes,
ordinances, governmental requirements, relations and orders.
9. CONDITIONS PRECEDENT OF THE BUYER
The obligations of the Buyer hereunder are subject to the satisfaction of
the following conditions on or prior to the Closing Date, any of which may be
waived by the Buyer, in its sold option:
(a) Representations and Warranties True at Closing. The representations and
warranties of the Seller contained in this Agreement or in any certificate or
document delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true on and as of the Closing Date and
such representations and warranties shall be deemed made at and as of such date,
except as otherwise expressly provided herein.
(b) Seller's and Shareholder's Compliance with Agreement. The Seller and
the Shareholder shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by them
prior to or at the Closing.
(c) Opinion of Seller's Counsel. The Seller shall have delivered to the
Buyer at the Closing an opinion of Baratta & Goldstein, Attorneys at Law, dated
the Closing Date, to the effect that:
(i) Segue, Ltd. is a corporation duly organized, validly existing and
in good standing under the laws of the State of California,
(ii) Sellers have full corporate power and authority to sell the
Purchased Property to the Buyer;
(iii) All corporate proceedings required to be taken by the Seller to
authorize it to carry out this Agreement and the transactions contemplated
herein have been duly and properly taken, and this Agreement has been duly
and validly executed and constitutes the valid and binding obligation of
the Seller and the Shareholder in accordance with its terms;
(iv) The instruments of conveyance delivered by the Seller to the
Buyer at the Closing have been duly authorized and validly executed and
constitute valid and binding instruments of conveyance of the Seller in
accordance with their respective terms; and
(v) The execution and delivery of this Agreement, and the performance
of the Seller and the Shareholder of their obligations hereunder will not
conflict or violate any provision of Segue's Certificate of Incorporation
or its By-Laws or conflict with or violate any provisions of, or result in
a default or acceleration of any obligation under, any mortgage, lease,
contract, agreement, indenture, or other instrument or undertaking, of
which such counsel has knowledge, or any order decree or judgment, of which
such counsel has knowledge, to which the Seller is a party or by which any
of them or their property is bound.
(d) Injunction: Strike. On the Closing Date, there shall be no effective,
and no person has sought, an injunction, writ, preliminary restraining order or
any order of any nature issued by a court of competent jurisdiction directing
that the transactions provided for herein or any of them not be consummated as
herein provided and the employees of the Seller, at the Premises, shall not be
on strike or threatening to strike or disruption of the Seller's business.
<PAGE>
(e) Casualty. Neither the Purchased Property nor any substantial portion
thereof shall have been adversely affected in any material way as a result of
any fire, accident, flood or other casualty or act of God or the public enemy,
nor shall any substantial portion of the Purchased Property have been stolen,
taken by eminent domain or subject to condemnation.
(t) Resolutions and Seller's Certificate. The Seller shall have delivered
to the Buyer copies of the resolutions of the Board of Directors and Shareholder
of Segue, authorizing the transactions contemplated herein, with such
resolutions to be certified to be true and correct by its Secretary, together
with a certificate of the President and the Secretary of Segue dated the Closing
Date, certifying in such detail as the Buyer may request to the fulfillment of
the conditions specified in subsection 9(a) and (b) above.
(g) Lease. A new lease or sublet agreement for the Premises, in the name of
Vintage, shall have been executed by all parties thereto and delivered at the
Closing and Vintage shall post reasonable additional security respecting such
lease if so required by the landlord of the Property.
(h) No Material Adverse Change in Business. There shall have been no
developments or changes in the business of the Seller since December 31, 1994,
which would have a material adverse effect on the value of its business or on
the Purchased Property or goodwill of the Seller.
(i) Consents. On or prior to the Closing Date, the Seller shall have
obtained all consents and authorizations required from its lenders or any other
third parties to execute and deliver this Agreement and to carry out the
transactions contemplated hereby or otherwise required in order to permit the
Buyer to conduct business at the Premises and manufacture Products in
substantially the same manner as the Seller conducted business and manufactured
Products prior to the Closing.
(j) Employment Agreement. Friedman shall have executed an Employment
Agreement with Vintage substantially in the form of the draft Employment
Agreement attached hereto as Exhibit 32.
(k) Shareholders' Agreement. Friedman and Hampshire, the two shareholders
of Vintage, shall have executed a shareholders' agreement providing in respect
to Vintage, among other things: (x) the dividend policy; (y) method of election
of a Board of Directors; and (z) a buy-sell provision, substantially in the form
of the draft Stockholders' Agreement attached hereto as Exhibit 31.
10. CONDITIONS PRECEDENT OF THE SELLER AND SHAREHOLDER
The obligations of the Seller and the Shareholder hereunder are subject to
the satisfaction of the following conditions that on or prior to the Closing
Date, any one of which may be waived by the Seller and the Shareholder, in their
sole option:
(a) Subordinated Note. The subordinated note payable to Deborah Friedman by
Segue and assumed by the Buyer in the amount of Six Hundred and Eighty-Nine
Thousand, Three-Hundred Twenty-One and 02/100 Dollars ($689,321.02) shall be
paid in full by Vintage, Inc. simultaneous with the Closing under this
Agreement.
(b) Representations and Warranties True at Closing. The representations and
warranties of the Buyer contained in this Agreement or in any certificate or
document delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true on and as of the Closing Date as
though such representations and warranties were made at and as of such date,
except as otherwise contemplated herein.
(c) Buyer's Compliance with Agreement. The Buyer shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing Date.
(d) Resolutions and Buyer's Certificate. The Buyer shall have delivered to
the Seller copies of the resolutions of the Board of Directors of the Buyer
authorizing the transactions contemplated herein, with such resolutions to be
certified to be true and correct by its Secretary together with a certificate of
the President and the Secretary of the Buyer, dated the Closing Date, certifying
in such detail as the Seller may request to the fulfillment of the conditions
specified in subsections 10(a) and (b) above.
(e) Opinion of Buyer's Counsel. The Buyer shall have delivered to Seller at
the Closing an opinion of Willkie Farr & Gallagher, Attorneys at Law, dated the
Closing Date, to the effect that according to its knowledge:
(i) The Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
<PAGE>
(ii) The Buyer has full corporate power and authority to purchase the
Purchased Property from the Seller;
(iii) All corporate proceedings required to be taken by the Buyer to
authorize it to carry out this Agreement and the Assignment and Assumption
Agreement and the transactions contemplated herein and therein have been
duly and properly taken, and this Agreement, and the Assignment and
Assumption Agreement constitute valid and binding obligations of the Buyer
in accordance with their terms; and
(iv) The execution and delivery of this Agreement, and the Assignment
and Assumption Agreement, and the performance by the Buyer of its
obligations hereunder and thereunder, will in no way conflict with or
violate any provision of the Buyer's Certificate of Incorporation or its
By-Laws or conflict with or violate any provision of, or result in a
default or acceleration of any obligation under, any mortgage, lease,
contract, agreement, indenture, or other instrument or undertaking, of
which such counsel has knowledge, or any order, decree or judgment, or
which such counsel has knowledge, to which the Buyer is a party or by which
it or its property is bound.
(f) Parent Company Contribution. The Buyer has received from Hampshire
Designers, Inc., its parent company, a One Million, Two Hundred and Fifty
Thousand Dollar ($1,250,000) cash transfer which shall have been designated as
Twenty Thousand Dollars ($20,000) in exchange for Four Hundred (400) shares of
Vintage Common Stock; One Hundred and Eighty Thousand Dollars ($180,000) in
exchange for One Thousand-Eight Hundred (1,800) shares of Vintage Preferred
Stock; Eight Hundred Thousand Dollars ($800,000) Subordinated Note Payable
(Exhibit 34); and Two Hundred and Fifty Thousand Dollars ($250,000) intercompany
advances payable.
(g) Injunction. On the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any of them not be consummated as herein provided.
11. INDEMNIFICATION
(a) The Seller and the Shareholder shall jointly and severally indemnify
and hold the Buyer harmless from and against and in respect of any and all
liabilities, losses, damages, claims, costs and expenses, including but not
limited to reasonable attorneys' fees, arising out of or due to:
(i) A breach of any representations, warranties or covenants of the
Seller or the Shareholder contained in this Agreement;
(ii) Any and all claims, other than liabilities of the Seller
expressly assumed by the Buyer under this Agreement, which are asserted by
persons who are not parties to this Agreement against the Buyer or the
Purchased Property arising out of any claim or alleged claim against the
Seller, including, but not limited to claims arising out of Buyer's waiver
of and the resulting failure of Seller to comply with the Bulk Sales Law or
any violation thereof, and without regard to whether such claims exist on
the Closing Date or arise at any time thereafter;
(iii) Any claim by customers of the Buyer or the ultimate purchaser or
user of Products manufactured by the Seller or of Finished Inventory based
upon defects or alleged defects therein, provided that the Buyer is
reasonably satisfied that such goods are defective or otherwise not
acceptable to the customer for commercially sound reasons;
(iv) Any liabilities of the Seller which are not expressly assumed by
the Buyer under the terms of this Agreement; or
(v) Any and all claims asserted in respect of the conduct by the
Seller of its business at the Premises prior to the Closing without regard
to whether such claims exist on the Closing Date or arise at any time
thereafter, and any and all actions, suits, proceedings, demands,
assessments or judgments, costs and expenses incidental to any of the
foregoing.
(b) The Buyer shall indemnify and hold the Seller harmless from and against
and in respect of any and all liabilities, losses, damages, claims, costs and
expenses, including, but not limited to reasonable attorneys' fees, arising out
of or due to:
<PAGE>
(i) A breach of any representations, warranty or covenant of the Buyer
contained in this Agreement; and
(ii) The Buyer's failure to perform Assumed Contracts and any and all
actions, suites, proceedings, demands, assessments or judgments, costs and
expenses incidental to any of the foregoing.
(iii) Any and all claims asserted in respect to the conduct by the
Buyer of its business after the Closing, and any all actions, suits,
proceedings, demands, assessments or judgments, costs and expenses
incidental to any of the foregoing.
(c) (i) If a claim shall be made or threatened, or an action or proceeding
shall be commenced or threatened against a party hereto (the "Aggrieved Party")
which could result in liability of the other party (the "Indemnifying Party")
under its indemnification obligations hereunder, the Aggrieved Party shall give
to the Indemnifying Party prompt notice of such claim, but in any event within
thirty (30) days action or proceeding. Such notice shall state the basis for the
claim, action or proceeding and the amount thereof (to the extent such amount is
determinable at the time when such notice is given).
12. SHAREHOLDER'S GUARANTEE
The Shareholder hereby guarantees to the Buyer full payment or the
performance of the Seller in all respects. Pursuant to this Section 12, the
Buyer is entitled immediately to deduct any sum due to the Buyer under this
Agreement from the Hampshire Common Stock to be delivered to the Seller pursuant
to Section 3(c) hereof; the vintage Common stock; dividends, bonus or salary
payable to the Shareholder or from any other monies owed to the Shareholder
without first seeking recourse against the Seller.
13. BUYER'S RIGHT OF SET-OFF
In the event that the Buyer has one or more claims under this Agreement
against the Seller or the Shareholder reasonably alleging a breach of or claim
under one or more of the provisions hereof and notifies the Seller and the
Shareholder in writing of the amount of and reasonable basis for such claims on
or prior to the third anniversary of the Closing, the Buyer shall deduct the
amount from (x) the Hampshire Common Stock; (y) the Vintage Common Stock; and/or
(z) the salary, bonus and dividends payable to the Shareholder from Vintage; and
the amount shall be paid to the Seller/Shareholder only upon: (i) a final and
unappealable court order directing such payment; or (ii) such date, if any, as
may be agreed upon in writing by the Buyer and the Seller, whichever first
occurs. The Buyer's rights set forth in this Section 13 shall be in addition to,
and shall not in any way limit or restrict, the Buyer's other rights and
remedies arising under this Agreement or by law or otherwise.
Without limiting the foregoing, not withstanding the agreement by the
parties hereto who waive compliance with any bulk sale law, the Seller and the
Shareholder agree that if the Buyer is required, due to application of any Bulk
Sales Law or otherwise, to pay debts or other liabilities of the Seller, the
Buyer may deduct the amount of all such payments made by it in the same manner
set forth in the above paragraph.
14. BROKERAGE
The Seller and the Buyer represent and warrant to each other that all
negotiations relative to this Agreement and the transactions contemplated hereby
have been carried on by the Seller and the Shareholder directly with the Buyer
and without the intervention of any broker, finder or other third party.
15. NOTICES
All notices, requirements, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given upon delivery, if
delivered in person, or on the third business day after mailing, if mailed, by
registered mail, postage prepaid, return receipt requested, as follows:
If to the Shareholder: With copy to:
Segue, Ltd. Joseph P. Baratta, Esquire
Attn: President Baratta & Goldstein
102 West 38th Street 597 Fifth Avenue
New York, NY 10018 New York, NY 10017
<PAGE>
If to the Shareholder: With copy to:
Mr. Neil Friedman Joseph P. Baratta, Esquire
37 Hemlock Ridge Road Baratta & Goldstein
Weston, CT 06883 597 Fifth Avenue
New York, NY 10017
If to Buyer: With copy to:
Vintage, Inc. Harvey Sperry, Esquire
Attn: Secretary Willkie Farr & Gallagher
Post Office Box 2667 1 Citicorp Center
215 Commerce Boulevard 153 East 53rd Street
Anderson, SC 29622 New York, New York 10022
and
Mr. Eugene Warsaw, President
Hampshire Designers, Inc.
1372 Broadway, 20th Floor
New York, New York 10018
or to such other address or to such other person as the Seller, the Shareholder
or the Buyer shall have last designated by notice to the other party.
16. NATURE AND SURVIVAL OF REPRESENTATIONS
All statements contained in any certificate or other instrument delivered
by or on behalf of the Buyer or the Seller pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties by the Buyer and by the Seller, respectively,
hereunder. All representations and warranties and agreements made by the parties
hereto in this Agreement or pursuant hereto shall survive the closing hereunder.
17. EXPENSES
The parties hereto shall bear their respective expenses in connection with
the transactions herein contemplated.
18. TERMINATION
If the Closing hereunder is not held, the parties shall nonetheless have
their other respective rights or remedies now or hereafter existing at law or in
equity or by statute; provided, however, that if an action, suit or proceeding
with respect to right or remedies arising because the Closing hereunder does not
occur or is not commenced on or before February 28, 1995, the Agreement shall be
terminated as of that date and neither Buyer nor Seller shall have any further
rights or obligation hereunder.
19. PARTIES
Nothing contained in this Agreement is intended or shall be construed to
give any person or corporation, other than the parties hereto and their
respective successors, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained; this Agreement
being intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective successors and for the benefit of no other person or
corporation.
20. NEW YORK LAW TO GOVERN
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
21. SEVERABILITY
If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term of this
Agreement, such provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part of this Agreement; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance from
this Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid, and enforceable.
<PAGE>
22. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original if executed by Purchaser and all of which together
shall constitute one and the same instrument.
23. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement between the parties hereto
with respect to the transactions contemplated herein and no representation,
promise, inducement or statement of intention relating to the transactions
contemplated by this Agreement has been made by any party which is not set forth
in this Agreement. This Agreement shall not be modified or amended except by an
instrument in writing signed by or on behalf of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first hereinabove written.
ATTEST:
SEGUE, LTD., SELLER
/s/ Neil Friedman
- --------------------
Its President
WITNESS:
SHAREHOLDER:
/s/ Neil Friedman
- --------------------
Neil Friedman
ATTEST:
/s/ Charles W. Clayton
- ---------------------
Charles W. Clayton
Its Secretary
VINTAGE, INC., BUYER
/s/ Eugene Warsaw
- ---------------------
By Eugene Warsaw
Its President and Chief Executive Officer
HAMPSHIRE GROUP, LIMITED
215 COMMERCE BOULEVARD
ANDERSON, SOUTH CAROLINA 29621
May 6, 1992
Mr. Ludwig Kuttner
Estouteville Farm
Keene, Virginia 22946
Dear Mr. Kuttner:
We refer to the agreement (the "Employment Agreement") dated January 28,
1991 between Hampshire Group, Limited (the "Company") and you. This will confirm
our agreement to amend the Employment Agreement as follows:
Effective as of the date on which the underwritten public offering (the
"Public Offering") of 1,300,000 shares of the Company's common stock, par value
$.10 per share, is consummated, paragraph 3(a) of the Employment Agreement shall
be deleted in its entirety and replaced with the following paragraph:
"(a) Salary. During the term of the employment se forth in Section 2
hereof, the Company shall pay the Employee a salary ("Salary") at the rate
of $20,834 per month from the date on which the underwritten public
offering of 1,300,000 shares of the Company's common stock, par value $.10
par share is, consummated through and including December 1992; $22,084 per
month during calendar year 1993; and $23,750 during calendar year 1994,
payable, in each case, in equal monthly installments. The Salary payable
for periods subsequent to calendar year 1994 shall be reviewed and
determined by the Board of Directors of the Company, but in no event shall
the Employee's salary for any such subsequent period be reduced for any
calendar year during which the Employee remains employed by the Company to
less than the amount payable to Employee during calendar year 1994."
Effective as of the date on which the Public Offering is consummated,
paragraph 3(b) of the Employment Agreement shall be deleted in its entirety and
replaced with the following paragraph:
"(b) Bonus. The Employee shall be entitled to receive an annual bonus
("Bonus") for each calendar year or any portion thereof during this
Agreement, within 15 days after the completion of the annual audit of the
Company's financial statements for such year by its independent certified
public accountant (the "CPA"), in an amount equal to six percent of the
excess of (i) the Company's net income as determined by the CPA ("Net
Income") for such year over (ii) the Company's Net Income for 1991;
provided, however, that the Bonus for calendar year 1992 shall not be less
than $100,000."
Please confirm your agreement with the foregoing by signing in the space
indicated below, returning one of the enclosed copies to us at the address set
forth above and retaining one copy for your records.
Very truly yours,
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
- -----------------------------------
Name: Charles W. Clayton
Title: Vice President
Acknowledged and Agreed to:
/s/ Ludwig Kuttner
- ----------------------------------
Mr. Ludwig Kuttner
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated October 10, 1995, between HAMPSHIRE DESIGNERS, INC.,
a Delaware corporation having its principal executive offices at 215 Commerce
Boulevard, Anderson, South Carolina 29621 (the "Company"), and PETE WOODWORTH,
an individual having his principal place of residence at 702 Main Street,
Winona, Minnesota 55987 (the "Executive").
I. Employment. The Company hereby employs the Executive; and the Executive
hereby accepts employment by the Company upon the terms and conditions
hereinafter set forth.
II. Term. The Agreement shall commence and take effect on the date the
Executive commences employment with the Company, and end on the date this
Agreement is terminated by either the Company or the Executive, as hereinafter
provided in this Section II.
(A) The Company may, at its election, terminate its obligations under
this Agreement as follows:
(1) If the Executive becomes ill or is injured so that he is
unable to perform the services required of him hereunder and such
inability to perform continues for a period in excess of ninety (90)
consecutive days and such inability is continuing at the time of such
notice, then the Company may terminate its obligations hereunder on no
less than thirty (30) days advance written notice to the Executive,
provided that the Executive shall receive disability payments to which
he is then entitled under the Company's group long-term disability
policy, then in effect, during the period commencing on the date of
such termination and ending on the date such disability ends or age
65, whichever first occurs.
(2) For just cause upon no less than five (5) days advance
written notice of such termination to the Executive. Termination of
the Executive's employment by the Company shall constitute a
termination "for just cause" only if such termination is for one or
more of the following reasons: (a) a material breach by the Executive
of the terms of this Agreement; (b) the habitual use of drugs
(including alcohol) by the Executive to an extent that he is unable to
fulfill his duties under this Agreement; or (c) the Executive having
been convicted of a felony; or (d) the Executive having been convicted
of a misdemeanor involving dishonesty or criminal conduct against the
Company, its parent company or a sister company.
(3) Without cause upon no less than five (5) days advance written
notice to the Executive provided that the Company shall pay to the
Executive an amount each month equal to Eleven Thousand, Two Hundred,
Fifty Dollars ($11,250.00), for a period of thirty-six (36) months
after such termination, except that the thirty-six (36) month period
shall be decreased by the number of full calendar months in which the
Executive has been employed by the Company as of the date of the
notice of termination, but the period shall not be reduced to less
than twelve (12) months.
<PAGE>
(B) If the Company terminates the Executive in accordance with this
Section II(A)(3) or Section II(A)(1), the Executive shall receive his
"Bonus" as defined in Section III(B) for the year in which such termination
occurs, prorated to reflect the number of whole calendar months of
employment completed by the Executive in the year of termination. If the
Company may elect, in accordance with Section II(A)(1) hereof, to terminate
this Agreement, then such termination shall be deemed to have been made
under Section II(A)(1) and not in accordance with this Section II(A)(3).
(C) The Executive may, at his election, terminate his obligations
under Sections IV and V hereof upon six (6) months advance written notice
thereof to the Company and from and after the delivery of such notice, the
Company shall have no further obligations under this Agreement unless it
shall elect, by notice to the Executive to continue to pay the Executive as
herein provided, for not in excess of the six month period commencing with
the date of delivery of the notice and in such event the Executive shall
continue to perform his obligations under Sections IV and V during such
period. If the Company does not elect to continue to pay the Executive as
herein provided, the Executive may seek other employment immediately,
limited only by the requirements of Section VIII hereof, and shall have no
further obligations to the Company under Sections IV and V hereof.
III. Compensation and Benefits. The Company shall do the following:
(A) Pay the Executive a base salary (the "Salary") for the first
nineteen months of employment at the annual rate of One Hundred,
Thirty-Five Thousand Dollars ($135,000) in equal bi-weekly installments
commencing October 1995. The Salary shall be reviewed by the Board of
Directors of Hampshire Designers, Inc. upon recommendation of Mr. Eugene
Warsaw, Chief Executive Officer, during the last two months of 1996 based
on the Executive's performance.
(B) Pay the Executive an annual bonus (the "Bonus") for each fiscal
year of employment within fifteen (15) days after the completion of the
annual audit of the Company's financial statements for such year by its
independent certified public
accountant (the "CPA"), but no later than 130 days after the end of the fiscal
year, in an amount equal to:
(1) Sixty-Seven Thousand Dollars ($67,000) annually for the years
1995, 1996 and 1997;
(2) A percentage of net income before tax ("NIBT", as defined in
the Agreement and Plan of Merger dated June 5, 1995 among Hampshire
Group, Limited, The Winona Knitting Mills, Inc. and Peter and Joyce
Woodworth) in excess of $1,000,000 of the Winona Knitting Mills
Division and the San Francisco Knitworks Division as set forth in the
following table:
Year Bonus Percent
1996 14.20%
1997 10.65%
1998 7.10%
(But any net losses of San Francisco Knitworks Division shall be excluded from
the calculation); and
<PAGE>
(3) Two percent (2%) of the aggregate amount in accordance with
the Hampshire Designers' Profit Incentive Plan (the "Plan") calculated
on a basis with all sweater subsidiaries and divisions included other
than the Winona Knitting Mills Division, as such Plan may be amended
from time to time. The two percent (2%) participation in the Plan is
in consideration of the Executive's contribution to the sweater
company as a whole.
(C) Notwithstanding the provisions of Section II(B) and II(C), the
Executive shall be paid the Bonus set forth above in Section III(B)(1) and
III(B)(2), exclusive of San Francisco Knitworks Division, irrespective of
termination of his employment with the Company.
(D) Grant the Executive the right to participate in the Hampshire
Group, Limited Common Stock Purchase Plan for Directors and Executives, as
amended from time to time, which will permit the Executive to defer until
retirement or such other time as elected by the Executive, 4% to 10% of his
annual Salary and l0% to 40% of his annual Bonus, excluding such Bonus
arising from Paragraph B(2) above, through the purchase of Hampshire Group
Common Stock.
(E) The Executive shall participate in the Company's fringe benefits
programs including group health, dental, disability and life insurance as
are generally available to executives of the Company and Hampshire Group,
Limited. Further, the Executive shall be furnished a Company paid
automobile on the same basis as other senior executives of Hampshire Group,
Limited.
(F) The Company shall reimburse the Executive for reasonable and
necessary business expenses incurred performing his duties.
IV. Duties. The Executive shall serve as President of Winona Knitting Mills
Division and hereby promises to perform and discharge well and faithfully the
duties which may be assigned to him from time to time by the Company and Mr.
Eugene Warsaw, Chief Executive Officer of Hampshire Designers, Inc., in
connection with the conduct of the Company's business. Election or appointment
as a director or other officer of the Company during the term of this Agreement
will not be a basis for the Executive to receive additional compensation.
V. Extent of Services. The Executive shall devote the necessary working
time, attention and energies to the business of the Company and shall not during
the term of this Agreement be engaged in any business activity other than the
Executive's investment in Winona USA (which time devoted thereto shall not
exceed twenty (20) hours per month), whether or not such business activity is
pursued for profit, gain or other pecuniary advantage, but this shall not be
construed as preventing the Executive from investing his personal assets in
businesses which do not compete with the Company in such form or manner as will
not require any services on the part of the Executive in the operation of the
affairs of the companies in which such investments are made and in which his
participation is solely that of an investor, and except that the Executive may
purchase securities in any corporation whose securities are regularly traded
publicly, provided that such purchase shall not result in his owning
beneficially at any time, one percent (1%) or more of the equity securities of
any corporation engaged in a business competitive with that of the Company or
its affiliates.
VI. Disclosure of Information. The Executive recognizes and acknowledges
that the Company's trade secrets, know-how and proprietary processes as they may
exist from time to time are valuable, special and unique assets of the Company,
access to and knowledge of which are essential to the performance of the
Executive's duties hereunder. The Executive will not, during or after the term
of his employment by the Company, in whole or in part, disclose such secrets,
know-how or processes to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever, nor shall the Executive make use of
any such property for his own purposes or for the benefit of any person, firm,
corporation or other entity (except the Company) under any circumstances during
or after the term of his employment, provided that after the term of his
<PAGE>
employment these restrictions shall not apply to such secrets, know-how and
processes which are therein the public domain, provided that the Executive was
not responsible, directly or indirectly, for such secrets, know-how or processes
entering the public domain without the consent of the Company.
VII. Inventions. The Executive hereby sells, transfers and assigns to the
Company, or to any assignee designated by the Company all of the entire right,
title and interest of the Executive in and to all inventions, ideas, disclosures
and improvements, whether patented or unpatented, and copyrightable material,
made or conceived by the Executive, solely or jointly, during the term hereof
which relate to methods, apparatus, designs, products, processes or devises,
sold, leased, used or under construction or development by the Company, or any
subsidiary; or which otherwise relate to or pertain to the business, functions
or operations of the Company or any subsidiary, or which arise from the efforts
of the Executive during the course of his employment by the Company. The
Executive shall communicate promptly and disclose to the Company, in such form
as the Company may request, all information, details and data pertaining to the
aforementioned inventions, ideas, disclosures and improvements; and the
Executive shall execute and deliver to the Company such formal transfers and
assignments and such other papers and documents as may be required of the
Executive to permit the Company or any person or entity designated by the
Company to file and the patent applications; and as to copyrightable material,
to obtain copyright thereof. Any invention relating to the business of the
Company or any subsidiary and disclosed by the Executive within one (1) year
following the termination of this Agreement shall be deemed to fall within the
provisions of this paragraph unless proved to have been first conceived and made
following such termination.
VIII. Non-competition; Non-solicitation. For the "Specified Period" (as
defined below) following the termination of the Executive, the Executive shall
not, directly or indirectly:
(A) Compete with the Company, or any subsidiary of the Company, or
Hampshire Group, Limited in the business in which the Company or its
affiliates is engaged at the commencement of the Specified Period or then
engaged; or
(B) Induce executives or employees of the Company to leave their
employment with the Company in order to accept employment with another
person or entity; or
(C) Induce customers of the Company to purchase products or services
then sold by the Company or its affiliates from another person or entity.
The "Specified Period," in case of a termination pursuant to Section II(A)(1)
or Section II(A)(3) shall be the period during which payments are made plus one
(l) year, and in the case of a termination pursuant to Section II(A)(2), or
II(C) shall be two (2) years following such termination, or resignation, or such
longer period as provided in the Agreement and Plan of Merger dated as of June
5, l995 among Hampshire Group, Limited, The Winona Knitting Mills, Inc. and
Peter and Joyce Woodworth.
IX. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Company and if this Agreement is not honored by
the new entity having controlling ownership, then the Company agrees to pay the
Executive pursuant to the terms of payment set forth in Section II(A)(3),
(II)(B) and III(C) hereof.
<PAGE>
X. Injunctive Relief. If there is a breach of the provisions of Sections
VI, VII or VIII of this Agreement, the Company shall be entitled to an
injunction restraining the Executive from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for such
breach or threatened breach.
XI. Insurance. The Company may, at its election and for its benefit, insure
the Executive against accidental loss or death for an amount not to exceed Two
Million Dollars ($2,000,000) and the Executive shall submit to such physical
examinations and supply such information as may be required in connection
therewith.
XII. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if sent by registered mail to his residence in the
case of the Executive, or to the Company at P.O. Box 2667, Anderson, South
Carolina 29622; Attention: Chairman, or to such officer or address as the
Company shall notify Executive.
XIII. Waiver of Breach. A waiver by the Company or Executive of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
XIV. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the Laws of the State of Delaware.
XV. Entire Agreement. This instrument contains the entire agreement of the
parties. It may be changed only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first hereinabove written
Attest: HAMPSHIRE DESIGNERS, INC.
/s/ Charles W. Clayton /s/ Ludwig Kuttner
- ------------------------------ ----------------------------
Secretary Ludwig Kuttner
Chief Executive Officer
Witness: EXECUTIVE
/s/ Beatrix Ost /s/ Pete Woodworth
- ------------------------------ ----------------------------
Pete Woodworth
HAMPSHIRE GROUP, LIMITED
1992 STOCK OPTION PLAN
AMENDED AND RESTATED
EFFECTIVE JUNE 7, 1995
ARTICLE I
Purpose
This 1992 Stock Option Plan, as amended and restated effective June 7, 1995 (the
"Plan") is intended as an incentive to improve the performance and encourage the
continued employment of eligible employees of Hampshire Group, Limited (the
"Company") participating in the Plan, by means of increasing their proprietary
interest in the Company's long-term success through stock ownership and by
affording them the opportunity for additional compensation related to the value
of the Company's stock.
The word "Company", when used in the Plan with reference to employment, shall
include subsidiaries of the Company. The word "subsidiary", when used in the
Plan, shall mean any subsidiary of the Company within the meaning of Section
424(f) of the Internal Revenue Code of 1986, as it may be amended from time to
time (the "Code").
It is intended that certain options granted under the Plan will qualify as
"incentive stock options" under Section 422 of the Code.
ARTICLE II
Administration
The Plan shall be administered by a Stock Option Committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board") from among its
members and shall consist of not less than two members thereof who are (and
shall remain Committee members only so long as they remain) "disinterested
persons" as defined in Rule l6b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") Subject to the provisions of the Plan, the Committee shall have
sole authority, in its absolute discretion: (a) to determine which of the
eligible employees of the Company and its subsidiaries shall be granted options;
(b) to authorize the granting of both incentive stock options and non-qualified
stock options; (c) to determine the times when options shall be granted and the
number of shares to be subject to options; (d) to determine the option price of
the shares subject to each option, which price shall be not less than the
minimum specified in ARTICLE V; (e) to determine the time or times when each
option becomes exercisable, the duration of the exercise period and any other
restrictions on the exercise of options issued hereunder; (f) to prescribe the
form or forms of the option agreements under the Plan (which forms shall be
consistent with the terms of the Plan but need not be identical and may contain
such terms as the Committee may deem appropriate to carry out the purposes of
the Plan) ; (g) to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan; and (h) to
construe and interpret the Plan, the rules and regulations and the option
agreements under the Plan and to make all other determinations deemed necessary
or advisable for the administration of the Plan. All decisions, determinations
and interpretations of the Committee shall be final and binding on all
optionees.
ARTICLE III
Stock
The stock to be subject to options granted under the Plan shall be shares of
authorized but unissued Common Stock of the Company or previously issued shares
of Common Stock reacquired by the Company and held in its treasury (the "Stock")
Under the Plan, the total number of shares of Stock which may be purchased
pursuant to options granted hereunder shall not exceed, in the aggregate,
750,000 shares, except as such number of shares shall be adjusted in accordance
with the provisions of ARTICLE X hereof. Under the Plan, Options for no more
than 50,000 shares of Stock may be granted to any individual employee during any
calendar that the Plan is in effect, except as such number shall be adjusted in
accordance with the provisions of ARTICLE X hereof.
<PAGE>
The number of shares of Stock available for grant of options under the Plan
shall be decreased by the sum of the number of shares with respect to which
options have been issued and are then outstanding and the number of shares
issued upon exercise of options. In the event that any outstanding option under
the Plan for any reason expires, is terminated, or is canceled prior to the end
of the period during which options may be granted, the shares of Stock called
for by the unexercised portion of such option may again be subject to an option
under the Plan.
ARTICLE IV
Eligibility of Participants
Subject to ARTICLE VII, officers and other key employees of the Company or of
its subsidiaries (excluding any person who is a member of the Committee) shall
be eligible to participate in the Plan.
ARTICLE V
Option Price
Subject to ARTICLE VII, the option price of each option granted under the Plan
shall be determined by the Committee; provided, however, that in the case of
each incentive stock option granted under the Plan, the option price shall be
not less than the fair market value of the Stock at the time the option was
granted. In no event shall the option price of any option be less than the par
value per share of Stock on the date an option is granted.
If the Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") the fair market value
shall be deemed to be the mean between the last quoted bid and asked prices on
NASDAQ on the date immediately preceding the date on which the option is
granted, or if not quoted on that day, then on the last preceding date on which
such stock is quoted. If the Company's Common Stock is listed on one or more
national securities exchanges, the fair market value shall be deemed to be the
mean between the highest and lowest sale prices reported on the principal
national securities exchange on which such stock is listed and traded on the
date immediately preceding the date on which the option is granted, or, if there
is no such sale on that date, then on the last preceding date on which such a
sale was reported. If the Company's Common Stock is not quoted on NASDAQ or
listed on an exchange, or representative quotes are not otherwise available, the
fair market value of the Stock shall mean the amount determined by the Committee
to be the fair market value based upon a good faith attempt to value the Stock
accurately and computed in accordance with applicable regulations of the
Internal Revenue Service.
ARTICLE VI
Exercise and Terms of Options
The Committee shall determine the dates after which options may be exercised, in
whole or in part. If an option is exercisable in installments, installments or
portions thereof which are exercisable and not exercised shall remain
exercisable.
Any other provision of the Plan notwithstanding and subject to ARTICLE VII, (i)
no option which is not an incentive stock option shall be exercised after the
date ten years and one month from the date of grant of such option, and no
option which is an incentive stock option shall be exercised after the date
which is ten years from the date of grant of such option (in each case, a
"Termination Date") , and (ii) in the event the Company files a registration
statement under the Securities Act of 1933 (the "Securities Act") for the
initial public offering of its equity securities, no option granted under the
Plan shall be exercisable during the 180-day period (or such longer period
required by the underwriter of such initial public offering) immediately
following the effective date of such registration statement.
Stock options granted hereunder to employees may provide that if, prior to the
Termination Date, an optionee shall cease to be employed by the Company or a
subsidiary thereof (otherwise than by reason of death or disability within the
meaning of Section 22(e) (3) of the Code), the option will remain exercisable
for a period not extending beyond three months after the date of cessation of
employment to the extent it was exercisable at the time of cessation of
employment. If, prior to the Termination Date, an optionee shall cease to be
employed by the Company or any subsidiary thereof by reason of a disability
within the meaning of Section 22(e) (3) of the Code, options granted hereunder
may provide that they will remain exercisable for a period not extending beyond
one year after the date of cessation of employment to the extent exercisable at
the time of cessation of employment. In no event, however, shall an option be
exercisable after the Termination Date. In the event of the death of an optionee
<PAGE>
prior to the Termination Date while employed by the Company or a subsidiary
thereof or while entitled to exercise an option pursuant to the preceding two
sentences, options granted hereunder may provide that they will remain
exercisable at any time prior to the Termination Date, but in no event later
than one year from the date of death, by the person or persons to whom the
optionee's rights under the option would pass by will or the applicable laws of
descent and distribution to the extent that the optionee was entitled to
exercise it on the date of death. Notwithstanding the foregoing provisions of
this paragraph, stock options granted hereunder shall provide that no option
shall be exercisable after the optionee's cessation of employment, unless at the
time of exercise the Certificate of Incorporation or the By-laws of the Company
do not limit ownership of Common Stock of the Company to selected persons,
including employees of the Company.
ARTICLE VII
Special Provisions Applicable to Incentive Stock Options Only
Notwithstanding anything contained in the Plan to the contrary, to the extent
the aggregate fair market value (determined at the time the option is granted)
of the Stock with respect to which incentive stock options may be exercisable
for the first time by an optionee during any calendar year (under this Plan and
any other stock option plan of the Company and any parent or subsidiary thereof)
exceeds $100,000, such options shall not be treated as incentive stock options.
No incentive stock option may be granted to an individual who, at the time the
option is granted, owns directly, or indirectly within the meaning of Sections
422(b) (6) and 424(d) of the Code, stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company or of any
parent or subsidiary thereof, unless such option (i) has an option price of at
least 110 percent of the fair market value of the Stock on the date of the grant
of such option; and (ii) such option cannot be exercised more than five years
after the date it is granted.
If Stock acquired by an employee through the exercise of an incentive stock
option granted under the Plan is disposed of within two years following the date
of grant or one year following the acquisition of such Stock by the employee (a
"disqualifying disposition"), the holder of such Stock shall, immediately prior
to such disqualifying disposition, notify the Company in writing of the date and
terms of such disposition and provide such other information regarding the
disposition as the Company may reasonably require.
ARTICLE VIII
Payment for Shares
Payment for shares of Stock acquired pursuant to an option granted hereunder
shall be made in full, upon exercise of the option, by certified or bank
cashier's check payable to the order of the Company, by the surrender to the
Company of shares of its Common Stock or by any combination thereof. The form of
payment shall be at the election of the optionee. The Company in its discretion,
and subject to any reasonable procedures required by its registrars and transfer
agents, may credit or apply shares of Common Stock held by the optionee and
identified to the Company toward payment of the applicable option exercise price
without actual surrender of the certificate representing such shares and may
cause to be issued to the optionee certificates for shares representing the
balance of the shares to be issued upon exercise of the option. The Company may,
in its discretion, require that an optionee pay to the Company, at the time of
exercise, such amount as the Company deems necessary to satisfy its obligation
to withhold Federal, state, or local income or other taxes incurred by reason of
the exercise or the transfer of shares thereupon.
ARTICLE IX
Restrictions on Options and Stock Acquired Through Options
No option shall be transferable, except by will or the laws of descent and
distribution. During the lifetime of the optionee, the option shall be
exercisable only by the optionee.
No options shall be granted under the Plan, and no shares of Stock shall be
issued and delivered upon the exercise of options granted under the Plan, unless
and until any applicable Federal or state registration, listing and/or
qualification requirements and any other requirements of law or of any
regulatory agencies having jurisdiction shall have been fully complied with.
<PAGE>
No share of Stock acquired by an employee through the exercise of an option
granted under the Plan may be sold or transferred (other than by will or the
laws of descent and distribution) by the employee prior to an initial public
offering of Stock by the Company.
The Committee in its discretion may, as a condition to the exercise of any
option granted under the Plan, require an employee to whom options have been
granted under the Plan (i) to represent in writing that the shares of Stock
received upon exercise of an option are being acquired for investment and not
with a view to distribution and (ii) to make such other representations and
warranties as are deemed necessary by counsel to the Company Stock certificates
representing unregistered shares of Stock acquired upon the exercise of options
shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL TO THE COMPANY THAT REGISTRATION IS
NOT REQUIRED ADDITIONALLY, PURSUANT TO THE PROVISIONS OF THE HAMPSHIRE GROUP,
LTD. 1992 STOCK OPTION PLAN, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD OR TRANSFERRED PRIOR TO AN INITIAL PUBLIC OFFERING OF THE COMMON STOCK
OF HAMPSHIRE GROUP, LTD."
ARTICLE X
Adjustment for Recapitalization, Merger, Etc.
The aggregate number of shares of Stock which may be purchased or acquired
pursuant to options granted hereunder, the maximum number of shares of Stock for
which options may be granted to any individual employee during any calendar
year, the number of shares of Stock covered by each outstanding option and the
price per share thereof in each such option shall be appropriately adjusted for
any increase or decrease in the number of outstanding shares of Stock resulting
from a stock split or other subdivision or consolidation of shares of Stock or
for other capital adjustments or payments of stock dividends or distributions or
other increases or decreases in the outstanding shares of Stock effected without
receipt of consideration by the Company. Any adjustment shall be conclusively
determined by the Committee.
If the Company shall be the surviving corporation in any merger or
reorganization or other business combination, any option granted hereunder shall
cover the securities or other property to which a holder of the number of shares
of Stock covered by the unexercised portion of the option would have been
entitled pursuant to the terms of the merger. Upon any merger or reorganization
or other business combination in which the Company shall not be the surviving
corporation, or a dissolution or liquidation of the Company, or a sale of all or
substantially all of its assets, the Company shall pay to each optionee in cash,
in exchange for the cancellation of any outstanding options of the optionee
hereunder, an amount equal to the difference between the fair market value (on
the date of the applicable corporate transaction) of the Stock subject to the
unexercised portion of the option and the exercise price of such portion of the
option. Notwithstanding the foregoing, in the event of such merger or other
business combination or a sale of all or substantially all of the Company's
assets, the surviving or resulting corporation, as the case may be, or any
parent or acquiring corporation thereof may grant substitute options to purchase
its shares on such terms and conditions, both as to the number of shares and
otherwise, which shall substantially preserve, in the good faith judgment of the
Committee, the rights and benefits of any option then outstanding hereunder.
Stock option agreements under the Plan may provide that upon stockholder
approval of a merger, reorganization or other business combination, whether or
not the Company is the surviving corporation, or a dissolution or liquidation of
the Company or a sale of all or substantially all of its assets, all unmatured
installments of the stock option shall vest and become immediately exercisable
in full.
The foregoing adjustments and the manner of application of the foregoing
provisions including the issuance of any substitute options, shall be determined
by the Committee in its sole discretion. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become subject to an
option.
<PAGE>
ARTICLE XI
No Obligation to Exercise Option
Granting of an option shall impose no obligation on the recipient to exercise
such option.
ARTICLE XII
Use of Proceeds
The proceeds received front the sale of Stock pursuant to the Plan shall be used
for general corporate purposes.
ARTICLE XIII
Rights as a Stockholder
An optionee or a transferee of an option shall have no rights as a stockholder
with respect to any share covered by his option until such person shall have
become the holder of record of such share, and such person shall not be entitled
to any dividends or distributions or other rights in respect of such share for
which the record date is prior to the date on which such person shall have
become the holder of record thereof, except as otherwise provided in ARTICLE X.
ARTICLE XIV
Employment Rights
Nothing in the Plan or in any option granted hereunder shall confer on any
optionee any right to continue in the employ of the Company or any of its
subsidiaries, or to interfere in any way with the right of the Company or any of
its subsidiaries to terminate the optionee's employment at any time.
ARTICLE XV
Compliance with the Law
The Company is relieved from any liability for the non-issuance or non-transfer
or any delay in the issuance or transfer of any shares of Stock subject to
options under the Plan which results from the inability of the Company to
obtain, or any delay in obtaining, from any regulatory body having jurisdiction
all requisite authority to issue or transfer any such shares if counsel for the
Company deems such authority necessary for lawful issuance or transfer thereof.
Appropriate legends in addition to that described in ARTICLE IX may be placed on
the stock certificates evidencing shares issued upon exercise of options to
reflect any transfer restrictions.
ARTICLE XVI
Cancellation of Options
The Committee, in its discretion, may, with the consent of any optionee, cancel
any outstanding option hereunder.
ARTICLE XVII
Effective Date; Expiration Date of Plan
The Plan shall become effective upon adoption by the Company's Board of
Directors and approval by the stockholders of the Company in a manner which
complies with both Rule 16b-3 under the Exchange Act and Section 422(b) (1) of
the Code and the Treasury Regulations thereunder. The expiration date of the
Plan, after which no option may be granted hereunder, shall be the tenth
anniversary of the later of (i) adoption of the Plan by the Board of Directors
or (ii) the approval of the Plan by the stockholders of the Company pursuant to
the previous sentence.
<PAGE>
ARTICLE XVIII
Amendment or Discontinuance of Plan
The Board may, without the consent of the optionees under the Plan, at any time
terminate the Plan entirely and at any time or from time to time amend or modify
the Plan, provided that no such action shall adversely affect options
theretofore granted hereunder without the optionee's consent. Notwithstanding
the above, the approval of the stockholders of the Company will be required for
any amendment which (i) materially changes the requirements as to eligibility
for participation in the Plan, as specified in ARTICLE IV, (ii) materially
increases (unless pursuant to ARTICLE X) the maximum number of shares subject to
Options granted under the Plan, as specified in ARTICLE III, or (iii) materially
increases the benefits accruing to participants under the Plan, within the
meaning of Rule 16b-3 under the Securities Act.
HAMPSHIRE GROUP, LIMITED AND AFFILIATES
COMMON STOCK PURCHASE PLAN
FOR DIRECTORS AND EXECUTIVES
AMENDED AND RESTATED
EFFECTIVE JUNE 7, 1995
SECTION 1. Purpose. The purpose of the Hampshire Group, Limited and Affiliates
Common Stock Purchase Plan for Directors and Executives, as amended and restated
effective June 7, 1995 (the "Plan"), is to provide to key executives and
non-employee directors of Hampshire Group, Limited (the "Company") and its
affiliated companies the opportunity to elect to defer payment of a portion of
their salaries and annual bonuses (in the case of key executives) on all or a
portion of their retainer fees (in the case of non-employee directors) arid
receive them in the form of Common Stock of the Company. The Plan, prior to its
amendment effective June 7, 1995, became effective as of June 24, 1992 (the
"Effective Date")
SECTION 2. Definitions. As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Administrator" means the committee appointed by the Board of Directors
to administer the Plan in accordance with Section 4 (a).
(b) "Affiliates" means Hampshire Designers, Inc.; Hampshire Hosiery, Inc.;
Vision Hosiery Mills, Inc.; and such other entities affiliated with the Company
which are designated by the Board of Directors as Affiliates.
(c) "Annual Retainer" means the amount paid by the Company to a
Non-Employee Director as an annual retainer for services to be rendered as a
member of the Board of Directors during any Plan Year, including retainers,
meeting attendance fees and fees otherwise payable for acting on or as a member
of the Board of Directors or any committee thereof, but not including
reimbursements of expenses.
(d) "Base Salary" means the annual base salary payable to a Key Executive
with respect to a Plan Year.
(e) "Beneficiary" means a person (including any trustee) designated by a
Participant in accordance with Section 10 to receive the benefits specified
hereunder in the event of the Participant's death or, if there is no surviving
designated Beneficiary, the Participant's estate.
(f) "Board of Directors" means the Board of Directors of the Company.
(g) "Bonus" means the annual bonus payable to a Key Executive with respect
to a Plan Year.
(h) "Deferral Account" means the account established and maintained by the
Company for each Participant, which is to be credited, as set forth in Section
6, with the portion of a Participant's Annual Retainer or Bonus which is
deferred pursuant to the Plan, together with earnings thereon as provided for
herein. In accordance with Section 6, amounts credited to a Participant's
Deferral Account will be expressed as a number of Stock equivalents and cash, if
any. Deferral Accounts will be maintained solely as bookkeeping entries by the
Company; provided, however, that the Company shall establish the Trust in
accordance with Section 8 to fund the obligations of the Company hereunder.
(i) "Director Purchase Date" means, with respect to the first Plan Year,
December 31, 1992, and with respect to each subsequent Plan Year the last day of
each of March, June, September and December of the Plan Year to which a
Non-Employee Director's deferral election relates, which in each case is the
date (with respect to the first Plan Year) or the dates (with respect to each
subsequent Plan Year) on which the deferred portion of an Annual Retainer
otherwise would have been paid.
<PAGE>
(j) "Director Purchase Price" means 95% of the Fair Market Value of one
share of Stock on the Director Purchase Date.
(k) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(1) "Executive Purchase Price" means (i) with respect to deferrals of a Key
Executive's annual Bonus, 90% of the lower of (A) the average of the Fair Market
Value of one share of Stock on the last day of each calendar quarter during the
Plan Year to which such Bonus deferral relates or (B) the Fair Market Value of
one share of Stock on the last day of the Plan Year to which such Bonus deferral
relates; and (ii) with respect to deferrals of a Key Executive's Base Salary,
90% of the Fair Market Value of one share of Stock on the last day of each of
March, June, September and December of the Plan Year to which such Base Salary
deferral relates.
(m) "Fair Market Value" means, if the Stock is quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
mean between the last quoted bid and asked prices on NASDAQ on the date
immediately preceding the date of determination, or if not quoted on that day,
then on the last preceding date on which the Stock is quoted. If the Stock is
listed on one or more national securities exchanges, the Fair Market Value shall
be deemed to be the mean between the highest and lowest sale prices reported on
the principal national securities exchange on which the Stock is listed and
traded on the date immediately preceding the date of determination, or, if.
there is no such sale on that date, then on the last preceding date on which
such a sale was reported. If the Stock is not quoted on NASDAQ or listed on an
exchange, or representative quotes are not otherwise available, the Fair Market
Value shall mean the amount determined by the Committee to be the fair market
value of the Stock based upon a good faith attempt to value the Stock
accurately.
(n) "Key Executive" means an executive of the Company or an Affiliate
chosen by the Administrator pursuant to Section 3 to be offered the opportunity
to participate in the Plan.
(o) "Non-Employee Director" means a member of the Board of Directors who,
on the first day of any Plan Year (or such later date as he is first elected or
appointed to the Board of Directors) is not an employee of the Company or any
affiliate thereof.
(p) "Participant" means any Non-Employee Director or Key Executive who
elects under the Plan to defer payment of all or a portion of his Annual
Retainer or Bonus for any Plan Year.
(q) "Plan Year" means each year beginning on the first day of January and
ending on the 31st day of December, provided that the first Plan Year shall
commence on the Effective Date and end on December 31, 1992.
(r) "Stock" means Hampshire Group, Limited Common Stock, $0.10 par value
per share.
(s) "Trust" means the Hampshire Group, Ltd. and Affiliates Common Stock
Purchase Plan for Directors and Executives Trust.
(t) "Trust Agreement" means the agreement between the Company and the
Trustee establishing the Trust.
(u) "Trustee" means the trustee of the Trust.
SECTION 3. Participation.
(a) Only Non-Employee Directors and Key Executives may participate in the
Plan. Participation in the Plan is voluntary.
(b) To participate in the Plan for any Plan Year, each Non-Employee
Director must file a written application with the Administrator prior to the
first day of such Plan Year; provided, however, that (i) with respect to the
deferral of a portion of an Annual Retainer which otherwise would be payable on
or after September 1, 1993, such application must be filed with the
<PAGE>
Administrator no less than six months prior to the date on which, such portion
of the Annual Retainer otherwise would have been paid, (ii) with respect to the
initial Plan Year, a Non-Employee Director will have 30 days following the date
the Plan is adopted to file such application, but then only with respect to that
portion of his Annual Retainer for such Plan Year not earned at the time such
election is filed, and (iii) the application of a Non-Employee Director who was
not a member of the Board of Directors as of the date on which applications are
required to be filed with respect to a given Plan Year must be filed within 30
days of the date the individual becomes a Non-Employee Director, but then only
with respect to that portion of his Annual Retainer for such Plan Year which is
payable at least six months after such election is filed.
(c) Each Key Executive electing to defer a portion of his annual Bonus for
a particular Plan Year must file a written application with the Administrator
prior to the first day of such Plan Year. With respect to a person who is not a
Key Executive as of the date on which applications are required to be filed with
respect to a given Plan Year, such person may file an application to defer a
portion of his annual Bonus within 30 days of becoming a Key Executive, provided
that (i) if such person is not subject to Section 16 of the Exchange Act, such
application must be filed no later than November 30 of the Plan Year to which
such application relates, and (ii) if such person is subject to Section 16 of
the Exchange Act, such application must be filed no later than June 30 of the
Plan Year to which such election relates.
(d) Each Key Executive electing to defer a portion of his annual Base
Salary for a particular Plan Year must file a written application with the
Administrator prior to the first day of such Plan Year, except that a Key
Executive who is subject to Section 16 of the Exchange Act must file the
application prior to June 30 of the calendar year preceding the Plan Year to
which such election relates. With respect to the short Plan Year for 1995, Key
Executives who are not subject to Section 16 of the Exchange Act may defer a
portion of their annual salary for the remainder of 1995 by filing an
application within 30 days after approval of the Plan by the Company's
shareholders. Key Executives who are subject to Section 16 of the Exchange Act
may not begin to defer annual Base Salary until January 1, 1996, and. must file
elections relating to the 1996 Plan Year before June 30, 1995. With respect to a
person who is not a Key Executive as of the date on which applications are
required to be filed with respect to a given Plan Year, such person may file an
application to defer annual Base Salary within 30 days of becoming a Key
Executive, provided that if such person is subject to Section 16 of the Exchange
Act, Base Salary deferrals for such person shall not commence until the date
which is at least six months following the date that such application is filed.
(e) An application for participation in the Plan shall evidence the
Non-Employee Director's or Key Executive's acceptance of the benefits and terms
of the Plan, and set forth the irrevocable elections described in Section 5. Any
application and all elections set forth therein shall be applicable only to the
Plan Year referenced therein.
SECTION 4. Administration.
(a) THE ADMINISTRATOR. The Board of Directors shall from time to time
appoint a committee comprised of two directors and two executive offices of the
Company to serve as the Administrator of the Plan. The Administrator shall
administer and enforce the Plan in accordance with its terms, and shall have all
powers necessary to accomplish those purposes, including but not limited to the
following:
(1) To compute and certify the amount and kind of benefits payable to
Participants and their Beneficiaries;
(2) To maintain or to designate any person or entity to maintain all
records necessary for the administration of the Plan;
(3) To make and publish such rules for the regulation of the Plan as
are not inconsistent with the terms hereof; and
(4) To provide for disclosure of such information, including reports
and statements to Participants or Beneficiaries, and for the making of
applications and elections by Participants under the Plan as may be
required by the Plan or otherwise deemed appropriate by the Administrator.
<PAGE>
Notwithstanding the above, no person who serves on such committee shall
participate in any matter which involves solely a determination of the benefits
payable to him under the Plan. Any action of the Administrator with respect to
the Plan shall be conclusive and binding upon all persons interested in the Plan
except to the extent otherwise specifically indicated herein. The Administrator
may appoint agents and delegate thereto such powers and duties in connection
with the administration of the Plan as the Administrator may from time to time
prescribe.
To the maximum extent permitted by applicable law, the Administrator shall not
be liable for, and the Company shall indemnify the Administrator and agree to
hold the Administrator harmless from, all liabilities and claims (including
reasonable attorney's fees and expenses in defending against such liabilities
and claims) against the Administrator arising from any actions taken by the
Administrator in connection with the administration of the Plan unless such
liabilities or claims are the result of the gross negligence or willful
misconduct of the Administrator.
(b) ANNUAL STATEMENTS. As soon as practicable following the end of each
Plan Year, the Administrator shall furnish to each Participant a statement
indicating the number of Stock equivalents credited to his Deferral Account as
of the end of such Plan Year and the status of such Account.
SECTION 5. Elections by Participants.
Each Non-Employee Director and Key Executive who elects to participate in the
Plan for any Plan Year must irrevocably elect, in (a) accordance with the
procedures, and within the time limits set forth in Section 3, the following: A
percentage, (i) in the case of a Non-Employee Director, up to 100%, of his
Annual Retainer for the Plan Year, and (ii) in the case of a Key Executive, from
10%-40% of his Bonus for the Plan Year, and from 4% to 10% of his Base Salary
for the Plan Year, to be deferred under the Plan and paid in the form of Stock;
and
(b) The date on which such portion of the Participant's Annual Retainer,
Bonus or Base Salary shall be paid or commence to be paid and the method in
which such payment shall be made. Such date and method shall be among those
described in Section 9.
In the event the Annual Retainer of a Non-Employee Director, or the Base Salary
of a Key Executive, is increased during any Plan Year, his elections in effect
for such Plan Year shall apply to the amount of such increase.
SECTION 6. Deferral Accounts.
(a) CREDITING OF ANNUAL RETAINER OR BONUS DEFERRAL. The portion of each
Participant's Annual Retainer, Bonus or Base Salary which he elects to defer
with respect to a Plan Year in accordance with Section 5 shall be credited to
the Participant's Deferral Account as follows:
(i) The Deferral Account of each Non-Employee Director Participant
shall be credited on each Director purchase Date with the number of Stock
equivalents equal to the portion of the Annual Retainer deferred pursuant
to the Plan since the preceding Director purchase Date divided by the
Director Purchase Price.
(ii) With respect to Bonus deferrals, the Deferral Account of each Key
Executive Participant shall be credited with the deferred portion of such
Participant's Bonus at the time such amount otherwise would have been paid.
Immediately following the crediting to such Deferral Accounts of all
amounts of Bonus deferred with respect to a Plan Year (but no earlier than
December 31 of the Plan Year), the amount so credited (without earnings)
shall be converted into the number of Stock equivalents equal to such
amount divided by the Executive Purchase Price.
(iii) With respect to Base Salary deferrals, the Deferral Account of
each Key Executive Participant shall be credited, on a quarterly basis,
with the quarterly portion of such Participant's annual Base Salary
deferred with respect to a Plan Year on the last day of each of March,
<PAGE>
June, September and December of the Plan Year to which the deferral
election relates. The amounts so credited (without earnings) shall, on each
such date, be converted into the number of Stock equivalents equal to such
deferred amount divided by the applicable Executive Purchase Price for such
date.
(b) CREDITING OF DIVIDENDS. Dividends payable with respect to Stock
equivalents credited to each Participant's Deferral Account shall be credited to
such Deferral Account as of the date dividends are actually paid on Stock. As of
the March 15 following the Plan Year to which such dividends relate (in the case
of a Key Executive Participant), or as of the Director Purchase Date following
the crediting of dividends to a Deferral Account (in the case of a Non-Employee
Director Participant), such dividends (including earnings thereon equal to the
actual earnings on dividends paid on the Participant's share of Stock held in
the Trust) shall be converted into the number of Stock equivalents (rounded to
the nearest whole share) determined by applying the formulas described in clause
(i) or (ii) of Section 6(a) above as applicable.
(c) ADJUSTMENTS TO DEFERRAL ACCOUNTS. The amount of Stock equivalents in
each Participant's Deferral Account shall be appropriately adjusted upon the
occurrence of any stock split, reverse stock split, or stock dividend or other
non-cash distribution.
(d) EFFECT OF PAYMENTS. The amount of Stock equivalents and cash, if any,
credited to each Participant's Deferral Account shall be reduced by the number
of shares of Stock and amount of cash distributed to each Participant or his
Beneficiary from the Trust or directly from the Company as payment of benefits
due under the Plan.
(e) VESTING. The interest of each Participant in any benefit payable with
respect to a Deferral Account hereunder shall be at all times fully vested and
non-forfeitable.
SECTION 8. The Trust.
(a) CREATION OF THE TRUST. The Board of Directors shall cause the Trust to
be created, shall appoint the Trustee and shall authorize the appropriate
officers of the Company to execute all necessary trust agreements and other
instruments necessary therefor; provided, however, that (i) the terms of the
Trust shall be consistent with the status of the Plan as "unfunded" for purposes
of ERISA and (ii) the Trust shall conform to the terms of the model grantor
trust contained in Revenue Procedure 92-64, 1992-33 I.R.B. 11.
(b) CONTRIBUTIONS TO AND PURCHASE OF STOCK BY THE TRUST.
(i) Not later than 10 days following each day on which amounts are
credited to Deferral Accounts and converted into Stock equivalents in
accordance with Section 6 (a), the Company shall contribute to the Trust
either (A) that number of shares of Stock, or (B) cash in an amount
sufficient to allow the Trustee to purchase from the Company or on the open
market that number of shares of Stock, equal to the aggregate number of
Stock equivalents so credited. Notwithstanding the above, the Company shall
not be required to contribute cash to the Trust pursuant to clause (B)
above in an amount greater than that which can be used by the Trustee on
the date of such contribution to purchase Stock within any purchase volume
limitations imposed on the Trust by applicable law or the rules of any
exchange on which Stock is traded. In the event the Company's total
required contribution to the Trust cannot be made by the above deadline
pursuant to the preceding sentence, the Company shall make periodic
contributions to the Trust after such deadline until the Trust has
purchased the requisite number of shares of Stock.
(ii) Not later than 10 days following each day on which amounts are
credited to Deferral Accounts and converted into Stock Equivalents in
accordance with Section 6 (b), the Administrator shall instruct the Trustee
to purchase from the Company, or on the open market, that number of shares
of Stock equal to the aggregate number of Stock equivalents, if any, so
<PAGE>
credited. Any such purchase from the Company shall be made from Stock held
in the treasury, or authorized but unissued shares of registered or
unregistered Stock, using cash dividends paid on Stock held in the Trust.
The purchase price for each such share of Stock purchased from the Company
shall be determined by the formula described in clause (i) or (ii) of
Section 6 (a). Notwithstanding the above, (i) if such purchase is made on
the open market, and if the cash dividends held in the Trust and earnings
thereon are insufficient to purchase the necessary number of shares of
Stock, the Company shall contribute to the Trust additional cash in the
amount required to allow the Trustee to purchase such shares, and (ii) the
Administrator shall not instruct the Trustee to purchase Stock on the open
market, and the Company shall not make any additional contribution to the
Trust pursuant to clause (i) of this sentence, to the extent that the
Trustee would be prevented from purchasing the requisite shares of Stock
due to any purchase volume limitations imposed on the Trust by applicable
law or the rules of any exchange on which Stock is traded. In the event
such instructions or contribution to the Trust cannot be made by the above
deadline pursuant to clause (ii) above, such instructions and contributions
shall be periodically made after such deadline until the Trust has
purchased the requisite number of shares of Stock.
(iii) The Company shall impose such legends, stop transfer and other
restrictions on certificates evidencing Stock sold to the Trust by the
Company hereunder as it may deem advisable in order to comply with the
Securities Act of 1933, as amended, the requirements of the New York Stock
Exchange or any other stock exchange or automated quotation system upon
which the Stock is then listed or quoted, any state securities laws
applicable to such a sale, or any provision of the Company's Certificate of
Incorporation or By-Laws or any binding contract to which the Company is a
party.
(c) INVESTMENT OF DIVIDENDS PENDING PURCHASE OF STOCK. Cash dividends paid
on Stock held in the Trust shall be invested in short-term instruments issued by
the government of the United States or government-guaranteed, interest-bearing
accounts of a financial institution pending the use of such dividends to
purchase Stock in accordance with Section 3 (b) (ii).
(d) DISTRIBUTIONS FROM THE TRUST. At each time payment of all or a portion
of each Participant's Deferral Account is due pursuant to an election made in
accordance with Section 5 (or pursuant to the death of a Participant in
accordance with Section 9(c)), the Administrator shall instruct the Trustee to
distribute Stock and cash from the Trust directly to such Participant or his
Beneficiary in an amount equal to the portion of his Deferral Account which is
so payable. Distributable amounts expressed in the form of Stock equivalents
shall be paid in Stock, and distributable amounts expressed in the form of cash
shall be paid in cash. In the absence of such an instruction to the Trustee by
the Administrator, a Participant may directly instruct the Trustee to make such
distribution, and the Trustee shall do so if it determines that such
distribution is in accordance with the Participant's Section 5 election. If the
Trustee fails to make any distribution from the Trust required hereunder, the
Company shall make such distribution directly to the Participant entitled
thereto from its general assets, treasury Stock and authorized but unissued
Stock; provided, however, that in the event no treasury Stock or authorized but
unissued Stock is available, distributable amounts from a Participant's Deferral
Account expressed in the form of Stock equivalents shall be paid by the Company
in the form of cash, in an amount equal to the Fair Market Value of Stock
represented by such Stock equivalents as of the day preceding the day of
payment. If any payment is made to a Participant by the Company pursuant to the
preceding sentence, the Participant shall be deemed to have assigned to the
Company his rights to receive such payment from the Trust, and the Company shall
be subrogated to all rights of the Participant therein.
SECTION 9. Distributions.
(a) DATE OF COMMENCEMENT. A Participant may elect in accordance with
Section 5 that payment of the portion of his Deferral Account attributable to
the particular Annual Retainer or Bonus being deferred commence on either (i)
any specific anniversary of the last day of the Plan Year to which such deferral
relates or (ii) immediately upon termination as a Non-Employee Director or Key
Executive.
<PAGE>
(b) NUMBER OF PAYMENTS. A Participant may elect in accordance with Section
5 to receive payment of the portion of his Deferral Account subject to such
election in one lump sum or in substantially equal annual installments over two
to ten years.
(c) DISTRIBUTION UPON DEATH. If a Participant dies before payment of his
Deferral Account is completed, the balance remaining in such Deferral Account
shall be paid to the Participant's Beneficiary in one lump sum as soon as
practicable following the Participant's death.
(d) DISTRIBUTION UPON UNFORESEEABLE EMERGENCY. Notwithstanding anything in
this Section 9 to the contrary, a Participant may request a distribution of all
or part of his Deferral Account due to "unforeseeable emergency" For purposes of
this subsection, "unforeseeable emergency" means severe financial hardship to
the Participant resulting from a sudden and unexpected illness or accident of
the Participant or a dependent, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant. The circumstances
that will constitute an unforeseeable emergency will depend upon the facts of
each case and will be determined by the Committee in its sole discretion, but
distributions may not be made to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance or otherwise or
(ii) by liquidation of the Participant's assets, to the extent the liquidation
of such assets would not itself cause severe financial hardship. In no event may
the amount of any distribution due to unforeseeable emergency be greater than
that reasonably needed to satisfy the emergency need.
SECTION 10. Designation of Beneficiaries.
Each Participant may designate one or more Beneficiaries to receive the amounts
distributable from the Participant's Deferral Account under the Plan in the
event of such Participant's death. Such designations shall be made on forms
provided by the Administrator. A Participant may from time to time change his
designated Beneficiaries, without the consent of such Beneficiaries, by filing a
new designation in writing with the Administrator. The Company, Trustee and
Administrator may rely conclusively upon the Beneficiary designation last filed
in accordance with the terms of the Plan.
SECTION 11. Amendments to the Plan; Termination of the Plan.
The Board of Directors of the Company may amend, alter, suspend, discontinue or
terminate the Plan without the consent of any Participant; provided, however,
that no such amendment, alteration, suspension, discontinuation, or termination
of the Plan shall materially and adversely affect the rights of such Participant
with respect to payment of amounts already credited to such Participant's
Deferral Account, or amounts elected to be so credited for the Plan Year in
which such action is taken. The Plan has no fixed termination date. In addition,
the Administrator may take such other action as it deems necessary to ensure
that Participants are not deemed to have engaged in a "purchase" or "sale" of
Stock pursuant to their participation in the Plan, as such terms are used in
Section 16(b) of the Securities Exchange Act of 1934, and the Rules promulgated
thereunder.
SECTION 12. General Provisions.
(a) LIMITS ON TRANSFER OF RIGHTS; BENEFICIARIES. No right or interest of a
Participant under the Plan shall be pledged, encumbered or hypothecated, shall
be liable for or subject to any lien, obligation or liability of such
Participant, or shall be assignable or transferable by a Participant otherwise
than by will or the laws of descent and distribution; provided, however, that a
Participant may designate a Beneficiary in accordance with Section 10 to receive
any payment or distribution under the Plan in the event of death of the
Participant. A Beneficiary, guardian, legal representative or other person
claiming any rights under the Plan from or through any Participant shall be
subject to all terms and conditions of the Plan applicable to such Participant,
except to the extent the Plan otherwise provides with respect to such persons.
<PAGE>
(b) RECEIPT AND RELEASE. Any payment to any Participant or Beneficiary in
accordance with the provisions of the Plan, whether made from the Trust or
directly from the Company, shall, to the extent thereof, be in full satisfaction
of all claims against the Company, the Administrator, the Trust and the Trustee,
and the Administrator may require such Participant or Beneficiary, as a
condition to such payment, to execute a receipt and release to such effect.
(c) STATUS OF THE PLAN. The Plan is not intended to be subject to ERISA. To
the extent the Plan is determined to be so subject, it is intended to constitute
a "plan which is unfunded and is maintained by the employer primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees," as such phrase is used in ERISA, and the terms of
the Plan shall be interpreted consistent with such intent. With respect to any
payment not yet made to a Participant under the Plan, nothing contained in the
Plan shall give a Participant any rights that are greater than those of a
general creditor of the Company; provided, however, that the assets of the Trust
shall be used solely to provide benefits under the Plan in the absence of the
insolvency of the Company.
(d) NO RIGHTS OF A STOCKHOLDER. Except as provided in the Trust Agreement
with respect to Stock held in the Trust, no Participant shall have any of the
rights or privileges of a shareholder of the Company as a result of the making
of an election under Section 5(b) of the Plan, or as a result of the
establishing of or crediting of any amounts to a Deferral Account under the
Plan, until Stock is actually distributed to the Participant pursuant to Section
8(d) of the Plan.
(e) NO RIGHT TO CONTINUED ELECTION AS A DIRECTOR OR EMPLOYMENT. Nothing
contained in the Plan shall confer, and no establishment of or crediting of any
amounts to a Deferral Account shall be construed as conferring, upon any
Participant, any right to continue as a member of the Board of Directors or an
employee of the Company or any of its Affiliates, or to interfere in any way
with the right of the Company to increase or decrease the amount of the Annual
Retainer, Bonus or any other compensation payable to Non-Employee Directors or
Key Executives.
(f) PLAN EXPENSES. All expenses and costs incurred in connection with the
operation of the Plan and the Trust shall be borne by the Company; provided,
however, that any legal fees and expenses incurred by both the Participant and
the Company in an action by the Participant to enforce against the Company any
right or benefit provided under the Plan shall be paid by the party who prevails
in such action.
(g) GOVERNING LAW. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware, without giving effect to principles of
conflicts of laws, and applicable Federal law.
(h) INTERPRETATION. Whenever necessary or appropriate in the Plan, where
the context admits, the singular term and the related pronouns shall include the
plural and the masculine gender shall include the feminine gender.
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
401(k) RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
Page
INTRODUCTION Name and Date of Agreement 1
SECTION 1 Definitions 1
SECTION 2 Administration of Plan by Committee 23
SECTION 3 Eligibility and Participation 31
SECTION 4 Employer Non-Elective Contributions
and Elective Contributions 34
SECTION 5 Allocation of Contributions and
Forfeitures 40
SECTION 6 Top Heavy Provision and Administration 48
SECTION 7 Retirement Benefits 51
SECTION 8 Death Benefits 51
SECTION 9 Disability Benefits 53
SECTION 10 Benefits and Vesting Upon Termination
of Employment Other Than By Reason of
Retirement, Death, or Disability 53
SECTION 11 Annuity Requirements 57
SECTION 12 Distribution Requirements 58
SECTION 13 Valuation Upon Distribution 69
SECTION 14 Trustee 70
SECTION 15 Amendment and Termination of Plan 83
SECTION 16 Limitation on Benefits and Contributions 86
SECTION 17 Rollovers and Other Transfers 89
SECTION 18 Miscellaneous Provisions 91
SECTION 19 Voluntary Participant Contributions 93
SECTION 20 Participant Loans 93
SECTION 21 Hardship Distributions 96
SECTION 22 Cash or Deferred Limitations 97
SECTION 23 Investment Direction By Participant 112
SECTION 24 Initial Qualification 115
<PAGE>
HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES
401(k) RETIREMENT SAVINGS PLAN
AND TRUST AGREEMENT
AGREEMENT made this 30th day of December, 1994, by and between HAMPSHIRE
GROUP, LIMITED, a corporation organized and existing under the laws of the State
of Delaware, (hereinafter called "Employer"), and CHARLES W. CLAYTON, LAWRENCE
J. MACDOWELL and HORACE D. PADGETT, JR., as Trustees of the Trust herein
created, (hereinafter called "Trustee")
<PAGE>
WHEREAS, Employer did establish a 401(k) Profit-Sharing Plan and Trust
Agreement on January 1, 1988, which was amended and restated on March 13, 1992;
and
WHEREAS, it is now deemed necessary to amend and restate said 401(k)
Profit-Sharing Plan and Trust Agreement.
NOW, THEREFORE, Employer and Trustee mutually do covenant and agree to
amend and restate said 401(k) Profit-Sharing Plan and Trust Agreement by
substituting in its entirety the following:
SECTION 1 - Definitions
When used herein, the following terms shall have the indicated meanings,
unless the context clearly indicates otherwise:
1.1 "Account" or "Accounts" includes a Participant's Account for Employer
Non-Elective Contributions which do not satisfy the Code Sections 401(k) (2) (B)
and (C) Provisions, Account for Employer Non-Elective Contributions which
satisfy the Code Sections 401(k) (2) (B) and (C) Provisions, and the
Participant's Elective Account, unless the context indicates otherwise.
1.2 "Accrued Benefit" shall mean the amount standing in a Participant's
Account (including his Non-Elective Account and Elective Account) as of any
particular date.
1.3 "Affiliated Employer" shall mean the Employer and any corporation which
is a member of a controlled group of corporations (as defined in Code Section
414 (b)) which includes the Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in Code Section 414 (c))
with the Employer; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Code Section 414(m)) which
includes the Employer; and any other entity required to be aggregated with the
Employer pursuant to regulations under Code Section 414 (o).
1.4 "Aggregate Account" shall mean, with respect to each Participant, the
value of all Accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the Top Heavy
Provision and Administration Section.
1.5 "Anniversary Date" shall mean December 31.
1.6 "Annuity" or "Annuity Contract" shall mean a qualified, nontransferable
Annuity Contract.
1.7 "Authorized Leave of Absence" shall mean a temporary cessation of
active employment with the Employer pursuant to a nondiscriminatory policy,
provided the cessation was approved by the Employer and the Employee returns to
work for the Employer not later than the expiration of such approved cessation
of employment.
1.8 "Beneficiary" or "Beneficiaries" shall mean such person or persons or
legal entity as may be designated by a Participant to receive benefits hereunder
after the Participant's death, or if the Participant fails to designate a
Beneficiary, then the estate of the participant, except as otherwise provided in
the Death Benefits Section and Annuity Requirements Section where the
Participant's spouse is the required Beneficiary.
1.9 "Code" shall mean the Internal Revenue Code of 1986, and any amendments
thereto.
1.10 "Code Section 415 Compensation" shall mean:
(a) a Participant's wages, salaries, and fees for professional
services, and other amounts received (without regard to whether or not an
amount is paid in cash) for personal services actually rendered in the
<PAGE>
course of employment with the Employer maintaining the Plan to the extent
that the amounts are includable in gross income (including, but not limited
to, commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, bonuses,
fringe benefits, reimbursements, and expense allowances);
(b) in the case of a Participant who is an Employee within the meaning
of Code Section 401(c) (1) and the regulations thereunder, the
Participant's Earned income (as described in Code Section 401(c) (2) and
the regulations thereunder);
(c) amounts described in Code Section 104 (a) (3), 105 (a) and 105
(h), but only to the extent that these amounts are includable in the gross
income of the Employee;
(d) amounts paid or reimbursed by the Employer for moving expenses
incurred by an Employee, but only to the extent that these amounts are not
deductible by the Employee under Code Section 217;
(e) the value of a non-qualified stock option granted to an Employee
by the Employer, but only to the extent that the value of the option is
includable in the gross income of the Employee for the taxable year in
which granted; and
(f) the amount includable in the gross income of an Employee upon
making the election described in Code Section 83 (b)
Subparagraphs (a) and (b) above include foreign earned income (as defined
in Code Section 911(b)), whether or not excludable from gross income under
Section 911.
Code Section 415 Compensation does not include the following:
(a) Employer contributions to a plan of deferred compensation which
are not included in the Employee's gross income for the taxable year in
which contributed or Employer contributions under a simplified employee
pension plan to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred compensation;
(b) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to a substantial risk
of forfeiture;
(c) amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(d) other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in Code Section 403
(b) (whether or not the amounts are actually excludable from the gross
income of the Employee).
Code Section 415 Compensation for any Limitation Year is the compensation
actually paid or made available to a Participant within such Limitation Year.
For any Limitation Year beginning after December 31, 1991, Code Section 415
Compensation shall not include accrued compensation (other than de minimis
accrued compensation as provided for in Treasury Regulations)
<PAGE>
1.11 "Code Sections 401(k) (2) (A), (B) and (C) Provisions" shall mean a
qualified cash or deferred arrangement under which
(a) a covered employee may elect to have the Employer make payments as
contributions to a trust under the plan on behalf of the Employee, or to
the Employee in cash;
(b) the amounts held in the trust attributable to Employer
contributions made pursuant to the Employee's election may not be
distributable to the Participant or Beneficiary earlier than separation
from service, death, disability, termination of the Plan without
establishment of a successor plan, the attainment of age 59 1/2, or
Hardship; and
(c) the Employee's right to his Accrued Benefit derived from Employer
contributions made to the trust pursuant to his election is
non-forfeitable.
1.12 "Code Sections 401(k) (2) (B) and (C) Provisions" shall mean a
qualified cash or deferred arrangement under which
(a) the amounts held in the trust attributable to Employer
contributions are treated as made pursuant to the Employee's election and
may not be distributable to the Participant or Beneficiary earlier than
separation from service, death, disability, termination of the Plan without
establishment of a successor plan, or the attainment of age 59 1/2; and
(b) the Employee's right to his Accrued Benefit derived from Employer
contributions when made to the trust pursuant to his election is
non-forfeitable.
1.13 "Committee" shall mean the Plan committee appointed by the Employer
pursuant to the Administration of Plan by Committee Section.
1.14 "Compensation" shall mean the entire amount paid to an Employee by the
Employer during the Plan Year as salary, hourly wages, commissions, overtime pay
and bonuses but excluding nontaxable fringe benefits, severance pay, earnings
prior to entering the Plan and any benefits and credits under this or any other
employee benefit plan of the Employer. Notwithstanding the preceding sentence,
all Code Section 415 Compensation during the entire Limitation Year shall be
taken into account for determining the required minimum allocation for a Non-Key
Employee if the Plan is a Top Heavy Plan and the required minimum benefit has
not been otherwise provided under Code Section 416(c). For years beginning
after December 31, 1988 and before January 1, 1994, the annual Compensation of
each Participant taken into account under the Plan for any year shall not exceed
$200,000. This limitation shall be adjusted by the Secretary at the same time
and in the same manner as under Code Section 415 (d), except that the dollar
increase in effect on January 1 of any calendar year is effective for years
beginning in such calendar year and the first adjustment to the $200,000
limitation is effected on January 1, 1990. If the Plan determines compensation
on a period of time that contains fewer than twelve (12) calendar months, then
the annual Compensation limit is an amount equal to the annual Compensation
limit for the calendar year in which the Compensation period begins multiplied
by the ratio obtained by dividing the number of full months in the period by 12.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Code Section 414(q) (6) shall apply, except in applying
such rules, the term "family" shall include only the spouse of the Participant
and any lineal descendants of the Participant who have not attained age nineteen
(19) before the close of the year. If, as a result of the application of such
rules the adjusted $200,000 limitation is exceeded, then (except for purposes of
determining the portion of Compensation up to the integration level if this Plan
provides for permitted disparity), the limitation shall be prorated among the
affected individuals in proportion to each such individual's Compensation as
determined under this Section prior to the application of this limitation.
<PAGE>
If Compensation for any prior Plan Year is taken into account in
determining an Employee's contributions or benefits for the current year, the
Compensation for such prior year is subject to the applicable annual
Compensation limit in effect for that prior year. For this purpose, for years
beginning before January 1, 1990, the applicable annual Compensation limit is
$200, 000.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each Employee
- -taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a) (17) (B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding
twelve (12) months, over which compensation is determined (determination period)
beginning in such calendar year. If a determination period consists of fewer
than twelve (12) months, the OBRA '93 annual compensation limit will be
multiplied by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Section 401(a) (17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
Compensation shall include Employer contributions made pursuant to a salary
reduction agreement which are not includible in the gross income of the Employee
under Code Section 125. Compensation shall include Employer contributions made
to a Code Section 401(k) plan pursuant to a salary reduction agreement which are
not includible in the gross income of the Employee under Code Section 402 (a)
(8). Compensation shall include Employer contributions made pursuant to a salary
reduction agreement which are not includible in the gross income of the Employee
under Code Section 402 (h) and Code Section 403 (b).
1.15 "Deferred Compensation" shall mean with respect to any Participant
that part of such Participant's Compensation paid or accrued by the Employer for
a Plan Year that such Participant has elected to defer pursuant to Section 4.2.
1.16 "Determination Date" shall mean (a) the last day of the preceding Plan
Year, or (b) in the case of the first Plan Year, the last day of such Plan Year.
1.17 "Disability" shall mean total and permanent physical or mental
incapacity of a Participant to perform the duties of his employment with the
Employer unless such physical or mental incapacity occurs as a result of the
willfulness or gross negligence of the Participant. Such incapacity shall be
established by a medical examination by a medical doctor selected or approved by
the Committee.
1.18 "Effective Date" of this amended and restated Plan and Trust shall be
January 1, 1993 except as provided below for the following special Effective
Dates
(a) The requirements for Sections 1.22 and 1.54 are effective January
1, 1994.
(b) The requirements for Section 1.55 are effective January 1, 1995.
(c)The requirements for Section 3.1 are effective January 1, 1995.
(d) The requirements for Section 3.3 are effective January 1, 1995.
(e) The requirements for Section 4.2 are effective January 1, 1995.
(f) The requirements for Section 5.11 are effective January 1, 1995.
(g) The requirements for Section 12.5 are effective January 1, 1995.
<PAGE>
(h)The requirements for Section 20 are effective January 1, 1994.
(i)The requirements for Section 24.1 are effective January 1, 1995.
The Plan provisions in effect prior to a special Effective Date for such
provisions shall control until such special Effective Date.
1.19 "Elective Account" shall mean the account established and maintained
for each Participant with respect to his total interest in the Plan and Trust
resulting from Employer Elective Contributions and Employer Non-Elective
contributions which satisfy the Code Sections 401(k) (2) (B) and (C) Provisions.
1.20 "Elective Contribution" shall mean the Employer's contributions to the
Plan that are made pursuant to the Participant's cash or deferred election.
1.21 "Employee" shall mean any individual employed by the Employer other
than an independent contractor. Any Leased Employee, as defined in Code Section
414(n) (2), shall be treated as an Employee of the Employer. The preceding
sentence shall not apply to any Leased Employees if such employees are covered
by a money purchase pension plan as described in Code Section 414(n) (5)
providing (a) a nonintegrated employer contribution rate of at least ten (10%)
percent of compensation as defined in Code Section 415(c) (3) but including
amounts contributed pursuant to a salary reduction agreement which are
excludable from the Employee's gross income under Code Sections 125, 402(a) (8),
402(h) or 403(b), (b) immediate participation, and (c) full and immediate
vesting, and such Leased Employees, with respect to services performed after
December 31, 1986, do not constitute more than twenty (20%) percent of the
Employer's Non-Highly Compensated Employee work force.
1.22 "Employer" shall mean HAMPSHIRE GROUP, LIMITED and any holding
company, subsidiary or affiliated company authorized by HAMPSHIRE GROUP, LIMITED
to adopt and participate in this Plan and Trust. The following subsidiaries of
Hampshire Group, Limited have adopted and are participating in this Plan and
Trust:
Hampshire Hosiery, Inc., Glamourette Fashion Mills, Inc. and Hampshire
Designers, Inc. Glamourette Fashion Mills, Inc. adopted this Plan and Trust
effective January 1, 1994.
1.23 "Five Percent Owner" shall mean any person who owns (or is considered
as owning within the meaning of Code Section 318) more than five (5%) percent of
the outstanding stock of the Employer or stock possessing more than five (5%)
percent of the total combined voting power of all stock of the Employer. In
determining percentage ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414 (b), (c), (in) and (o) shall be treated as
separate employers.
1.24 "Hardship" shall mean a distribution that is made only if the
distribution is made both on account of an immediate and heavy financial need of
the Employee and is necessary to satisfy such financial need. A distribution
will be made on account of an immediate and heavy financial need of the Employee
only if the distribution is on account of:
(a) medical expenses described in Code Section 213 (d) incurred by the
Employee, the Employee's spouse, children or any dependents of the Employee
(as defined in Code Section 152);
(b) costs (excluding mortgage payments) directly related to the
purchase of a principal residence for the Employee;
(c) payment of tuition for the next twelve (12) months of
post-secondary education for the Employee, his spouse, children, or
dependents (as defined in Code Section 152);
<PAGE>
(d) the need to prevent the eviction of the Employee from his
principal residence or foreclose on the mortgage of the Employee's
principal residence; or
(e) a need designated by the Treasury Department which is a safe
harbor for Hardship distributions.
A distribution will be considered necessary to satisfy an immediate and
heavy financial need of an Employee only if all of the following requirements
are satisfied:
(a) The distribution is not in excess of the amount of the immediate
and heavy financial need of the Employee. The amount of an immediate and
heavy financial need may include any amounts necessary to pay any federal,
state, or local income taxes or penalties reasonably anticipated to result
from the distribution.
(b) The Employee has obtained all distributions, other than hardship
distributions, and all nontaxable (at the time of the loan) loans currently
available under all plans maintained by the Employer.
(c) All other plans maintained by the Employer limit the Employee's
elective contributions for the next taxable year to the applicable limit
under Code Section 402(g) for that year minus the Employee's elective
contributions for the year of the hardship distribution.
(d) The Employee is prohibited, under the terms of the Plan or an
otherwise legally enforceable agreement, from making elective contributions
and Employee contributions to the Plan and all other plans maintained by
the Employer for at least twelve (12) months after receipt of the hardship
distribution. For this purpose the phrase "all other plans maintained by
the Employer" means all qualified and nonqualified plans of deferred
compensation maintained by the Employer. The phrase includes a stock
option, stock purchase, or similar plan, or a cash or deferred arrangement
that is part of a cafeteria plan within the meaning of Section 125.
However, it does not include the mandatory Employee contribution portion of
a defined benefit plan. It also does not include a heath or welfare benefit
plan, including one that is part of a cafeteria plan within the meaning of
Code Section 125.
1.25 "Highly Compensated Employee" shall mean highly compensated active
Employees and highly compensated former Employees.
A highly compensated active Employee includes any Employee who performs
service for the Employer during the determination year and who, during the
look-back year: (a) received compensation from the Employer in excess of $75,000
(as adjusted pursuant to Code Section 415(d)); (b) received compensation from
the Employer in excess of $50,000 (as adjusted pursuant to Code Section 415(d))
and was a member of the top-paid group for such year; or (c) was an officer of
the Employer and received compensation during such year that is greater than
fifty (50%) percent of the dollar limitation in effect under Code Section 415(b)
(1) (A)
The term Highly Compensated Employee also includes: (i) Employees who are
both described in the preceding sentence if the term "determination year" is
substituted for the term "look-back year" and the Employee is one of the 100
Employees who received the most compensation from the Employer during the
determination year; and (ii) Employees who are Five Percent Owners at any time
during the look-back year or determination year.
If no officer has satisfied the compensation requirement of (c) above
during either a determination year or look-back year, the highest paid officer
for such year shall be treated as a Highly Compensated Employee.
<PAGE>
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve (12) month period immediately preceding the
determination year. Top-paid group means the group consisting of the top 20% of
the Employees when ranked on the basis of compensation paid during such year.
A highly compensated former Employee includes any Employee who separated
from service (or was deemed to have separated) prior to the determination year,
performs no service for the Employer during the determination year, and was a
highly compensated active Employee for either the separation year or any
determination year ending on or after the Employee's fifty-fifth (55th)
birthday.
If any Employee is, during the determination year or look-back year, a
family member of either a Five Percent Owner who is an active or former Employee
or a Highly Compensated Employee who is one of the ten (10) most Highly
Compensated Employees ranked on the basis of compensation paid by the Employer
during such year, then the family member and the Five Percent Owner or top-ten
Highly Compensated Employee shall be aggregated. In such case, the family member
and Five Percent Owner or top-ten Highly Compensated Employee shall be treated
as a single Employee receiving compensation and Plan contributions or benefits
equal to the sum of such compensation and contributions or benefits of the
family member and Five Percent Owner or top-ten Highly Compensated Employee. For
purposes of this Section, family member includes the spouse, lineal ascendants
and descendants of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and the
compensation that is considered, will be made in accordance with Code Section
414(q) and the regulations thereunder.
In determining Highly Compensated Employees, Employers shall be
appropriately aggregated under Code Section 414 (b), (c), (in) and (o).
With respect to an Employee who separated from service before January 1,
1987, such Employee will be included as a Highly Compensated Employee only if
the Employee was a Five Percent Owner or received compensation in excess of
$50,000 during (i) the Employee's separation year (or the year preceding such
separation year) or (ii) any year ending on or after such Employee's 55th
birthday (or the last year ending before such Employee's 55th birthday).
For purposes of this Section, compensation shall mean Code Section 415
Compensation.
1.26 "Hour of Service" shall mean:
(a) each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer during the applicable
period.
(b) each hour for which an Employee is paid, or entitled to payment,
on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including disability or pregnancy),
layoff, jury duty, military duty or Authorized Leave of Absence.
Notwithstanding the foregoing:
(i) no more than 501 Hours of Service will be credited to an
Employee on account of any single continuous period during which no
duties are performed (whether or not such period occurs in a single
Plan Year or other period); and
<PAGE>
(ii) no credit for an Hour of Service will be given for which an
Employee is directly or indirectly paid, or entitled to payment, on
account of a period during which no duties were performed if such
payment is made or due under a plan maintained solely for the purpose
of complying with applicable workmen's compensation or unemployment
compensation or disability insurance laws; and (iii) no credit for an
Hour of Service will be given for payment which solely reimburses an
Employee for medical or medically related expenses incurred by the
Employee.
For purposes of this subsection, a payment shall be deemed to be made
by or due from the Employer, regardless of whether such payment is made by,
or due from the Employer, directly or indirectly through, among others, a
trust fund, or insurer to which the Employer contributes or pays premiums,
and regardless of whether contributions made or due to the trust fund,
insurer or other entity are for the benefit of a particular Employee or are
on behalf of a group of Employees in the aggregate.
(c) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer.
Crediting of Hours of Service for back pay awarded or agreed to with
respect to the periods described in (b) above shall be subject to the
limitations of that Subsection.
The same Hours of Service shall not be credited both under (a) or (b), as
the case may be, and under (c) above of this Section.
In the case of a payment which is made or due on account of a period during
which an Employee performs no duties, and which results in the crediting of
Hours of Service under (b) above of this Section, or in the case of an award or
agreement for back pay, to the extent that such award or agreement is made with
respect to such a period described in (b) above of this Section, the number of
Hours of Service to be credited shall be determined pursuant to applicable Labor
Department regulations.
The computation and crediting of Hours of Service shall be determined
pursuant to Department of Labor regulations section 2530.200b-2(b) and (c).
Nothing in this Section shall be construed as denying an Employee credit
for an Hour of Service if credit is required by separate federal law.
Military service shall mean service in the armed forces of the United
States if the Employer is required by applicable federal law to re-employ such
Employee and reinstate such Employee's rights and benefits.
Solely for purposes of determining whether a One-Year Break in Service for
participation and vesting purposes has occurred in a computation period for Plan
Years beginning after 1984, an individual who is absent from work for maternity
or paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in any
case in which such Hours of Service cannot be determined, eight (8) Hours of
Service per day of such absence. For purposes of this paragraph, an absence from
work for maternity or paternity reasons means an absence (a) by reason of the
pregnancy of the individual, (b) by reason of a birth of a child of the
individual, (c) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual, or (d) for
purposes of caring for such child for a period beginning immediately following
such birth or placement. The Hours of Service credited under this paragraph
shall be credited (a) in the computation period in which the absence begins if
the crediting is necessary to prevent a One-Year Break in Service in that
period, or (b) in all other cases, in the following computation period.
<PAGE>
An Hour of Service with an Affiliated Employer shall be credited as an Hour
of Service under this Plan. Hours of Service will also be credited for any
individual considered an Employee for purposes of this Plan under Code Section
414(n) or Code Section 414(o) and the regulations thereunder.
1.27 "Inactive Participant" shall mean any Employee or former Employee who
has ceased to be a Participant and on whose behalf an Account is maintained
under the Plan.
1.28 "Investment Manager" shall mean any party that (a) is either (i)
registered as an investment advisor under the Investment Advisors Act of 1940,
or (ii) a bank, or (iii) an insurance company; (b) acknowledges in writing that
it is a fiduciary with respect to the Plan; and (c) is granted the power to
manage, acquire, or dispose of any asset of the Plan.
1.29 "Key Employee" shall mean any Employee or former Employee (and his
Beneficiaries) who, at any time during the Plan Year containing the
Determination Date or any of the preceding four (4) Plan Years, is or was:
(a) an officer of an Employer having annual compensation greater than
fifty (50%) percent of the amount in effect under Code Section 415 (b) (1)
(A) for any such Plan Year;
(b) an owner (or considered an owner under Code Section 318) of one of
the ten largest interests in the Employer if such individual's annual
compensation exceeds one hundred (100%) percent of the dollar limitation
under Code Section 415(c) (1) (A);
(c) a "Five Percent Owner" of the Employer; or
(d) a "One Percent Owner" of the Employer having an annual
compensation from the Employer of more than $150,000.
Annual compensation means compensation as defined in Code Section 415(c)
(3) but including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludable from the Employee's gross income under
Code Section 125, Code Section 402(a) (8), Code Section 402(h) or Code Section
403(b) of the Code. The determination of who is a Key Employee will be made in
accordance with Code Section 416(i) (1) and the regulations thereunder.
1.30 "Leased Employee" shall mean any person (other than a common law
Employee of the Employer) who pursuant to an agreement between the recipient and
any other person ("leasing organization") has performed services for the
recipient (or for the Employer and related persons determined in accordance with
Code Section 414(n) (6)) on a substantially full time basis for a period of at
least one year and such services are of a type historically performed by
Employees in the business field of the recipient Employer. Contributions or
benefits provided a Leased Employee by the leasing organization which are
attributable to services performed for the recipient Employer shall be treated
as provided by the recipient Employer. A Leased Employee shall be credited with
service performed for an Affiliated Employer.
1.31 "Limitation Year" shall mean the Plan Year.
1.32 "Named Fiduciary" shall be the Committee.
1.33 "Non-Elective Contribution" shall mean the Employer's contributions to
the Plan other than those made pursuant to the Participant's cash or deferred
election.
1.34 "Non-Highly Compensated Employee" shall mean an Employee of the
Employer who is neither a Highly Compensated Employee nor a Family Member.
<PAGE>
1.35 "Non-Key Employee" means any Employee who is not a Key Employee.1.36
"Normal Retirement Age" shall mean the day on which the Participant attains his
sixty-second (62nd) birthday.
1.37 "Normal Retirement Date" shall mean the day on which the Participant
attains his sixty-second (62nd) birthday, unless the Participant's employment is
continued beyond his sixty-second (62nd) birthday in which case the
Participant's Normal Retirement Date shall be the day on which he actually
retires.
1.38 "One Percent Owner" shall mean any person who owns (or is considered
as owning within the meaning of Code Section 318) more than one (1%) percent of
the outstanding stock of the Employer or stock possessing more than one (1%)
percent of the total combined voting power of all stock of the Employer. In
determining percentage ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c) and (in) shall be treated as separate
employers. However, in determining whether an individual has Compensation of
more than $150,000, Compensation from each employer required to be aggregated
under Code Sections 414(b),(c) and (in) shall be taken into account.
1.39 "One-Year Break in Service shall mean the applicable computation
period during which an" Employee has not completed more than 500 Hours of
Service with the Employer. An Authorized Leave of Absence shall not cause a
One-Year Break in Service. The applicable computation period shall mean the
period or periods used in the definition of Year of Service.
1.40 "Participant" shall mean any Employee of the Employer who has met the
eligibility requirements and participation requirements of this Plan and becomes
a Participant in this Plan.
1.41 "Plan" shall mean the profit-sharing and 401(k) plan of the Employer
as set forth in and by this document and all subsequent amendments thereto.
1.42 "Plan Administrator" shall be the Employer.
1.43 "Plan Name" shall be HAMPSHIRE GROUP, LIMITED AND SUBSIDIARIES 401(k)
RETIREMENT SAVINGS PLAN.
1.44 "Plan Year" shall be the twelve (12) consecutive month period
beginning on January 1 and ending on December 31.
1.45 "Shareholder-Employee" shall mean a Participant who owns more than
five (5%) percent of the Employer's outstanding capital stock interest during
any year in which the Employer elects to be taxed as an "5" corporation under
the Code.
1.46 "Super Top Heavy Plan" shall mean, for Plan Years commencing after
December 31, 1983, that, as of the Determination Date, (a) the Present Value of
Accrued Benefits of Key Employees, and (b) the sum of the Aggregate Accounts. of
Key Employees under this Plan and all plans of an Aggregation Group, exceeds
ninety (90%) percent of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Participants under this Plan and all plans of an Aggregation
Group.
1.47 "Taxable Year" shall mean the twelve (12) consecutive month period
beginning on January 1 and ending on December 31.
1.48 "Top Heavy Group" shall mean an Aggregation Group in which, as of the
Determination Date, the sum of:
(a) the Present Value of Accrued Benefits of Key Employees under all
defined benefit plans included in the group, and
(b) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group, exceeds sixty (60%) percent of a
similar sum determined for all Participants.
<PAGE>
1.49 "Top Heavy Plan" shall mean, for Plan Years commencing after December
31, 1983, that, as of the Determination Date, (a) the Present Value of Accrued
Benefits of Key Employees, and (b) the sum of the Aggregate Accounts of Key
Employees under this Plan and all plans of an Aggregation Group, exceeds sixty
(60%) percent of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Participants under this Plan and all plans of an Aggregation
Group.
1.50 "Top Heavy Plan Year" shall mean that, for a particular Plan Year
commencing after December 31, 1983, the Plan is a Top Heavy Plan as defined
herein.
1.51 "Trust" as herein used shall mean the legal entity resulting from the
agreement between the Employer and the Trustee by which the contributions
hereunder shall be made, received, held, invested, reinvested and disbursed to
or for the benefit of the Participants or their Beneficiaries, or both,
according to the terms of this Plan.
1.52 "Trust Fund" shall mean all funds received by the Trustee, together
with all income, profits, losses or increments thereon.
1.53 "Trustee" shall mean a corporation, association, individual, group of
individuals, or any combination of them, or any successor or successors who
shall accept the designation and enter into the duties of Trustee as
specifically set forth in this Trust Agreement.
1.54 "Valuation Date" shall mean March 31, June 30, September 30 and
December 31.
1.55 "Year of Service" shall mean for purposes of
(a) eligibility to participate in this Plan, a period of twelve
consecutive months, as hereinafter set forth, during which an Employee
completes at least 1,000 Hours of Service. The initial eligibility
computation period to be taken into account for this purpose shall be the
twelve consecutive month period commencing with the day on which the
Employee first performs an Hour of Service ("employment year"). The
eligibility computation period shall shift to the Plan Year. The first Plan
Year so used shall be the Plan Year which includes the first anniversary of
the day on which the Employee first performs an Hour of Service. An
Employee who is credited with 1,000 Hours of Service in both the initial
eligibility computation period and the first Plan Year which commences
prior to the first anniversary of the Employee's initial eligibility
computation period will be credited with two (2) Years of Service for
purposes of eligibility to participate.
(b)vesting in this Plan, a Plan Year during which an Employee
completes at least 1,000 Hours of Service.
(c) accrual of benefits in this Plan, a Plan Year during which a
Participant completes at least 1,000 Hours of Service, except as otherwise
specifically provided for herein.
A Year of Service with an Affiliated Employer and a predecessor employer
that maintained this Plan shall be credited as a Year of Service with the
Employer for purposes of vesting and eligibility to participate in this Plan.
SECTION 2 - Administration of Plan by Committee
2.1 The Employer hereby delegates its administrative duties and
responsibilities in connection with the administration of this Plan to the
Committee who shall be an individual or individuals designated by the Employer.
2.2 The Committee shall appoint a chairman and a secretary and may appoint
an acting chairman and an acting secretary. One person may hold more than one
position on the Committee.
<PAGE>
2.3 The Committee shall hold meetings upon such notice, at such place and
at such times as they may from time to time determine. Notice of a meeting shall
not be required if waived in writing, or if all of the members are present at
the meeting. A majority of the members of the Committee at any time in office
shall constitute a quorum. All resolutions or other actions taken by the
Committee at any meeting shall be by vote of a majority present at any such
meeting and entitled to vote. Resolutions may be adopted or other action taken
without a meeting upon written consent signed by all of the members.
2.4 The Committee shall maintain full and complete records of their
deliberations and decisions. The minutes of their proceedings shall be
conclusive proof of the facts of the operation of the Plan. Their records shall
contain all relevant data pertaining to individual Participants and their rights
under the Plan and in the Trust Fund.
2.5 The members of the Committee shall be bonded to the extent required by
law.
2.6 No fee or compensation shall be paid to any member for his services as
such, but any expenses properly incurred by the Committee shall be paid or
reimbursed by the Trust Fund unless voluntarily paid by Employer.
2.7 The Committee shall have the duty and complete authority to interpret
and construe the provisions of the Plan and this Agreement, and to decide any
dispute which may arise regarding the rights and benefits of any Participant,
his legal representatives or Beneficiaries, which determinations shall apply
uniformly to all persons similarly situated and shall be binding and conclusive
upon all interested persons. The Committee may adopt rules, regulations or
by-laws for use in the administration of the Plan, appoint agents and compensate
them, and, in general, direct the administration of this Plan. Interpretation
and administration of this Plan and Trust shall always be made with the
fundamental purpose that the Plan and Trust is a retirement plan qualified under
Code Section 401.
2.8 Any member of the Committee may resign at any time and may be removed
with or without cause by the Employer. The Employer may (but shall not be
required to) appoint a successor to fill any vacancy in the membership of the
Committee and shall notify the Trustee of any such appointment.
2.9 The Committee or its designee shall, within a reasonable time preceding
a Participant's Normal Retirement Date, consult and advise such Participant
concerning his benefits, options and rights under the Plan.
2.10 The Committee may correct errors and, so far as practicable and in
conformity with the Code and other applicable law and regulations, may adjust
any benefit or payment or credit accordingly.
2.11 The Committee shall determine the eligibility of Employees in
accordance with the provisions of this Plan from the information furnished to it
by Employer in accordance with the request of the Committee.
2.12 On or about the date upon which Employer shall make payment of any
contribution under the Plan by payment to the Trustee, the Committee shall
deliver to the Trustee a schedule showing the names of the Participants,
Inactive Participants and Beneficiaries, the Compensation of each Participant
for the Plan Year, the amount of Employer contributions, the amount of each
Participant's contributions, if any, the names of the Inactive Participants
whose employment was terminated during the Plan Year together with forfeitures,
if any, and such other information as shall be necessary for the Trustee to
allocate contributions and if otherwise permitted herein, forfeitures to the
Participants (unless the Trustee and Committee have agreed in writing that the
Committee is to make such allocations)
2.13 In any case involving termination of employment of a Participant or
any question as to vested interest, the Committee shall determine the percentage
of vesting and shall communicate its determination to the Trustee. If a
terminated Participant's benefits are to be received or invested in Annuity
Contracts (if Annuities are otherwise specifically permitted under the Annuity
Requirements Section), the Committee shall make proper application for such an
Annuity to an insurance company and shall direct the Trustee to purchase said
Annuity Contract and deliver it in accordance with the Committee's instructions
after taking into account the consent requirements of Code Section 401(a) (11),
Code Section 417 and the Annuity Requirements Section.
2.14 The Committee shall be the agent for service of legal process.
<PAGE>
2.15 The Committee is authorized to secure such legal, medical, accounting,
actuarial, or other consultant's advice, and to appoint qualified appraisers of
real, personal, or intangible property, and to pay their reasonable expenses and
compensation from the Trust Fund, unless the Employer voluntarily makes such
payments.
2.16 In the event and to the extent not insured against by any insurance
company, the Employer shall indemnify and hold harmless the Committee members,
their assistants and representatives, from any and all claims, demands, suits,
losses, damages and any other liability arising from their responsibilities in
connection with the Plan or Trust, unless the same is determined to be due to
gross negligence or willful misconduct.
2.17 A Participant, Inactive Participant or Beneficiary shall have the
right to file a claim, inquire if he has any right to benefits and the amounts
thereof, or appeal the denial of a claim.
A claim will be considered as having been filed when a written
communication is made by the Participant or his authorized representative who
brings his claim request to the attention of the Plan Administrator or any
member of the Committee.
The Committee shall notify the claimant in writing within ninety (90) days
after receipt of the claim if the claim is wholly or partially denied. If an
extension of time beyond the initial ninety (90) day period for processing the
claim is required, written notice of the extension shall be provided the
claimant prior to the termination of the initial ninety (90) day period. In no
event shall the extension exceed a period of ninety (90) days from the end of
the initial period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the Committee
expects to render a final decision.
Notice of a wholly or partially denied claim for benefits will be in
writing in a manner calculated to be understood by the claimant and shall
include:
(a) The reason or reasons for denial;
(b) Specific reference to the Plan provisions that apply in the case;
(c) A description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(d) An explanation of the Plan's claim appeal procedure.
If a claim is denied, the claimant may file an appeal asking the Committee
to conduct a full and fair review of his claim. An appeal must be made in
writing no more than sixty (60) days after the claimant receives written notice
of the denial. The claimant may review any documents that apply to the case and
may also submit points of disagreement and other comments in writing along with
the appeal.
The decision of the Committee regarding the appeal shall be given to the
claimant in writing no later than sixty (60) days following receipt of the
appeal. However, if the Committee, in its sole discretion, grants a hearing, or
there are special circumstances involved, the decision will be given no later
than one-hundred twenty (120) days after receiving the appeal. If such an
extension of time for review is required because of special circumstances,
written notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. The decision shall include specific reasons for
the decision, written in a manner calculated to be understood by the claimant,
as well as specific references to the pertinent Plan provisions on which the
decision is based.
<PAGE>
2.18 The Committee from time to time may appoint one or more Investment
Managers to direct or approve all investments and reinvestments of the Trust
Fund, by written notice to the Trustee. However, until notified to the contrary
by the Committee or unless the Plan and Trust specifically permits a Participant
to self-direct the investment of his Account, the Trustee is responsible for all
investments and reinvestments. After the Committee has notified the Trustee of
its appointment of an Investment Manager to direct or approve investments and
reinvestments, the Investment Manager then shall become responsible for any and
all investments and reinvestments made by it. The Trustee may rely upon the
directions and instructions of the Committee and Investment Manager without
being in any way liable or responsible for the consequences.
2.19 The Committee from time to time, either itself or through its duly
appointed agents, may direct or approve all investments and reinvestments of the
Trust Fund, by written notice to the Trustee. However, until notified to the
contrary by the Committee or unless the Plan and Trust specifically permits a
Participant to self-direct the investment of his Account, the Trustee is
responsible for all investments and reinvestments. After the Committee has
notified the Trustee of its intention to direct or approve investments and
reinvestments, the Committee then shall become responsible for any and all
investments and reinvestments made pursuant to such direction or approval. The
Trustee may rely upon the directions and instructions of the Committee without
being in any way liable or responsible for the consequences.
2.20 The Committee shall have the responsibility for developing a funding
policy for the Plan, if required, and shall communicate such funding policy to
the Trustee, or other Investment Manager, and shall see to it that the funding
policy is carried out.
2.21 If a Participant or a Beneficiary receives a qualifying rollover
distribution from the Plan, the Committee shall provide a written explanation to
the recipient (a) that the distribution will not be taxed currently to the
extent transferred to another qualified plan or individual retirement account
within sixty (60) days after the date on which the recipient received the
distribution, and (b) of income averaging and capital gains provisions, if
applicable. In the case of a series of distributions the notice shall explain
that the sixty (60) day period does not begin to run until the last distribution
is made.
2.22 If any person entitled to receive any benefit hereunder shall be a
minor child or incompetent person, but no legal representative has been
appointed for him or her, the Committee may, in its discretion, cause any
benefit otherwise payable to such person to be paid to the conservator, parent
or guardian or spouse of such person, or to the institution maintaining such
person, or to the individual having custody of such person, or may otherwise
cause the same to be applied for the benefit of such person in any manner which
the Committee may deem proper, without regard to the duty of any person to
support such minor or incompetent person, and without regard to any other funds
which may be available for the purpose, and, in the case of any payment made for
the benefit of such person in any of the manners just authorized, the receipt by
the person to whom the payment is made shall be in full discharge of all
liability under the Plan and Trust in respect of such payment. Deposit to the
credit of a Participant or Beneficiary in any bank, savings and loan or trust
company shall be deemed payment into the hands of such person.
2.23 Notwithstanding anything in this Plan and Trust to the contrary, the
Trustee and Committee may agree in writing that the Committee will perform
certain record keeping functions delegated to the Trustee herein such as
allocating contributions and in such event the Trustee shall be fully relieved
of such duties.
SECTION 3 - Eligibility and Participation
3.1 Any Employee who has completed one (1) Year of Service and has attained
the age of twenty (20) shall be eligible to participate in this Plan as of the
earlier of the January 1, April 1, July 1 or October 1 next following the date
upon which the Employee has completed the aforesaid service and age
requirements, provided such Employee is so employed on such January 1, April 1,
July 1 or October 1. A Leased Employee shall not be eligible to participate in
<PAGE>
this Plan. Any Employee who is included in a unit of Employees covered by an
agreement in which retirement benefits are the subject of good faith bargaining
between Employee representatives and the Employer shall not be eligible to
participate in this Plan. Any Employee who is a nonresident alien and who
receives no earned income (within the meaning of Code Section 911 (d) (2)) from
the Employer which constitutes income from sources within the United States
(within the 31 meaning of Code Section 861(a) (3)) shall not be eligible to
participate in this Plan. Any Employee who was participating in this Plan on the
day before the Effective Date of this amended and restated Plan shall continue
to participate in this Plan subject to the other requirements herein.
3.2 For purposes of Years of Service for participation, all Years of
Service with the Employer shall be taken into account, and an Employee who
incurs a One-Year Break in Service shall participate in this Plan effective on
the re-employment commencement date. Notwithstanding the preceding sentence, for
Plan Years beginning before 1985, Years of Service prior to any One-Year Break
in Service shall not be credited and the Participant shall satisfy again the
eligibility for participation requirements if the Employee was not vested in
Employer contributions and the number of consecutive One-Year Breaks in Service
equals or exceeds the aggregate number of Years of Service before such break.
Such aggregate number of Years of Service before such break shall be deemed not
to include any Years of Service not required to be taken into account by reason
of any prior One-Year Break in Service. For Plan Years beginning after 1984,
Years of Service for eligibility to participate prior to a period of consecutive
One-Year Breaks in Service shall not be credited and the Participant shall
satisfy again the eligibility for participation requirements if the Employee was
not vested in Employer contributions and the number of consecutive One-Year
Breaks in Service equals or exceeds the greater of five (5) or the aggregate
number of Years of Service before such breaks in service. Such aggregate number
of Years of Service before such break shall not include any Years of Service
disregarded under the preceding sentence by reason of prior breaks in service.
Such Employee shall be considered as a new Employee and shall again become
eligible for participation when he shall have met the eligibility requirements
of the Plan and Trust in connection with the period of his re-employment. The
re-employment commencement date is the first day on which the Employee is
credited with an Hour of Service for the performance of duties after the first
eligibility computation period in which the Employee incurs a One-Year Break in
Service
3.3 Participation in this Plan shall be mandatory on the part of each
eligible Employee. An Employee shall automatically participate in this Plan upon
first becoming eligible to participate.
3.4 If, in any Plan Year, any Employee who should have been included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by the Employer for the year has been made
and allocated, the Employer shall make a subsequent contribution with respect to
the omitted Employee in the amount which the Employer would have contributed
with respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any Taxable
Year under applicable provisions of the Code by such Employer.
3.5 If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made and
allocated, the Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or not a deduction
is allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a forfeiture
for the Plan Year in which the discovery is made.
3.6 In the event a Participant is no longer a member of an eligible class
of Employees and becomes ineligible to participate, but has not incurred a
One-Year Break in Service, eligibility will be determined under the break in
service rules of the Plan. In the event an Employee who is not a member of the
<PAGE>
eligible class of Employees becomes a member of the eligible class such Employee
will participate immediately if such Employee has satisfied the minimum age and
service requirements and would have otherwise previously become a Participant.
SECTION 4 -Employer Non-Elective Contributions and Elective Contributions
4.1 For each Taxable Year during the continuance of this Plan, the Employer
shall contribute such amount (if any) to the Trust Fund as the Employer in its
sole discretion shall determine; provided, however, Employer's aggregate
contributions of both Elective Contributions and Non-Elective Contributions for
any Taxable Year shall not exceed the maximum amount that can be allowed as a
deduction under the applicable provisions of the Code. Employer contributions
made under this Section 4.1 are generally referred to in this Plan and Trust as
"Employer Profit Sharing Contributions' and shall be deemed an Employer
Non-Elective Contribution subject to the vesting requirements contained in
Section 10.
4.2 In addition to Employer Profit-Sharing Contributions, upon adoption and
execution of this Plan by the Employer each Participant in the Plan pursuant to
a uniform, non-discriminatory policy may elect to defer a portion of his
Compensation of not less than one (1%) percent and not more than eighteen (l8%)
percent of Compensation or the maximum amount which will not cause the Plan to
violate the annual additions limitations under Code Section 415. However, under
no circumstances shall a Participant defer an amount of his Compensation which
causes the Plan to exceed the maximum amount allowable as a deduction to the
Employer under Code Section 404. Further, the Employee's deferrals shall be
further limited as provided in the Cash or Deferral Limitations Section.
Contributions under this Section 4.2 are generally referred to in this Plan and
Trust as the "Employee Elective Deferrals." The Committee may establish payroll
deduction procedures and other contribution procedures to facilitate the
Employee's contribution to the Plan. The Committee shall provide deferral forms
and determine such time or times that a Participant may commence deferral of his
Compensation and cease deferral of his Compensation; provided however, that at
least once during each calendar year a Participant may elect to commence and
terminate (or modify) deferral of his Compensation. The Employer shall
contribute to the Trust Fund the amount of the Participant's Deferred
Compensation which shall be deemed an Employer Elective Contribution. The
Participant shall be 100% fully vested in and have a non-forfeitable right to
Employee Elective Deferrals made under this Section 4.2. Prior to the end of
each Plan Year, all Participants may commence, change or terminate their
deferral of Compensation for the next Plan Year, or such shorter period of time
as announced by the Committee. Additionally, the Committee may allow other time
periods during the Plan Year when all Participants may prospectively commence,
change or terminate their deferral of Compensation.
Employee Elective Deferrals shall satisfy the Code Sections 401(k) (2) (A),
(B) and (C) Provisions.
4.3 In addition to Employer Profit-Sharing Contributions and Employee
Elective Deferral, for each Taxable Year during the continuance of this Plan,
the Employer may in its sole discretion contribute a discretionary amount to the
Trust Fund. Any contribution made by the Employer under this Section 4.3 are
generally referred to as Qualified Non-Elective Contributions (as defined in
Section 22.13) and must be specifically designated by the Employer to the
Trustee. The Participant shall be 100% fully vested in and have a nonforfeitable
right to Qualified Non-Elective Contributions made under this Section 4.3.
Further Qualified Non-Elective Contributions shall satisfy the Code Sections
401(k) (2) (B) and (C) Provisions. The Employer may direct that Qualified
Non-Elective Contributions shall be allocated only to Non-Highly Compensated
Employees.
4.4 In addition to Employer Profit-Sharing Contributions, Employee Elective
Deferrals and Qualified Non-Elective Contributions, the Employer may make
Matching Contributions to a Participant's Account for a Plan Year in such
amounts and in such manner as the Employer shall determine in its sole
discretion. Further, at any time the Employer may make a bonus Matching
Contribution. Any Matching Contributions are generally referred to in this Plan
and Trust as "Employer Matching Contributions" and shall be deemed an Employer
Non-Elective Contribution subject to the vesting schedule requirements in
Section 10.
<PAGE>
Prior to the beginning of a Matching Contribution period, the Employer
shall announce the Matching Contribution formula for such period if the Employer
intends to contribute a Matching Contribution. The Matching Contribution formula
shall contain the following:
(a) the ratio of the amount of contribution the Employer will
contribute to the amount of the Participant's Elective Deferrals during the
Matching Contribution period;
(b) the maximum dollar amount (if any) the Employer will contribute as
a Matching Contribution;
(c) the dollar amount limitation (if any) the Employer will contribute
as Matching Contribution for any one Participant;
(d) a percentage limitation based upon each Participant's Compensation
or portion of Compensation; and
(e) the Matching Contribution period which shall be a period of time
not to exceed the Plan Year
In addition to the above Matching Contribution, effective for the Plan Year
beginning after a Participant completes twenty (20) continuous years of
employment with the Employer, the Employer shall contribute for such Participant
an additional amount equal to the Matching Contribution percentage received
above. This contribution shall be referred to as the "Long Service Match".
Except, however, in applying these matching percentages specified above,
only salary reductions up to four (4%) percent of Compensation shall be
considered.
Any Matching Contributions are generally referred to in this Plan and Trust
as "Employer Matching Contributions" and shall be deemed an Employer
Non-Elective Contribution subject to the vesting schedule requirements in
Section 10.
The Plan shall meet the non-discrimination requirements set forth in Code
Section 401(m) and Regulations l.401(m-l) and 1.401(m)-2 which are incorporated
herein by reference.
The Employer may also make Qualified Matching Contributions. Qualified
Matching Contributions shall satisfy the Code Sections 401(k) (2) (B) and (C)
Provisions. The Participant shall be 100% fully vested in and have a
non-forfeitable right to Qualified Matching Contributions. Further, Qualified
Matching Contributions and Matching Contributions shall be defined and meet the
requirements of the Cash or Deferred Limitation Section including Sections 22.10
and 22.11.
4.5 Except as provided below, the Employer may make payment of its
contributions for any Taxable Year on any date or dates it elects, provided only
that the total amount of its contributions for any Taxable Year shall be paid in
full not later than twelve (12) months (or within the time prescribed by
Treasury Department Regulations) after the Plan Year for which they are deemed
paid. Notwithstanding the preceding sentence, Employer Elective Contributions
resulting from a Participant's deferral of Compensation shall be paid to the
Trustee as soon as the Deferred Compensation can reasonably be segregated from
the Employer's assets.
4.6 The Employer may make payment of its Non-Elective Contribution for any
Taxable Year on any date or dates it elects, provided only that the total amount
of its contribution for any Taxable Year shall be paid in full on or before the
date required by law for filing its federal income tax return for such Taxable
Year, including any extensions granted for filing such tax return.
4.7 The Employer's Non-Elective Contribution and Elective Contributions for
each Taxable Year shall be paid by the Employer directly to the Trustee. On or
about the date of such payment, the Committee shall be advised of the amount of
such payment upon which the allocation to Participants is to be calculated.
4.8 All contributions made to this Plan and Trust by the Employer are
expressly made upon the condition that such contributions are fully deductible
<PAGE>
for income tax purposes unless the Employer otherwise specifies in writing. -
Contributions made by the Employer to the Plan shall be made irrevocably and it
shall be impossible for the assets of the Plan to inure to the benefit of the
Employer or to be used in any manner other than for the exclusive purpose of
providing benefits to Participants, retired Participants, and Beneficiaries, and
for defraying reasonable expenses of administering the Plan; provided, however
that
(a) if the Plan does not initially qualify by the Internal Revenue
Service, then any contribution made to the Plan by the Employer must be
returned to the Employer within one year after the date of denial of
qualification of the Plan;
(b) if a contribution is made by the Employer by a mistake of fact,
such contribution must be returned to the Employer within one year after
the payment of the contribution; or
(c) to the extent the deduction for a contribution under Code Section
404 is disallowed, the contribution (to the extent disallowed) must be
returned to the Employer within one year after the disallowance of the
deduction.
4.9 Unless otherwise specifically provided in this Plan and Trust, a
Participant must have a Year of Service for accrual of benefits during a Plan
Year in order to accrue benefits for such Plan Year.
SECTION 5 - Allocation of Contributions and Forfeitures
5.1 The Employer's Profit-Sharing Contribution for any Plan Year shall be
allocated and credited by the Trustee among the Accounts of the Participants as
of the last day of such Plan Year in the proportion that each Participant's
Compensation bears to the total Compensation received by all the Participants
during the Plan Year.
5.2 The Employee Elective Deferrals shall be allocated and credited by the
Trustee to the Participant's Elective Contribution Account who made the
deferral.
5.3 The Employer Qualified Non-Elective Contributions shall be allocated
and credited by the Trustee among the Participant's Elective Accounts as of the
last day of the Plan Year in proportion that each Participant's Compensation
bears to the total Compensation received by all the Participants during the Plan
Year; provided, however, the Employer, in its sole discretion, may direct that
only Non-Highly Compensated Employees shall be eligible to receive an allocation
or credit of Qualified Non-Elective Contributions.
5.4 The Employer Matching Contribution shall be allocated and credited by
the Trustee to the Employee's Non-Elective Account in such manner as the
Employer may designate in a nondiscriminatory manner in accordance with the
Employer Matching Contribution formula. Qualified Matching Contributions shall
be allocated to the Employee's Qualified Matching Contribution Account as the
Employer designates and may, in the Employer's sole discretion, be allocated
only to Non-Highly Compensated Employees.
5.5 Any forfeitures for a Plan Year shall be used first to pay the Plan's
administration costs and expenses for the Plan Year and any remainder for the
Plan Year to reduce the Employer's contribution, and shall not be allocated
among the Participant's Accounts.
5.6 For any Top Heavy Plan Year, the total of the Employer's contribution
and, if otherwise permitted herein, forfeitures allocated to the Participant's
Account of each Non-Key Employee shall not be less than the lesser of (i) three
(3%) percent of such Non-Key Employee's compensation (as defined below), or (ii)
in the case where the Employer has no defined benefit plan which designates this
Plan to satisfy Code Section 401(a) (4) or Code Section 410, the largest
percentage of Employer contributions and forfeitures, as a percentage of the
first $200,000 (or $150,000, as adjusted by the Internal Revenue Service, for
Plan Years beginning after 1993) of the Key Employee's Code Section 415
Compensation (including any amounts contributed as a result of a salary
reduction agreement under a Code Section 401 (k) plan), allocated on behalf of
any Key Employee for that year. Neither Elective Deferrals nor Employer Matching
Contributions shall be taken into account for purposes of satisfying the minimum
Top Heavy Plan minimum allocation requirements; provided, however, that any
<PAGE>
Employer Matching Contributions not necessary to satisfy the non-discrimination
requirements of Code Sections 401(k) and 401(m) may be taken into account for
purposes of satisfying the Top Heavy Plan minimum allocation requirements. For
any Plan Year when (i) the Plan is a Top Heavy Plan but not a Super Top Heavy
Plan and (ii) a Key Employee is a Participant in both this Plan and a defined
benefit plan included in a Required Aggregation Group which is top heavy, the
extra minimum allocation (required by Code Section 416(h) to provide higher
limitations) shall be provided for each Non-Key Employee who is a Participant
only in this Plan by substituting four (4%) percent for three (3%) percent in
the preceding sentence. For purposes of determining the minimum allocation, all
Code Section 415 Compensation during the entire Limitation Year shall be taken
into account for determining the required minimum allocation for such Non-Key
Employee. The minimum allocation is determined without regard to any Employer
Social Security contribution or the Non-Key Employee's level of Compensation.
This Section shall not apply to any Participant to the extent the Participant is
covered under any other plan or plans of the Employer and the Employer has
provided that minimum allocation or benefit requirements applicable to a Top
Heavy Plan will be met in the other plan or plans.
The minimum allocation required (to the extent required to be
non-forfeitable under Code Section 416(b)) may not be forfeited under Code
Sections 411 (a) (3) (B) or 411(a) (3) (D). The minimum allocation required
shall be allocated to a Non-Key Employee's Account if the Non-Key Employee is a
Participant even though he has not completed a Year of Service and declined to
make mandatory contributions to the Plan, if required. Any Participant who is
not employed on the last day of the Plan Year shall not receive the minimum Top
Heavy Plan benefit allocation for such Plan Year. The minimum Top Heavy Plan
benefit allocation shall not be provided to each Key Employee. If the Employer
maintains another qualified plan and a Non-Key Employee participates in this
Plan and the other plan, then such other plan shall first satisfy the minimum
Top Heavy Plan benefits required herein.
5.7 The fact that an allocation shall be made and credited to the
Non-Elective Account of a Participant shall not vest in such Participant any
right, title, or interest in and to any assets of the Trust Fund, except at the
time or times and upon such terms and conditions as are expressly set forth in
this Plan
5.8 Any assets contributed by the Employer to the Trust Fund shall be
allocated only as set forth herein and, until allocated in accordance with the
provisions of this Plan, shall be held in suspense by the Trustee.
5.9 Notwithstanding any other provision of the Plan or the effect thereof,
this Plan and Trust shall comply with the annual additions limitations contained
in Code Section 415. The maximum annual additions that may be contributed or
allocated by the Employer (including any Affiliated Employer) to a Participant's
Account under the Plan for any Limitation Year shall not exceed the lesser of
(a) the Defined Contribution Dollar Limitation, or (b) twenty-five (25%) percent
of the Code Section 415 Compensation paid to the Participant by the Employer for
the Limitation Year, or such other limits as may, from time to time, be
prescribed by regulations promulgated by the Secretary of the Treasury. The
compensation limitation in (b) above shall not apply to (i) any contribution for
medical benefits (within the meaning of Section 419A(f) (2) of the Code) after
separation from service which is otherwise treated as an annual addition, or
(ii) any amount otherwise treated as an annual addition under Section 415(1) (1)
of the Code.
For purposes of this Section, the Defined Contribution Dollar Limitation
means $30,000 or, if greater, one-fourth of the defined benefit dollar
limitation set forth in Code Section 415(b) (i) (A) as in effect for the
Limitation Year.
For purposes of this Section, for any Limitation Year "annual additions"
shall mean for this Plan Which shall include an Affiliated Employer's plan), the
sum of: -
(a) the Participant's share of the Employer contribution;
(b) the Participant's contributions, if any;
(c) the Participant's share of forfeitures, if any, added to his
Account;
<PAGE>
(d) amounts allocated after March 31, 1984 to an individual medical
account, as defined in Code Section 415(1) (2), which is part of a pension
or annuity plan maintained by the Employer; and
(e) amounts derived from contributions paid or accrued after December
31, 1985, in Limitation Years ending after such date, which are
attributable to post-retirement medical benefits allocated to the separate
account of a Key Employee, as defined in Code Section 419A (d) (2)
Solely for purposes of determining the annual additions under this Section,
a Participant's contributions shall exclude any rollover amount or rollover
contribution and any contributions to a simplified employee pension plan which
are excludable from income under Code Section 408(k) (6).
In the event the Employer has two or more defined contribution plans which
allow aggregate contributions to exceed the limits of Code Section 415, as
amended, as the result of allocation of forfeitures, a reasonable error in
estimating a Participant's annual Compensation, or under other facts and
circumstances which the Commissioner of Internal Revenue Service determines
justifies the excess, then the defined contribution plan with the latest
effective date shall sufficiently reduce contributions and allocations to
prevent an excess annual addition.
For purposes of this Section and the annual additions limitations,
compensation used in this Section shall mean all Code Section 415 Compensation
paid during the Limitation Year and Employer means the Employer and all
Affiliated Employers. Further, this Section applies to all defined contribution
plans (whether or not terminated) of the Employer in the aggregate.
5.10 In the event that it is determined that the annual additions to a
Participant's Account for a Plan Year would be in excess of the limits contained
herein as the result of allocation of forfeitures, a reasonable error in
estimating a Participant's annual Compensation, or under other facts and
circumstances which the Commissioner of Internal Revenue Service determines
justifies the excess, such annual additions shall be reduced to the extent
necessary in the following order:
(a) Any contributions (including Elective Contributions) made by the
Participant during the Plan Year, including the earnings thereon, which are
included in such annual additions shall be returned to such Participant to
the extent necessary to reduce the annual additions to the limitations
contained herein.
(b) If, after complying with (a) above of this Section, there are any
amounts remaining which cannot be allocated to any Participant for the
Limitation Year as a result of the limitations contained herein, such
amounts shall be maintained unallocated in a suspended Account under the
Trust Fund. If a suspended Account is in existence at any time during a
particular Limitation Year, other than the Limitation Year described in the
preceding sentence, all amounts in the suspended Account must be allocated
and reallocated to Participants' Accounts subject to Code Section 415
before any Employer contributions and any Employee contributions which
would constitute annual additions may be made to the Plan for that
Limitation Year. If forfeitures are used to pay Plan administration costs
and expenses or reduce Employer contributions, then such suspended amounts
shall be used to pay Plan administration costs and expenses or reduce
contributions prior to any contribution by the Employer.
(c) Upon termination of this Plan, any amounts held in a suspended
Account because such amounts cannot be allocated to the Participants as a
result of the limitations contained herein shall revert to the Employer.
For purposes of the annual additions limitations used in this Section,
compensation used in this Section shall mean all Code Section 415 Compensation
paid during the Limitation Year.
5.11 For purposes of allocating Employer contributions and forfeitures, if
otherwise permitted herein, only Compensation paid after an Employee has
satisfied the initial eligibility requirements of the Plan and has entered the
Plan shall be taken into account. Notwithstanding the preceding sentence, all
<PAGE>
compensation as defined in Code Section 415 during the entire Limitation Year
shall be taken into account for determining the required minimum allocation for
a Non-Key Employee if the Plan is a Top Heavy Plan.
5.12 Unless otherwise required in a Top Heavy Plan, a Participant shall not
receive an allocation or credit of the Employer's Profit-Sharing contribution
unless the Participant is employed with the Employer as of the last day of the
Plan Year and has a Year of Service for accrual of benefits for such Plan Year.
5.13 A Participant who terminates employment before the next Valuation Date
shall not be ineligible to receive an allocation or credit of the Employer
Matching Contribution solely because of the Participant's termination of
employment prior to such Valuation Date or such Participant failed to have a
Year of Service for accrual of benefits.
5.14 Notwithstanding anything in this Plan and Trust to the contrary, if
the Plan and Trust would violate either or both the participation test under
Code Section 401 (a) (26) or the coverage test under Code Section 410(b) for a
particular Plan Year, then the following shall apply in the order designated to
the extent necessary to satisfy both the aforesaid participation test and
coverage test for such Plan Year:
(a) First, each Participant who is employed with the Employer on the
last day of the Plan Year that did not receive any accrual of benefits for
such Plan Year shall nevertheless receive an accrual of benefits. If after
complying with this subparagraph (a) the Plan and Trust continues to
violate either or both the participation test and coverage test, then
subparagraph (b) shall apply for such Plan Year.
(b) Second, each Participant who is not employed on the last day of
the Plan Year and did not receive an accrual of benefits for such Plan Year
but was credited with 501 or more Hours of Service during such Plan Year
shall receive an accrual of benefits.
In accruing benefits under subparagraphs (a) or (b) above, if the Plan is a
Top Heavy Plan for such Plan Year, then the Participant shall only receive the
minimum Top Heavy Plan benefit for such Plan Year if the minimum Top Heavy Plan
benefit is all that is required for the Plan and Trust to satisfy Code Sections
401 (a) (26) and 410 (b), otherwise the Participant shall receive a full benefit
accrual.
SECTION 6 - To heavy Provision and Administration
6.1 For any Top Heavy Plan Year, the Plan hereby provides the following:
(a) special vesting requirements of Code Section 416 (b);
(b) special minimum allocation requirements of Code Section 416(c);
and
(c) special Compensation requirements of Code Section 416(d) for Plan
Years beginning before January 1, 1989.
6.2 A Participant's Aggregate Account as of the Determination Date is the
sum of:
(a) The Participant's Account balance as of the most recent valuation
occurring within a twelve (12) month period ending on the Determination
Date.- The Account balance and Accrued Benefit of a Participant who is (i)
not a Key Employee but who was a Key Employee in a prior year, or (ii) has
not been credited with at least one Hour of Service with any Employer
maintaining the Plan at any time during the five (5) year period ending on
the Determination Date will be disregarded;
(b) An adjustment for any contributions due as of the Determination
Date. Such adjustment shall be the amount of any contributions actually
made after the valuation date but before the Determination Date, except for
the first Plan Year when such adjustment shall also reflect the amount of
any contributions made after the Determination Date that are allocated as
of the date in that first Plan Year;
<PAGE>
(c) Any Plan distributions (including distributions from a terminated
plan) made within the Plan Year that includes the Determination Date or
within the four (4) preceding Plan Years. However, in the case of
distributions made after the valuation date and prior to the Determination
Date, such distributions are not included as distributions for top heavy
purposes to the extent that such distributions are already included in the
Participant's Aggregate Account balance as of the valuation date.
Notwithstanding anything herein to the contrary, all distributions,
including distributions made prior to January 1, 1984, will be counted;
(d) Any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified employee
contributions shall not be considered to be a part of the Participant's
Aggregate Account balance;
(e) With respect to unrelated rollovers and plan-to-plan transfers
(ones which are both initiated by the Employee and made from a plan
maintained by one employer to a plan maintained by another employer), if
this Plan provides for rollovers or plan-to-plan transfers, it shall always
consider such rollover or plan-to-plan transfer as a distribution for
purposes of this Section. If this Plan is the plan accepting such rollovers
or plan-to-plan transfers, it shall not consider such rollovers or
plan-to-plan transfers accepted after December 31, 1983 as part of the
Participant's Aggregate Account balance. However, rollovers or plan-to-plan
transfers accepted prior to January 1, 1984 shall be considered as part of
the Participant's Aggregate Account balance; and
(f) With respect to related rollovers and plan-to-plan transfers (ones
either not initiated by the Employee or made to a plan maintained by the
same employer), if this Plan provides the rollover or plan-to-plan
transfer, it shall not be counted as a distribution for purposes of this
Section. If this Plan is the plan accepting such rollover or plan-to-plan
transfer, it shall consider such rollover or plan-to-plan transfer as part
of the Participant's Aggregate Account balance, irrespective of the date on
which such rollover or plan-to-plan transfer is accepted.
6.3 Aggregation Group shall mean either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined
(a) In determining a Required Aggregation Group hereunder, each plan
of the Employer in which at least one Key Employee participates, or
participated at any time during the determination period (regardless of
whether the plan has terminated), and each other plan of the Employer which
enables any plan in which a Key Employee participates to meet the
requirements of Code Sections 401(a) (4) or 410, will be required to be
aggregated. Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group
will be considered a Top Heavy Plan if the Required Aggregation Group is a
Top Heavy Group. No plan in the Required Aggregation Group will be
considered a Top Heavy Plan if the Required Aggregation Group is not a Top
Heavy Group.
(b) The Employer may also include any other plan not required to be
included in the Required Aggregation Group, provided the resulting group,
taken as a whole, would continue to satisfy the provisions of Code Section
401(a) (4) and 410. Such group shall be known as a Permissive Aggregation
Group. In the case of a Permissive Aggregation Group, only a plan that is
part of the Required Aggregation Group will be considered a Top Heavy Plan
if the Permissive Aggregation Group is a Top Heavy Group. To plan in the
Permissive Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is not a Top Heavy Group.
(c) Only those plans of the Employer in which the Determination Dates
fall within the same calendar year shall be aggregated in order to
determine whether such plans are Top Heavy Plans.
6.4 In the case of a defined benefit plan, a Participant's Present Value of
Accrued Benefit shall be as determined under the provisions of the applicable
defined benefit plan. Further, the accrued benefit in such defined benefit plan
of any Employee (other than a Key Employee) shall be determined
(a) under the method which is used for accrual purposes for all Plans
of the Employer; o
(b) if there is no method described in (a), as if such benefit accrued
not more rapidly than the slowest accrual rate permitted under Code Section
411(b) (1) (C).
<PAGE>
6.5 Annual Compensation of each Employee taken into account during any Top
Heavy Plan Year shall not exceed the sum of Two Hundred Thousand ($200,000)
Dollars, or One Hundred Fifty Thousand ($150,000) Dollars for Plan Years
beginning after 1993 (subject to an annual cost of living increase as determined
by Treasury regulations).
6.6 If any Participant is a Non-Key Employee for any Plan Year, but such
Participant was a Key Employee for any prior Plan Year, such Participant's
Present Value of Accrued Benefit or Aggregate Account balance shall not be taken
into account for purposes of determining whether this Plan is a Top Heavy Plan
(or whether any Aggregation Group which includes this Plan is a Top Heavy Group)
If a Participant has not performed services for any Employer maintaining the
Plan at any time during the five (5) year period ending on the Determination
Date, any Accrued Benefit for such Participant (and the Account of such
Participant) shall not be taken into account for purposes of determining whether
this Plan is a Top Heavy Plan.
SECTION 7 - Retirement Benefits
7.1 A Participant may retire from the employ of the Employer as of his
Normal Retirement Date. If the Participant continues in the employ of the
Employer beyond his Normal Retirement Date, he shall for purposes of this Plan
and Trust continue to be treated in all respects as an Employee and Participant
until his actual retirement. After determination of the value of the Inactive
Participant's Account, the Trustee shall pay the Account to the Inactive
Participant in accordance with the Annuity Requirements Section and the
Distribution Requirements Section. Notwithstanding anything in this Plan and
Trust to the contrary, there is no early retirement date in this Plan and Trust.
SECTION 8 - Death Benefits
8.1 In the event of the death of a Participant while employed with the
Employer, the Inactive Participant's Account shall be one hundred (100%) percent
fully vested and non-forfeitable. After determination of the value of the
Inactive Participant's Account, the Account (including the proceeds of any life
insurance on the Participant's life other than key man life insurance) shall be
paid to the Inactive Participant's surviving spouse in accordance with the
Distribution Requirements Section. If the Inactive Participant has no surviving
spouse, or the spouse has consented to the Account being paid to another
designated Beneficiary, then the Account shall be paid to such other designated
Beneficiary. Such consent shall acknowledge the specific non-spouse Beneficiary,
including any class of Beneficiaries or any contingent Beneficiaries. Any
consent by the spouse shall be in writing and shall acknowledge the effect of
such election. Prior to the death of the Participant, the Participant may revoke
such non-spouse Beneficiary designation at any time and cause the death benefit
to be payable to the Participant's spouse. Further, if all of the designated
non-spouse Beneficiaries predecease the Participant or if the designation of the
non-spouse Beneficiary is not legally effective to cause payment of the Account
to the non-spouse Beneficiary, then the Participant's spouse shall receive
payment of the Account if the spouse survives the Participant. The spouse's
consent shall be witnessed by a notary public or Committee member. Any consent
by the spouse shall be effective only with respect to such spouse. A former
spouse will be treated as the spouse, or surviving spouse, to the extent
provided under a qualified domestic relations order as described in Code Section
414 (p)
8.2 Except as provided above, at any time, and from time to time, each
Participant or Inactive Participant shall have the unrestricted right to
designate a Beneficiary or Beneficiaries to receive his Account, and to revoke
any such designation at any time thereafter. Each such designation shall be in
writing, filed with the Committee, signed by the Participant or Inactive
Participant, and bearing the signature of at least one (1) witness. If no such
designation is on file at the death of the Participant, or if the designated
Beneficiary or Beneficiaries are not living at the death of the Participant,
then the estate of the Participant shall receive the Account.
8.3 The Committee or the Trustee, or both, may require the execution and
delivery of such documents, papers and receipts as may be deemed necessary in
order to be assured that the payment of any of said death benefits is properly
made and is made to the proper person or party entitled thereto.
<PAGE>
SECTION 9 - Disability Benefits
9.1 In the event of termination of employment of a Participant by the
Employer by reason of Disability, the Participant's right to his Account shall
be one hundred (100%) percent fully vested and non-forfeitable. After
determination of the value of the Inactive Participant's Account, the Disability
benefit shall be paid to the Inactive Participant in accordance with the Annuity
Requirements Section and the Distribution Requirements Sect ion.
SECTION 10 - Benefits and Vesting Upon Termination of Employment Other Than By
Reason of Retirement, Death, or Disability
10.1 Upon termination of employment (other than by reason of attainment of
Normal Retirement Date, early retirement, if applicable, death, or Disability),
a Participant shall be entitled to the percentage vesting of his Account
resulting from Employer Non-Elective Contributions and if otherwise permitted
herein, forfeitures as shown in the following vesting schedule:
Credited Years Vested
of Service Percentage
-------------- ----------
Less than 1 0%
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 or more 100%
Such vested percentage shall be determined as provided for herein and any
amount not vested either under this provision, or because of attainment of
Normal Retirement Date (or early retirement, if applicable), death, or
Disability, shall be forfeited and shall remain in the Trust Fund subject to all
the other provisions of this Plan. A Participant shall be one hundred (100%)
percent fully vested and non-forfeitable in his Account as of his Normal
Retirement Age if he is then employed with the Employer. Further, a Participant
shall be one-hundred (100%) percent fully vested and non-forfeitable in his
Elective Account at all times, including any Qualified Non-Elective
Contributions and Qualified Matching Contributions.
10.2 Notwithstanding anything in this Plan and Trust to the contrary, for
any Top Heavy Plan Year, a Participant shall be entitled to the percentage
vesting of his Account resulting from Employer Non-Elective Contributions and if
otherwise permitted herein, forfeitures as shown in the following vesting
schedule:
Credited Years Vested
of Service Percentage
-------------- ----------
Less than 1 0%
1 10%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
10.3 For purposes of crediting a Year of Service for vesting, all Years of
Service with the Employer shall be taken into account, except as follows:
(a) In the case of any Employee who has any One-Year Break in Service,
Years of Service before such break shall not be taken into account until
such Employee has completed one Year of Service after such break, computed
from the date of rehire, at which time the one Year of Service waiting
period shall also be counted
(b) For Plan Years beginning after 1984, in the case of a Participant
who has five (5) or more consecutive One-Year Breaks in Service, all
service after such consecutive One-Year Breaks in Service will be
disregarded for the purpose of vesting the Employer-derived Account balance
that accrued before such breaks in service. Such Participant's pre-break
service will count in vesting the post-break Employer-derived Account
balance only if either:
<PAGE>
(i) such Participant has any nonforfeitable interest in the
Account balance attributable to Employer contributions at the time of
separation from service; or
(ii) upon returning to service with the Employer the number of
consecutive One-Year Breaks in Service is less than the number of
Years of Service. Separate accounts will be maintained for the
Participant's pre-break and post-break Employer-derived Account
balance. Both Accounts will share in the earnings and losses of the
Trust Fund.
Any Employee whose status changes from being excluded from participation in
the Plan to an Employee eligible to participate in this Plan, shall receive
credit for vesting purposes for all Hours of Service and Years of Service with
the Employer, whether covered or non-covered, subject to the provisions of this
Section. Any Employee whose status changes from being eligible to participate in
this Plan to an Employee excluded from participation shall receive credit for
vesting purposes for all Hours of Service and Years of Service with the
Employer, whether covered or non-covered, subject to the provisions of this
Section.
10.4 After the employment of a Participant is terminated (other than by
reason of attainment of Normal Retirement Date, early retirement, if applicable,
death, or Disability), the Committee shall determine and advise the Trustee of
the percentage of vesting of the Inactive Participant's Account. After
determination of the value of the Inactive Participant's Account, the vested
portion of the Inactive Participant's Account shall be paid to him in accordance
with the Annuity Requirements Section and Distribution Requirements Section.
10.5 No amendment to the vesting schedule shall deprive a Participant of
his nonforfeitable right to benefits accrued to the date of the amendment, or
the date the amendment is effective, if later. Further, if the vesting schedule
of the Plan is amended or, if the Plan is deemed amended by an automatic change
to or from a Top Heavy Plan vesting schedule, each Participant with at least
three (3) Years of Service for vesting purposes (whether or not consecutive and
without regard to Years of Service which may be excluded) with the Employer may
elect, within a reasonable period after adoption of the amendment or change, to
have his nonforfeitable percentage computed under the Plan without regard to
such amendment, or change, unless the Participant's nonforfeitable percentage
computed under the Plan, as amended, at any time cannot be less than such
percentage determined without regard to such amendment. For Participants who do
not have at least one (1) Hour of Service in any Plan Year beginning after
December 31, 1988, the preceding sentence shall be applied by substituting "five
(5) Years of Service" for "three (3) Years of Service" where such language
appears. The period during which the election may be made commences with the
date the amendment is adopted and ends on the later of:
(a) Sixty (60) days after the amendment is adopted;
(b) Sixty (60) days after the amendment becomes effective; or
(c) Sixty (60) days after the Participant is issued written notice of
the amendment by the Employer or Plan Administrator.
Further, no amendment to the Plan shall be effective to the extent that it
has the effect of decreasing a Participant's Accrued Benefit. Notwithstanding
the preceding sentence, a Participant's Account balance may be reduced to the
extent permitted under Code Section 412(c) (8). For purposes of this paragraph,
a Plan amendment which has the effect of decreasing a Participant's Account
balance or eliminating an optional form of benefit, with respect to benefits
attributable to service before the amendment shall be treated as reducing an
Accrued Benefit. Furthermore, if the vesting schedule of the Plan is amended, in
the case of an Employee who is a Participant as of the later of the date such
amendment is adopted or the date it becomes effective, the nonforfeitable
percentage (determined as of such date) of such Employee's Employer derived
Accrued Benefit will not be less than the percentage computed under the Plan
without regard to such amendments
<PAGE>
SECTION 11 - Annuity Requirements
11.1 Notwithstanding anything in this Plan and Trust to the contrary, a
Participant, his spouse or other Beneficiary shall not receive payment of his
Accrued Benefit in any form of a life Annuity, specifically including a joint
and survivor Annuity. Further, if an insurance policy is distributed from the
Plan and Trust, such policy shall not be a life Annuity or contain any life
Annuity conversion option. Nothing in this Plan and Trust shall be construed as
allowing for the purchase or distribution of an Annuity.
SECTION 12 - Distribution Requirements
12.1 Except as otherwise provided in the Annuity Requirements Section, the
requirements of this Distribution Requirements Section shall apply to any
distribution of an Inactive Participant's Accrued Benefit (or active Participant
after attainment of age 70 1/2). Except as provided below, the Trustee shall
commence distribution of the Inactive Participant's (or active Participant's
after attainment of age 70 1/2) Accrued Benefit (to the extent vested) as soon
as reasonably practical after the Valuation Date coinciding with or next
following the Participant's termination of employment, death or attainment of
age 70 1/2, whichever occurs first. Notwithstanding the preceding, if the vested
value of the Inactive Participant's Accrued Benefit (including both Employer and
Employee contributions, if applicable) exceeds $3,500 (or at the time of any
prior distribution exceeded $3,500), the Inactive Participant and, if payment in
the form of an Annuity is permitted in this Plan under Section 11.1, the
Participant's spouse (or the surviving spouse, as the case may be) must consent
to any such distribution if the distribution occurs prior to the Inactive
Participant's Normal Retirement Age or attainment of age sixty-two (62) if later
than Normal Retirement Age. If the distribution occurs after the Participant's
Normal Retirement Age, or attainment of age sixty-two (62) if later than Normal
Retirement Age, the Accrued Benefit shall be distributed without the Inactive
Participant's consent and if applicable, his spouse's consent. Further, if
payment in the form of an Annuity is not permitted in this Plan under Section
11.1, then distribution of the Accrued Benefit upon the Participant's death to
the Participant's spouse (or other Beneficiary, if applicable) shall not require
the spouse's (or other Beneficiary's) consent. Additionally, in the event the
date for commencing initial payment of benefits specified above would not occur
until after the April 1 following the calendar year the Participant attains age
70 1/2, then nevertheless distribution shall commence prior to such April 1 for
such Participant so as to not violate Code Section 401(a) (9). Further, if the
vested value of the Inactive Participant's Accrued Benefit is $3,500 or less,
the Trustee shall distribute the Accrued Benefit without the Participant's
consent. If the Inactive Participant (or his spouse if payment in the form of an
Annuity is permitted in this Plan under Section 11.1) does not initially consent
to the distribution, the Inactive Participant's Accrued Benefit shall not again
be available for distribution until after the Valuation Date following the
earlier of the Inactive Participant's consent, death or Normal Retirement Date.
If this Plan terminates and this Plan does not provide for payment of
benefits in the form of an Annuity under Section 11.1, then the Participant's
Accrued Benefit may be distributed without the Participant's consent if the
Employer (or any entity within the same controlled group as the Employer) does
not maintain another defined contribution plan (other than an employee stock
ownership plan as defined in Code Section 4975 (e) (7)). If another defined
contribution plan is so maintained, the Participant's Accrued Benefit may be
transferred without the Participant's consent to such other plan if the
Participant does not consent to the immediate distribution from this Plan. If
this Plan does provide for payment of benefits in the form of an Annuity under
Section 11.1 and the Plan terminates, then the Plan shall purchase and
distribute deferred Annuities as required in the Annuity Requirements Section
unless the Participant and his spouse (if applicable) properly elect another
form of payment as provided above.
<PAGE>
12.2 Subject to the Annuity Requirements Section, a Participant's Accrued
Benefit may be distributed in one of the following forms of payment as the
Participant directs the Trustee after the Participant is otherwise eligible for
payment.
(a) lump sum payment of the Accrued Benefit
(b) installment payments
Distributions made in installment payments (if installment payments are
otherwise specifically permitted above) may be made over one of the following
periods:
(a) a period certain not extending beyond the life expectancy of the
Participant; or
(b) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and his designated Beneficiary.
Any distributions from a Participant's self-directed Account which is
invested in Employer Stock pursuant to Section 23 may be made in whole shares of
Employer Stock, as the Participant shall elect.
All distributions under this Distribution Requirements Section shall comply
with the requirements of Code Section 401(a) (9) and the regulations thereunder
including the minimum incidental benefit requirement of Regulation 1.401(a)
(9)-2
12.3 Subject to the Annuity Requirement Section, the requirements of this
Distribution Requirements Section shall apply to any distribution of a
Participant's interest and will take precedence over any inconsistent provisions
of this Plan. The entire interest of a Participant must be distributed or begin
to be distributed no later than the Participant's required beginning date.
As of the first distribution calendar year, distributions, if not made in a
single lump sum (if otherwise permitted herein), may only be made over one of
the following periods (or a combination thereof)
(i) the life of the Participant,
(ii) the life of the Participant and a designated beneficiary,
(iii) a period certain not extending beyond the life expectancy of the
Participant, or
(iv) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated beneficiary.
If the Participant's Accrued Benefit is to be distributed in other than a
single lump sum (if otherwise permitted herein), the following minimum
distribution rules shall apply on or after the required beginning date:
(a) If a Participant's benefit is to be distributed over (i) a period
not extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the Participant's
designated Beneficiary or (ii) a period not extending beyond the life
expectancy of the designated Beneficiary, the amount required to be
distributed for each calendar year, beginning with distributions for the
first distribution calendar year, must at least equal the quotient obtained
by dividing the Participant's benefit by the applicable life expectancy.
<PAGE>
(b) For calendar years beginning before January 1, 1989, if the
Participant's spouse is not the designated Beneficiary, the method of
distribution selected must assure that at least fifty (50%) percent of the
present value of the amount available for distribution is paid within the
life expectancy of the Participant.
(c) For calendar years beginning after December 31, 1988, the amount
to be distributed each year, beginning with distributions for the first
distribution calendar year shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of (i) the applicable life
expectancy or (ii) if the Participant's spouse is not the designated
Beneficiary, the applicable advisor determined from the table set forth in
Q&A4 of Section 1.401(a) (9)-2 of the regulations. Distributions after the
death of the Participant shall be distributed using the applicable life
expectancy in (a) above as the relevant advisor without regard to
regulations Section 1.401(a) (9)-2.
(d) The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the Participant's
required beginning date. The minimum distribution for other calendar years,
including the minimum distribution for the distribution calendar year in
which the Employee's required date occurs, must be made on or before
December 31 of that distribution calendar year.
If the participant's benefit is distributed in the form of an Annuity
purchased from an insurance company, distributions thereunder shall be made
in accordance with the requirements of Code Section 401(a) (9) and the
proposed regulations thereunder.
Upon the death of the Participant, the following distribution
provisions shall apply:
(e) If the Participant dies after distribution of his Accrued Benefit
has begun, the remaining portion of such Accrued Benefit will continue to
be distributed at least as rapidly as under the method of distribution
being used prior to the Participant's death.
(f) If the Participant dies before distribution of his Accrued Benefit
begins, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death, except to the extent that an
election is made to receive distributions in accordance with (i) or (ii)
below:
(i) If any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the life or
over a period certain not greater than the life expectancy of the
designated Beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
Participant died.
(ii) If the designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in accordance
with (i) above shall not be earlier than the later of (1) December 31
of the calendar year immediately following the calendar year in which
the Participant died and (2) December 31 of the calendar year in which
the Participant would have attained age 70 1/2.
(g) If the Participant has not made an election pursuant to this
Section 12.3 by the time of his death, the Participant's designated
Beneficiary must elect the method of distribution no later than the earlier
of (i) December 31 of the calendar year in which distributions would be
required to begin under this Section, or (ii) December 31 of the calendar
year which contains the fifth anniversary of the date of death of the
<PAGE>
Participant. If the Participant has no designated Beneficiary, or if the
designated Beneficiary does not elect a method of distribution,
distribution of the Participant's entire interest must be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death.
(h) For purposes of this Section 12.3, if the surviving spouse dies
after the Participant, but before payments to such spouse begin, the
provisions of this Section above, with the exception of paragraph (f) (ii)
therein, shall be applied as if the surviving spouse were the Participant.
(i) For purposes of this Section 12.3, any amount paid to a child of
the Participant will be treated as if it had been paid to the surviving
spouse if the amount becomes payable to the surviving spouse when the child
reaches the age of majority.
(j) For the purposes of this Section 12.3, distribution of a
Participant's interest is considered to begin on the Participant's required
beginning date (or, if paragraph (h) above is applicable, the date
distribution is required to begin to the surviving spouse pursuant to
paragraphs (f) and (g) above). If distribution in the form of an Annuity
irrevocably commences to the Participant before the required beginning
date, the date distribution is considered to begin is the date distribution
actually commences.
When used in this Distribution Requirements Section, the following
terms shall have the indicated meanings:
(k) "Applicable life expectancy" shall mean the life expectancy (or
joint and last survivor expectancy) calculated using the attained age of
the Participant (or designated Beneficiary) as of the Participant's (or
designated Beneficiary's) birthday in the applicable calendar year reduced
by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated,
the applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first distribution
calendar year, and if life expectancy is being recalculated such succeeding
calendar year.
(1) "Designated beneficiary" shall mean the individual who is
designated as the Beneficiary under the Plan in accordance with Code
Section 401(a) (9) and the regulations thereunder.
(m) "Distribution calendar year" shall mean a calendar year for which
a minimum distribution is required. For distributions beginning before the
Participant's death, the first distribution calendar year is the calendar
year immediately preceding the calendar year which contains the
Participant's required beginning date. For distributions beginning after
the Participant's death, the first distribution calendar year is the
calendar year in which distributions are required to begin in this Section
12.3.
(n) "Life expectancy" shall mean the life expectancy and joint and
last survivor expectancy as computed by use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the Income Tax
Regulations.
Unless otherwise elected by the Participant (or spouse, in the case of
distributions described in (f) (ii) above) by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Participant (or spouse) and shall
apply to all subsequent years. The life expectancy of a non-spouse
Beneficiary may not be recalculated.
<PAGE>
(o) "Participant's benefit" shall mean:
(i) The Account balance as of the last Valuation Date in the
calendar year immediately preceding the distribution calendar year
(valuation calendar year) increased by the amount of any contributions
or forfeitures allocated to the Account balance as of dates in the
valuation calendar year after the Valuation Date and decreased by
distributions made in the valuation calendar year after the Valuation
Date.
(ii) For purposes of (i) above, if any portion of the minimum
distribution for the first distribution calendar year is made in the
second distribution calendar year on or before the required beginning
date, the amount of the minimum distribution made in the second
distribution calendar year shall be treated as if it had been made in
the immediately preceding distribution calendar year.
(p) "Required beginning date" shall mean:
(i) Except as provided in (ii) below, the required beginning date
of a Participant is the first day of April of the calendar year
following the calendar year in which the Participant attains age 70
1/2.
(ii) The required beginning date of a Participant who attains age
701/2 before January 1,1988, shall be determined in accordance with
(1) or (2) below:
(1) The required beginning date of a Participant who is not
a five percent owner is the first day of April of the calendar
year following the calendar year in which the later of retirement
or attainment of age 702/2 occurs.
(2) The required beginning date of a Participant who is a
five percent owner during any year beginning after December 31,
1979, is the first day of April following the later of:
(I) the calendar year in which the Participant attains
age 701/2, or
(II) the earlier of the calendar year with or within
which ends the Plan Year in which the Participant becomes a
five percent owner, or the calendar year in which the
Participant retires.
The required beginning date of a Participant who is not
a five percent owner who attains age 701/2 during 1988 and
who has not retired as of January 1,1989, is April 1,1990.
(iii) A Participant is treated as a five percent owner for
purposes of this Section if such Participant is a five percent owner
as defined in Section 416(i) of the Code (determined in accordance
with Section 416 but without regard to whether the plan is a Top-Heavy
Plan) at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 661/2 or any subsequent
Plan Year.
(iv) Once distributions have begun to a five percent owner under
this Section, they must continue to be distributed, even if the
Participant ceases to be a five percent owner in a subsequent year.
<PAGE>
The provisions set forth in this Section 12.3 will take
precedence over any inconsistent provisions in this Plan and Trust.
12.4 Distribution of the Accrued Benefit to a Participant who is a Five
(5%) Percent Owner, and for Plan Years beginning after December 31, 1988, all
Participants, must commence no later than the first day of April following the
calendar year in which a Participant attains age 7Q 1/2. Except as otherwise
provided in the preceding sentence, no distribution of an Employee's Accrued
Benefit derived from Employer contributions shall be made while the Employee is
employed with the Employer. Further, unless the Participant elects otherwise,
payment of Accrued Benefits must begin not later than the sixtieth (60th) day
after the close of the Plan Year in which the latest of the following events
occur: (a) the Participant attains age 65 (or Normal Retirement Age, if
earlier), (b) the occurrence of the tenth anniversary of the year in which the
Participant commences participation in the Plan, or (c) the Participant
terminates his service with the Employer.
12.5 For Plan Years beginning after 1984, a Participant shall not incur a
forfeiture until he has five (5) consecutive One-Year Breaks in Service.
Notwithstanding the preceding sentence or anything in this Plan to the contrary,
a Participant who terminates employment with the Employer pursuant to this
Section and receives (or is deemed to receive) a distribution of his Account
prior to incurring five (5) consecutive One-Year Breaks in Service f or Plan
Years beginning after 1984, shall forfeit amounts that are not nonforfeitable
immediately subsequent to such distribution. However, if the Participant returns
to the employment of the Employer before five (5) consecutive One-Year Breaks in
Service for Plan Years beginning after 1984, any amounts so forfeited shall be
reinstated to the Participant's Account within a reasonable time after repayment
by the Participant of the amount of the distribution. Such repayment must be
made
(a) in the case of a payment on account of separation from service
before the earlier of
(i) five (5) years after the first date on which the Participant
is subsequently re-employed by the Employer, or
(ii) the close of the first period of five (5) consecutive
One-Year Breaks in Service commencing after the withdrawal; or
(b) in the case of any other withdrawal, within five (5) years after
the date of withdrawal.
For purposes of this Section, if the value of an Employee's vested Account
balance is zero, the Employee shall be deemed to have received a distribution of
such vested Account balance. If an Employee is deemed to receive a distribution
pursuant to the preceding sentence and the Employee resumes employment covered
under this Plan before the date the Participant incurs five (5) consecutive
One-Year Breaks in Service, upon the re-employment of such Employee, the
Employer-derived Account balance of the Employee will be restored to the amount
on the date of such deemed distribution. A Participant's vested Account balance
shall not include accumulated deductible Employee contributions within the
meaning of Code Section 72(o) (5) (B) for Plan Years beginning prior to January
1,1989.
Notwithstanding anything in this Plan and Trust to the contrary, to
reinstate the Participant's Account, the Trustee, to the extent necessary, shall
allocate to the Participant's Account
(a) first, the amount, if any, of Participant forfeitures for the Plan
Year which would otherwise be allocated under the Allocation of
Contributions and Forfeiture Section; and
(b) second, the Employer contribution for the Plan Year to the extent
made under a discretionary formula.
12.6 In the event of a qualified domestic relations order (as defined in
Code Section 414(p)), distribution shall be made to the alternate payee pursuant
to the order at any time, irrespective of whether the Participant has attained
his earliest retirement age under the Plan. A distribution to an alternate payee
prior to the Participant's attainment of earliest retirement age is available
only if
<PAGE>
(a) the order specifies distribution at that time or permits an
agreement between the Plan and the alternate payee to authorize an earlier
distribution, and
(b) if the present value of the alternate payee's benefits under the
Plan exceeds $3,500, and the order requires, the alternate payee consents
to any distribution occurring prior to the Participant's attainment of
earliest retirement age. Nothing in this Section regarding earlier payment
under a qualified domestic relations order shall be construed or deemed to
permit a Participant a right to receive distribution at a time otherwise
not permitted under this Plan nor does it permit the alternate payee to
receive a form of payment not permitted under the Plan.
12.7 This Section 12.7 applies to distributions made on or after January
1,1993. Notwithstanding any provision in this Plan and Trust to the contrary
that would otherwise limit a distributee's election under this Section, a
distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
When used in this Section 12.7, the following terms shall have the
indicated meanings:
(a) "Eligible rollover distribution" shall mean any distribution of
all or any portion of the Accrued Benefit of the distributee, except that
an eligible rollover distribution does not include: any distribution that
is one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated Beneficiary, or for a
specified period of ten (10) years or more; any distribution to the extent
such distribution is required under Code Section 401 (a) (9); and the
portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation
with respect to Employer securities).
(b) "Eligible retirement plan" shall mean an individual retirement
account described in Code Section 408(a), an individual retirement annuity
described in Code Section 438 (b), an annuity plan described in Code
Section 403 (a), or a qualified trust described in Code Section 401(a),
that accepts the distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or individual
retirement annuity.
(c) "Distributee" includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Code Section 414(p) are distributees with regard to the interest of the
spouse or former spouse.
(d) "Direct rollover" shall mean a payment by the Plan to the eligible
retirement plan specified by the distributee.
SECTION 13 - Valuation Upon Distribution
13.1 Upon the Participant's termination of employment, or attainment of age
731/2 while employed with the Employer, the value of the amount credited to the
Inactive Participant's Account (or active Participant after attainment of age
731/2) for payment purposes (if payment is otherwise to commence) shall be
determined as of the Valuation Date coinciding with or next following the date
such termination of employment or attainment of age 701/2, as the case may be,
occurs, If payment is not to commence following the aforesaid Valuation Date,
then the amount credited to the Participant's Account shall be determined as of
the Valuation Date coinciding with or immediately preceding the date payment is
otherwise to commence. The Account shall include the proceeds of any life
insurance policy received as a result of the Participant's death (other than a
key man Employee policy). In the event the Valuation Date specified above would
not occur until after the April 1 following the calendar year following the
Participant attains age 701/2, then a reasonable estimate of the value shall be
used until a final value can be determined so that payment in all events shall
commence prior to such April 1. Except for a Participant's self-directed
investment Account, no earnings or losses of the Trust shall be applied to the
Participant's Account after the value of the Account is determined as provided
above for purposes of paying the Account to the Participant unless the Account
is paid in installment payments over more than one (1) Plan Year (if installment
payments are otherwise specifically permitted herein).
<PAGE>
13.2 Where the Trustee is directed by the Inactive Participant to defer
payment of the vested portion of the Inactive Participant's Account for any
period, or where the vested portion of the Account is to be paid in
installments, (if installment payments are otherwise specifically permitted
herein), the Inactive Participant may continue to direct the investment of his
Account pursuant to the Investment Direction By Participant Section.
SECTION 14 - Trustee
14.1 The Trustee hereby accepts the Trust created hereunder and agrees to
carry out its duties and responsibilities hereunder. The Trustee shall serve at
the pleasure of the Employer, or upon such length of term or terms as may be
determined by the Employer. Whenever more than one Trustee serves hereunder, the
decision of a majority of the Trustees shall control, Any documents, including
checks, shall be valid if signed by a majority of the Trustees, or such person
or persons designated in writing by the Trustees. The Trustee shall maintain a
separate Account for each Participant to which will be credited the Employer
contributions and earnings thereon.
14.2 Except as specifically provided for, all contributions voluntarily
paid by or in behalf of the Employer to the Trustee from time to time, and all
contributions voluntarily paid by Participants, and all income and enhancement
shall constitute and be held and administered by the Trustee as a single Trust
Fund; provided, however, that the Trustee may maintain separate trusts and
separate subtrusts subject to the provisions contained herein,
14 .3 The Trustee shall allocate to each Participant his share of the
Employer contributions and if otherwise permitted herein, forfeitures in
accordance with the provisions of this Plan and Trust agreement, based upon the
information furnished by the Committee. The Trustee and the Committee may agree
that the Committee, and not the Trustee, shall be responsible for making such
allocations.
14.4 Except as provided in the Investment Direction By Participant Section,
the Trustee shall invest and reinvest the Trust Fund and keep it invested,
without distinction between principal and income, and without restriction to
properties and securities authorized for investment by trustees under any
present or future law, in any and all common stocks, preferred stocks, bonds,
notes, debentures, mortgages, equipment trust certificates, options and in such
other property, real or personal, investments and securities of any kind, class,
or character, (specifically including any kind or class of savings accounts,
statement account, certificates of deposit, or any other types of deposits of
the Employer if the Employer is a bank or savings and loan association) as the
Trustee may deem advisable and suitable, including, but not limited to,
qualifying Employer securities and qualifying Employer real property,
partnership interests and stock or securities in other companies, any common
trust fund, or funds maintained by the Trustee, insurance policies on the lives
of key Employees of the Employer payable on death to the Trust as beneficiary,
and if the Employer permits, insurance policies on the lives of Participants.
After giving consideration to diversifying the investment of assets, the Trustee
shall not acquire or hold any qualifying Employer securities or qualifying
Employer real property if immediately after such acquisition the aggregate fair
market value of the Employer securities or Employer real property exceeds one
hundred (100%) percent of the fair market value of the Plan assets. The Trustee,
in its discretion, may keep such portion of the Trust Fund in cash or cash
balances as the Trustee from time to time may deem to be in the best interests
of the Plan and Trust. The Trustee is authorized to invest an any type of
deposit of the Trustee provided the Trustee is a bank or savings and loan
association and the deposit earns a reasonable rate of interest. The Trustee
shall apply for and be the owner of the insurance policies. The proceeds of the
insurance policies shall be payable to the Trustee to provide the benefits
required in this Plan. In the case of any conflict between the terms of this
Plan and an insurance policy, then the Plan's provisions shall control. The
Trustee shall, in its discretion, either convert the entire value of any life
insurance contract at or before a Participant's retirement into cash, or
distribute the life insurance contract to the Participant at retirement. In no
event shall any life insurance be continued for the benefit of a Participant
after his retirement.
Notwithstanding anything in this Plan and Trust to the contrary, the
Employer specifically authorizes the Trustee to invest all or any portion of the
assets comprising the Trust Fund in any group trust fund which at the time of
the investment provides for the pooling of the assets of plans qualified under
Code Section 431(a). This authorization applies solely to a group trust fund
exempt from taxation under Code Section 531(a) and the trust agreement of which
satisfies the requirements of Internal Revenue Service Revenue Ruling 81-100.
The provisions of the group trust fund agreement, as amended from time to time,
<PAGE>
are by this reference incorporated within this Plan and Trust. The provisions of
the group trust fund shall govern any investment of Plan assets in that fund.
The Employer shall specify in a resolution of its governing body the group trust
funds to which this authorization applies.
Furthermore, the Trustee, for collective investment purposes, may combine
into one (1) trust fund the Trust created under this Plan with the trust created
under any other qualified retirement plan the Employer maintains. However, the
Trustee shall maintain separate records of account for the assets of each Trust
in order to reflect properly each Participant's Accrued Benefit under the
plan(s) in which he is a Participant.
If payment of benefits in the form of an Annuity is otherwise permitted in
this Plan and Trust, any Annuity or insurance contract distributed hereunder
shall comply with the requirements set forth in the Code Section 401(a) (11),
Code Section 417 and the Annuity Requirements Section.
14.5 If the Employer consents to the purchase of life insurance policies
used to provide incidental life insurance for Plan Participants, then the
following limitations shall apply.
(a) If ordinary life insurance contracts are purchased, then less than
fifty (50%) percent of the aggregate Employer contributions allocated to
any Participant will be used to pay the premiums attributable to them.
Ordinary life insurance contracts for these purposes are contracts with
both nondecreasing death benefits and nonincreasing premiums.
(b) No more than twenty-five (25%') percent of the aggregate Employer
contributions allocated to any Participant will be used to pay the premiums
on term life insurance contracts, universal life insurance contracts, and
all other life insurance contracts which are not ordinary life contracts.
(c) The sum of fifty (50%) percent of the ordinary life insurance
premiums and all other life insurance premiums will not exceed twenty-five
(25%) percent of the aggregate Employer contributions allocated to any
Participant.
Premiums on each policy, after taking credit for any policy dividends,
shall be deemed paid from each Participant's Account, and shall be debited
for purposes of allocations under this Plan first to such Participant's
voluntary contribution Account, if any, and then to his other Account. Any
life insurance on the life of a Participant shall not violate the
incidental benefits rule as required under Treasury Department Regulations.
14.6 In addition to the powers conferred by common law or by statute, the
Trustee is authorized and empowered:
(a) To sell, exchange, convey, transfer, or otherwise dispose of any
property held by it, by private contract or at public auction, and no
person dealing with the Trustee shall be bound to see to the application of
the purchase money or to inquire into the validity, expediency, or
propriety of any such sale or other disposition;
(b) To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription rights,
or other options and to make any payments incidental thereto; to consent to
or otherwise participate in corporate reorganizations or other changes
affecting corporate securities and to delegate discretionary powers and to
pay any assessments or charges in connection therewith; and, generally, to
exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property held in the Trust Fund;
(c) To make, execute, acknowledge, and deliver any and all documents
of transfer and conveyance and any and all other instruments that may be
necessary or appropriate to carry out the powers herein granted;
(d) To register any investment held in the Trust Fund in its own name
or in the name of a nominee and to hold any investment in bearer form, but
the books and records of the Trustee shall at all times show that all such
investments are part of the Trust Fund;
(e) To manage, administer, operate, lease for any number of years,
develop, improve, repair, alter, demolish, mortgage, pledge, grant options
with respect to, partition, build entire new structures on, abandon,
foreclose, or otherwise deal with any real property or interest therein at
any time held by it, including specifically, qualifying Employer real
property, using other Trust assets for any of such purposes if deemed
advisable;
<PAGE>
(f) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation;
(g) To borrow or raise monies for the purposes of the Trust and for
any sum so borrowed to issue its promissory note as Trustee and to secure
the repayment thereof by pledging all or any part of the Trust Fund, but
nothing herein contained shall obligate the Trustee to render itself liable
individually for the amount of any such borrowing; and no person loaning
money to the Trustee shall be bound to see to the application of the money
loaned or to inquire into the validity, expediency, or propriety of any
such borrowing; and any borrowing against life insurance policies shall be
done on a pro rata basis so as to avoid discrimination; and
(h) To acquire real estate by purchase, exchange, or as the result of
any foreclosure, liquidation, or other salvage of any investment previously
made hereunder; to hold such real estate in such manner and upon such terms
as the Trustee may deem advisable; and to manage, operate, repair, improve,
partition, mortgage, build entire new structures on, or lease for any term
of years any such real estate or any other real estate constituting a part
of the Trust Fund, upon such terms and conditions as the Trustee deems
proper, using other Trust assets for any of such purposes if deemed
advisable.
14.7 Notwithstanding the broad powers granted to the Trustee, the Trustee
and Committee are prohibited from engaging in certain transactions with a
party-in-interest. Such transactions include engaging in (a) selling,
exchanging, or leasing property between the Plan and Trust and a
party-in-interest, except qualifying Employer securities or Employer real
property; (b) loaning or extending credit between the Plan and Trust and a
party-in-interest; (c) furnishing goods, services or facilities between the Plan
and Trust and a party-in-interest; (d) transferring Plan and Trust assets to a
party-in-interest; (e) dealing with the income or assets of the Plan and Trust
for their own benefit; (f) receiving any consideration for their own benefit
from any party dealing with the Plan and Trust in connection with a transaction
involving Plan and Trust assets; or (g) acting in any transaction (in any
capacity) involving a Plan on behalf of a party whose interests are adverse to
the interests of the Plan and Trust, its Participants or Beneficiaries.
14.8 The term "party in interest" means:
(a) any fiduciary (including, but not limited to, any administrator,
officer, Trustee, or custodial), counsel, or employee of the Plan;
(b) a person providing services to the Plan;
(c) an Employer any of whose Employees are covered by the Plan;
(d) an Employee organization any of whose members are covered by the
Plan;
(e) an owner, direct or indirect, of fifty (50%) percent or more of-
(i) the combined voting power of all classes of stock entitled to
vote or the total value of shares of all classes of stock of a
corporation; or
(ii) the capital interest or profits interest of a partnership;
or
(iii) the beneficial interest of a trust or unincorporated
enterprise which is an Employer or an Employee organization described
in subparagraphs (c) or (d).
(f) a relative as defined herein of any individual described in
subparagraphs (a), (b), (c) or (e);
(g) a corporation, partnership, trust or estate of which (or in which)
fifty (50%) percent or more of-
(i) the combined voting power of all classes of stock entitled to
vote, or the total value of shares of all classes of stock of such
corporation; or
(ii) the capital interest or profits interest of such
partnership; or
<PAGE>
(iii) the beneficial interest of such trust or estate, is owned,
directly or indirectly, or held by persons described in subparagraphs
(a), (b) (c), (d) or (e);
(h) an officer, director (or an individual having powers or
responsibilities similar to those of officers or directors), or a ten (10%)
percent or more shareholder, or a highly compensated employee (earning ten
(10%) percent or more of the yearly wages of an employer) of a person
described in subparagraphs (b), (c), (d) (e) or (g); or
(i) a ten (10%) percent or more (directly or indirectly in capital or
profits) partner or joint venture of a person described in subparagraphs
(b), (c), (d) (e), or (g). The term "relative" means a spouse, ancestor,
lineal descendant, or spouse of a lineal descendant.
14.9 The Trustee shall keep accurate and detailed records of its
administration of the Trust Fund, which records shall be open to inspection at
all reasonable times by any person designated in writing by the Committee or the
Employer. Within ninety (90) days following the close of each Plan Year (and at
such other times as the Trustee shall determine in its sole discretion), the
Trustee shall value the Trust Fund (exclusive of Employer's contributions and
forfeitures for such Plan Year and segregated Accounts) as of the last day of
such Plan Year, at the current fair market value of the respective assets, but
life insurance policies shall be shown at their carrying value on the books of
the Trustee. As soon as practicable after making such valuation, but not more
than fifteen (15) days thereafter, the Trustee shall file with the Committee a
written report setting forth the valuation made and, in addition, setting forth
all investments made, together with disbursements and receipts and other
transactions effected by it during such Plan Year, and securities and
investments held at the end of such Plan Year, and the cost of each item as
carried on the books of the Trustee.
14.10 Except as provided in the Investment Direction By Participant
Section, any earnings, gains, profits or losses of the Trust Fund since the
immediately preceding Valuation Date shall be credited or debited to the Account
of a Participant (or Inactive Participant as the case may be) as of a particular
Valuation Date in the proportion that such Account of such Participant on such
Valuation Date, exclusive of the Employer's contribution, any forfeitures, if
otherwise permitted herein, and any Employee voluntary contributions, if
otherwise permitted herein, since such immediately preceding Valuation Date,
bears to the total of all such Accounts. Any dividends or credits earned on
insurance contracts (other than a key man Employee policy) will be allocated to
the Participant's Account derived from Employer contributions for whose benefit
the contract is held.
14.11 If a corporate Trustee (other than the Employer) serves hereunder,
then the corporate Trustee shall be paid for its service rendered hereunder
compensation and other charges as agreed by the Employer and the Trustee, but if
no agreement is in effect then as stipulated in its regularly adopted schedules
of compensation in effect and applicable at the time of performance of such
services, together with all reasonable expenses incurred by the Trustee in and
about the execution of its duties hereunder, including counsel fees and
disbursements. Except as provided below, if a non-corporate Trustee serves
hereunder, then the non-corporate Trustee shall be entitled to such reasonable
compensation for services rendered by it as may from time to time be agreed upon
between the Employer and the non-corporate Trustee, together with all reasonable
expenses incurred by the non-corporate Trustee in and about the execution of its
duties hereunder, including counsel fees and disbursements. Unless the Employer
agrees to pay the Trustee for services rendered, such compensation and expenses
shall be charged against and paid out of the Trust Fund and any segregated (or
self-directed) Accounts pro rata among the Participants. If the Employer advises
the Trustee in writing of its determination to make no further contributions to
the Trust Fund, and the Employer decides not to continue payment of the Trustee
compensation and expenses, such compensation and expenses of the Trustee shall
be charged against and paid out of the Trust Fund and any segregated (or
self-directed) Accounts pro rata among the Participants, and a lien for the
payment thereof shall be impressed upon any cash, securities or other property
held by the Trustee hereunder the same to be charged pro rata against the credit
of each Participant. Not-withstanding anything herein to the contrary, no
compensation shall be paid to a fully paid Employee of the Employer or, if a
corporation, to a member of its Board of Directors, for serving as a fiduciary,
but such person may be reimbursed for expenses reasonably incurred.
14.12 The Trustee may consult with counsel, who may be counsel for the
Employer, in respect of any of its duties or obligations hereunder, and the
Trustee shall be fully protected in acting or refraining from acting in
accordance with the advice of such counsel.
<PAGE>
14.13 Any determination or action of the Employer pursuant to the
provisions of this Agreement shall be evidenced in writing duly executed by the
Employer and delivered to the Trustee. All authorizations, directions,
instructions, notices, or information given by the Committee to the Trustee
shall be in writing and signed in the name of the members of the Committee or by
such member or representative of the Committee as a majority of it shall specify
in writing. If the Trustee acts in accordance with authorizations, directions,
instructions, notices, or information given to it by the Employer or the
Committee, the Trustee shall be indemnified and held harmless by the Employer,
except for its own gross negligence or willful misconduct.
14.14 If neither the Employer nor the Committee gives authorizations,
directions, instructions, notices, or information to the Trustee, the Trustee
may act without such authorizations, directions, instructions, notices, or
information as it, in its sole discretion, deems advisable and appropriate in
the circumstances for the carrying out of the provisions of this Agreement.
14.15 The Trustee shall not be responsible for the adequacy of the Trust
Fund to meet and discharge any and all payments and liabilities under the Plan.
All persons dealing with the Trustee are released from inquiry into the decision
or authority of the Trustee to act, and from responsibility for the application
of any monies, securities or other property paid or delivered to the Trustee,
The Trustee shall not be obligated to pay interest on uninvested cash balances.
14.16 The Trustee shall not be required to determine, or to make any
investigation to determine, the identity or mailing address of any person
entitled to benefits under this Agreement, and shall have discharged its
obligation in that respect when it shall have sent checks or other papers by
ordinary mail to such persons and addresses as may be furnished to it by the
Committee.
14.17 The Trustee may be removed by the Employer by the delivery to the
Trustee of a written notice duly executed by the Employer to that effect. The
Trustee may resign as Trustee hereunder upon written notice to that effect,
delivered to the Employer. Any such removal or resignation shall become
effective sixty (60) days from the date of the delivery of such written notice,
unless an earlier date is agreed upon by the Employer and the Trustee. In the
event of such removal or resignation (or in the event the office of Trustee
becomes vacant for any reason), a successor Trustee or Trustees shall be
appointed by the Employer and such successor Trustee or Trustees, upon accepting
such appointment by an instrument in writing delivered to the Employer, shall
become vested with all the duties, immunities, powers, privileges and rights as
Trustee hereunder as if it originally had been designated Trustee in this
Agreement. No successor Trustee shall be liable or responsible in any way for
any acts or defaults of any predecessor Trustee, but such successor Trustee
shall be liable only for its own acts and defaults with respect to property
actually received by it as such Trustee. The successor Trustee may accept the
accounting rendered and the assets and property delivered to it by the
predecessor Trustee and shall incur no liability or responsibility to any
Participant or Beneficiary under this Plan and Trust by reason of relying
thereon. The Employer may designate as many Trustees to serve hereunder as it
shall from time to time determine. Upon such appointment and acceptance, the
replaced Trustee shall assign, endorse, convey, deliver and transfer to the
successor Trustee all of the funds, securities and other property then held by
it under this Trust Agreement and such records as may reasonably be required in
order that the successor Trustee may properly administer the Trust hereunder. In
the event of such removal or resignation of any Trustee hereunder, within sixty
(60) days from the date of such removal or resignation such Trustee shall file
with the Employer and with the Committee a statement and report of its Accounts
and proceedings covering the period since the date of its last annual statement
and report to the date of such removal or resignation.
14.18 In the event and to the extent not insured against by any insurance
company pursuant to provisions of any applicable insurance policy, the Employer
shall indemnify and hold harmless any Trustees who are natural persons, their
assistants and representatives, from any and all claims, demands, suits, losses,
damages, and any other liability arising from their responsibilities in
connection with this Plan or Trust, unless the same is determined to be due to
gross negligence or willful misconduct.
14.19 In the event an individual is sole Trustee of this Trust while a
beneficiary of this Trust, then the Employer shall appoint a Co-Trustee to serve
with the individual Trustee immediately before the individual Trustee becomes
the sole beneficiary of the Trust if a merger would occur under state law.
<PAGE>
SECTION 15 - Amendment and Termination of Plan
15.1 The Board of Directors of the Employer may amend this Plan and Trust
at any time and from time to time. However, it is the intention of the Employer
and Trustee that this Plan and Trust shall always be a retirement plan and trust
qualified under Code Section 401, et. etg. and this Plan and Trust shall be
interpreted and administered accordingly. Except to the extent permitted in Code
Section 412(c) (8), no amendment shall decrease a Participant's Accrued Benefit
or otherwise violate Code Section 411(d) (6). For purposes of the preceding
sentence, a Plan amendment which has the effect of (a) eliminating or reducing a
subsidy or an early retirement benefit, if applicable, (as defined in Treasury
Regulations), or (b) eliminating an optional form of benefit, with respect to
benefits attributable to service before the amendment, shall be treated as
reducing Accrued Benefits. In the case of a retirement-type subsidy, the
preceding sentence shall apply only with respect to a Participant who satisfies
(either before or after the amendment) the pre-amendment conditions for the
subsidy. Treasury Regulations may provide that this Section shall not apply to a
Plan amendment described in (b) above (other than a Plan amendment having an
effect described in (a) above). Any amendment shall be in writing and shall be
executed by an officer of the Employer. The Trustee and the Plan Administrator
shall be given a copy of the amendment,
15.2 No change may be made in the Plan and Trust which shall vest in the
Employer, directly or indirectly, any control, interest, or ownership in any of
the present or subsequent assets or funds of the Trust, or in any of the present
or subsequent assets or funds set aside for Participants pursuant to this Plan
and Trust.
15.3 No part of the Trust Fund shall, by reason of any amendment, be used
for or directed to purposes other than for the exclusive benefit of Participants
and their Beneficiaries or for administration expenses of the Plan, The corpus
or income of the Trust may not be diverted to or used for other than the
exclusive benefit of the Participants and their Beneficiaries.
15.4 It is the present intention of the Employer to continue this Plan
indefinitely; however, the Board of Directors of the Employer may partially or
completely terminate this Plan, or completely discontinue contributions
hereunder, in which events the Accrued Benefit of all affected Participants in
the Trust Fund shall vest immediately and fully, without forfeiture, Any
complete termination of this Plan shall be in writing. Notice of the complete
termination shall be given to each Participant. In the event the Plan is
terminated, the Accrued Benefit of all Participants shall be distributed to
them, In the event contributions are completely discontinued, the Accrued
Benefit of all Participants may be distributed to them, or the Plan may continue
to operate for the benefit of the Participants pursuant to its terms, in which
case the Accrued Benefits shall be paid upon attainment of Normal Retirement
Date (or early retirement, if applicable), death, Disability, or other
termination of employment as provided in the Plan. Complete discontinuance of
contributions or termination of the Plan by an Employer, including a partial
termination, shall be considered a complete discontinuance of contributions or
termination of the Plan only with respect to that particular Employer.
Suspension of contributions on a temporary basis for reasons of business deemed
adequate by the Employer shall not be considered a complete discontinuance of
contributions or a termination of the Plan.
15.5 In any event, the liabilities of the Employer to make contributions
under the Plan shall automatically terminate upon dissolution of the Employer,
upon its adjudication as a bankrupt, upon its making a general assignment for
the benefit of creditors, or upon its merger or consolidation with any other
corporation or corporations unless the Employer's liabilities to make further
contributions under the Plan are assumed by such other corporation or
corporations.
15.6 In the event of termination of the Employer's liabilities to make
further contributions under this Plan, such liabilities may be assumed by any
other corporation or business organization which employs a substantial number of
the Participants of the Plan. Such assumption of liabilities shall be expressed
in an agreement between such other corporation or business organization and the
Employer. Any Participant under this Plan who does not become an Employee of
such other corporation or other business organization shall have the rights
hereunder of an Employee whose employment terminated by normal retirement, 15.7
In the event of any merger or consolidation with, or transfer of assets or
liabilities to, any other retirement plan of the Employer, its affiliate, or of
any Employer, each Participant in the Plan will (as if the Plan then terminated)
receive a benefit immediately after the merger, consolidation, or transfer which
is equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (as if the Plan had
then terminated).
<PAGE>
SECTION 16 - Limitation on Benefits and Contributions
16.1 If an Employee is a Participant in one or more defined benefit plans
and one or more defined contribution plans (whether or not terminated)
maintained by the Employer or an Affiliated Employer, the sum of his defined
benefit plan fraction and his defined contribution plan fraction shall not
exceed 1,0 for any year. If the sum of the defined benefit plan fraction in the
Employer's defined benefit plan and the defined contribution plan fraction in
the Employer's defined contribution plan shall exceed 1.0 in any year of any
Participant in this Plan, the Employer shall adjust the numerator of the defined
contribution plan fraction so that the sum of the defined benefit plan fraction
and the defined contribution plan fraction shall not be in excess of 1.0 in any
year for such Participant in the order set forth in Section 5,10.
For the purpose of this Section, the term defined benefit plan fraction for
any year shall mean a fraction the numerator of which is the projected annual
benefits payable to a Participant under all such defined benefit plans as of the
close of the current year and the denominator of which is the lesser of:
(a) the product of 1.25 multiplied by $90,000, (or such other dollar
limitation in effect under Code Section 415(b) (1) (A) for such year), or
(b) the product of 1.4 multiplied by the average Compensation of the
Participant.
Notwithstanding the above, if the Participant was a participant as of the
first day of the first Limitation Year beginning after December 31, 1986, in one
or more defined benefit plans maintained by the Employer which were in existence
on May 6, 1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which the Participant
had accrued as of the close of the last Limitation Year beginning before January
1,1987, disregarding any changes in the terms and conditions of the plan after
May 5, 1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code Section 415
for all Limitation Years beginning before January 1,1987.
The term defined contribution plan fraction for any year shall mean a
fraction the numerator of which is the aggregate amount of annual additions
under all such defined contribution plans made to a Participant's Account
balances as of the close of the current year and the denominator of which is the
sum of the lesser of the following amounts determined for such year and for each
prior Year of Service with the Employer:
(a) the product of 1.25 multiplied by. $30,000, (or such other dollar
limitation in effect under Code Section 415(c) (1) (A) for such year,
without regard to Code Section 415(c) (6)), or
(b) the product of 1.4 multiplied by twenty-five (25%) percent of the
Compensation of the Participant.
If the Employee was a participant as of the end of the first day of the
first Limitation Year beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of (i)
the excess of the sum of the fractions over 1.0 times (ii) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last Limitation Year beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the plan made
after May 5,1986, but using the Code Section 415 limitation applicable to the
first Limitation Year beginning on or after January 1,1987.
The annual addition for any Limitation Year beginning before January
1,1987, shall not be recomputed to treat all Employee contributions as annual
additions.
For any Plan Year this Plan is a Top Heavy Plan or a Super Top Heavy Plan,
then 1.0 shall be substituted for 1.25 in both subparagraphs (a) of this
Section. However, 1.25 will continue to be used for any Plan Year that this Plan
is a Top Heavy Plan (but not a Super Top Heavy Plan) provided the minimum
allocation requirements of Code Section 416(c) are increased pursuant to Code
Section 416(h) (2) (A) (ii). Further, if the special minimum allocation of 7
1/2% is provided for in Section 5.6, then 1.25 will continue to be used for any
Plan Year that this Plan is a Top Heavy Plan (but not a Super Top Heavy Plan).
If this Plan and a pre-tax Equity and Fiscal Responsibility Act (TEFRA) defined
<PAGE>
benefit plan are aggregated, a permanent adjustment will be made to the
numerator of the defined contribution fraction to insure that the sum of the
defined contribution fraction and defined benefit fraction does not exceed 1.0
as of the effective date of TEFRA. Annual additions in the numerator of the
defined contribution plan fraction shall not exceed annual additions in the
denominator of the defined contribution plan fraction in any year beginning
prior to January 1,1976.
SECTION 17 - Rollovers and Other Transfers
17.1 My Employee may file a written petition with the Committee requesting
that the Trustee accept a rollover contribution from such Employee or a direct
transfer from another qualified plan or individual retirement account. The
Committee, in its sole discretion, shall determine whether or not such Employee
shall be permitted to make a rollover contribution or direct transfer to the
Trust Fund. Any written petition shall set forth the amount of the rollover
amount, the nature of the property in the rollover amount, and a statement,
satisfactory to the Committee, that such contribution constitutes a rollover
amount as defined in this Section. The Trustee shall hold any such contribution
in a segregated Account for the Employee making such contribution. The Employee
shall at all times be one hundred (100%) percent vested in his rollover
contribution and any earnings credited thereon. Unless the Employee is permitted
to self-direct the investment of the rollover amount, the Trustee may invest and
reinvest the rollover amount with the general Trust Fund, in which case it shall
share on a pro-rata basis in any earnings, gains, profits, or losses, or the
Trustee may separately invest such rollover amount in a bank or savings and loan
association, in United States Treasury Bills or Bonds, or other fixed income
securities, or any combination thereof, as the Trustee shall decide, in which
case it shall not share in any earnings, gains, profits, or losses of the Trust
Fund. The Committee shall instruct the Trustee whether the rollover amount is to
be invested as part of the general Trust Fund. Any rollover or transfer shall
meet the requirements of Code Sections 402(a) (5) (E) and 411(d) (6).
17.2 The term rollover amount shall mean any rollover amount or rollover
contribution defined in (a) Code Section 402(a) (5) or Code Section 403(a) (4)
relating to certain lump sum distributions from a Trust or annuity described in
Code Section 401(a) or Code Section 403(a); or (b) Code Section 408(d) (3)
relating to certain distributions from an Individual Retirement Account or an
Individual Retirement Annuity; or (c) Code Section 409(b) (3) (C) relating to
certain distributions from a retirement bond.
17.3 The Trustee may, with the approval of the Committee, receive and hold
as a part of the Trust Fund assets transferred directly from the Trustee or
custodian of any other retirement plan which is qualified under Code Section
401, as amended or superseded, as evidenced by a current favorable determination
letter issued by the Commissioner of Internal Revenue or his proper delegate,
provided such transfer meets the requirements of Code Section 411(d) (6).
17.4 Notwithstanding anything herein to the contrary, unless the
distribution of payments in the form of an Annuity are allowed pursuant to the
Annuity Requirements Section or the transfer does not cause a reduction or
elimination of any Code Section 411(d) (6) protected benefit, this Plan shall
not accept any direct or indirect transfers from a defined benefit plan, money
purchase plan (including a target benefit plan), stock bonus plan,
profit-sharing plan, 401(k) plan or any other qualified plan which would
otherwise have provided for a life annuity form of payment to the Participant.
In order for a transfer not to reduce or eliminate a Code Section 411(d) (6)
protected benefit, the elective transfer provisions under Regulation 1.411(d)-4
must be complied with.
17.5 Any amount transferred or rolled over by an Employee to the Plan under
this Rollovers and Other Transfers Section shall be used to provide additional
benefits to such Employee at the time benefits are otherwise payable under this
Plan; provided, however, that such transferred or rollover amount shall be an
asset of the entire Trust.
SECTION 18 - Miscellaneous Provisions
18.1 The adoption and maintenance of this Plan shall not be deemed to
constitute a contract, express or implied, between the Employer and any Employee
or to be a consideration for, or inducement or condition of, the employment of
any person. Nothing herein contained shall be deemed to give any Employee the
right to be retained in the employ of the Employer or to interfere with the
right of the Employer to discharge any Employee at any time, nor shall it give
the Employer the right to require the Employee to remain in its employ.
18.2 All benefits payable under this Plan shall be paid or provided for
solely from the Trust Fund. Neither the Employer nor the Trustee assumes any
liability or responsibility therefor.
<PAGE>
18.3 Headings of Sections are included solely for convenience of reference,
and, if there is any conflict between such headings and the text, the text shall
control.
18.4 As used in this Plan and Trust, the masculine gender shall include the
feminine, and the singular shall include the plural, unless the context clearly
indicates otherwise.
18.5 All legal questions pertaining to the Plan shall be determined in
accordance with the laws of the State of South Carolina, unless pre-empted under
Federal law.
18.6 The right of any Participant or his Beneficiary to any benefit or to
any payment herein or to any separate Account or insurance contract shall not be
subject to alienation, assignment, attachment, garnishment, or other legal or
equitable process, and if such Participant shall attempt to assign, transfer, or
dispose of such right, or should an attempt be made to subject such right to
attachment, execution, garnishment, or other legal or equitable process, such
attempt shall be null and void. The preceding sentence shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified domestic relations order, as defined in
Code Section 414(p), or any domestic relations order entered into before January
1, 1985.
18.7 Every fiduciary of this Plan and Trust shall be bonded to the extent
required by law.
18.8 No provision of this Plan and Trust is purported to relieve any
fiduciary from liability for any responsibilities, obligations, or duties
imposed on such fiduciary by the Employee Retirement Income Security Act of
1974, including any amendments thereto.
SECTION 19 - Voluntary Participant Contributions
19.1 A Participant shall not make, and the Trustee shall not accept,
voluntary Participant contributions in this Plan and Trust,
SECTION 20 - Participant Loans
20.1 The Committee, in accordance with its uniform non-discriminatory loan
policy, may direct the Trustee to make a loan or loans to a Participant, subject
to the limitations contained in this Section and Code Section 72(p), as amended.
The Committee is authorized to establish a loan program to carry out the
provisions of this Participant Loans Section. Loans shall not be made available
to Highly Compensated Employees in an amount greater than the amount made
available to other Employees; provided, however, the Committee may require a
minimum loan amount not greater than $1,000. The loan shall allow for a setoff
of the Participant's Account. In no event shall the total of any such loan to
any Participant when added to the outstanding balance of all other loans from
this Plan, or any other Plan of the Employer, or a related company as defined in
Code Section 72(p) (2) (D), exceed the lesser or
(a) $50,000, reduced by the excess (if any) of the highest outstanding
balance of loans from the Plan during the one (1) year period ending on the
day before the date on which such loan was made over the outstanding
balance of loans from the Plan on the date on which such loan was made, or
(b) one-half (1/2) of the present value of the non-forfeitable Accrued
Benefit of the Employee under the Plan.
For purposes of (b) above the present value of the non-forfeitable Accrued
Benefit shall be determined without regard to any accumulated deductible
Employee contributions as defined in Code Section 72(o) (5) (B).
20.2 Any Participant may apply for a loan from the Plan. For purposes of
this Participant Loans Section, the term Participant includes any Participant or
Beneficiary who is a party in interest (as determined under ERISA 3(14)) with
respect to the Plan, A Participant must apply for each loan in writing with an
application which specifies the amount of the loan desired, the requested
duration for the loan and the source of security for the loan.
20.3 All such loans to a Participant shall charge interest thereon at a
commercially reasonable rate, Periodically, the Committee will determine the
appropriate interest rate by obtaining at least one quote from a financial
<PAGE>
institution, as chosen by the Committee, that is in the business of lending
money. If Participants in the Plan live in different geographical regions, the
Committee may establish a uniform commercially reasonable interest rate
applicable to all regions based on information obtained from at least one region
in which Participants live. The Committee must periodically reevaluate interest
rates for loans. A loan shall provide for a fixed rate of interest. The
Committee will determine whether the interest rate is commercially reasonable at
the time it approves the loan and, in the case of the renewal of a loan, at the
time of the renewal. Every loan applicant shall receive a clear statement of the
charges involved in each loan transaction. This statement shall include the
dollar amount and the annual interest rate of the finance charge.
20.4 Any such loan or loans shall be repaid by the Participant in such
manner as the Committee shall determine. In no event shall the repayment of a
loan by its terms exceed five (5) years from the date on which the loan is made,
or the Participant's Normal Retirement Date, whichever is the shorter period of
time. In all circumstances, the Trustee may, in its discretion, require full and
immediate payment of the outstanding loan balance and accrued and unpaid
interest if the Participant dies or his employment terminates for any reason,
Except as provided by Treasury Regulations, payment (principal and interest) of
any loan shall be made in substantially level amortization payments over the
term of the loan (with payments not less frequently than quarterly). Under no
circumstances may the repayment term of any loan be extended beyond its due
date.
20.5 Such loan shall be adequately secured at all times. The Participant
must secure each loan with an irrevocable pledge and assignment of 50% of the
nonforfeitable amount of the borrowing Participant's Accrued Benefit under the
Plan, In the event that the Participant does not repay such loan within the time
prescribed by the Committee, and the loan is secured by the Participant's
Account in the Plan, and the Trustee does not accelerate payment as provided
herein, the Committee may deduct the total amount of such loan or any portion
thereof (including accrued and unpaid interest) from any payment or distribution
(including a distribution occurring as a result of the Participant's death) from
the Trust Fund to which such Participant or his Beneficiary or Beneficiaries may
be entitled; provided, however, that no deduction shall be made from such
Participant's Account until the Participant is entitled to a distribution from
the Plan, In the event that the amount of any such payment or distribution is
not sufficient to repay the remaining balance of any such loan, such Participant
shall be liable for and continue to make payments on any balance still due from
such Participant.
20.6 The Committee will treat a loan in default if:
(a) any scheduled payment remains unpaid more than thirty (30) days;
(b) the making or furnishing of any representation or statement to the
Plan by or on behalf of the Participant which proves to have been false in
any material respect when made or furnished;
(c) loss, theft, damage, destruction, sale or encumbrance to or of any
of the collateral, or the making of any levy seizure or attachment thereof
or thereon; or
(d) death, dissolution, insolvency, business failure, appointment of
receiver of any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding under any bankruptcy or
insolvency laws of, by or against the Participant.
The Participant will have the opportunity to repay the loan, resume current
status of the loan by repaying any missed payment plus interest. If the loan
remains in default, the Committee has the option of foreclosing on any security
it holds. Pending final disposition of the note, the Participant remains
obligated for any unpaid principal and accrued interest.
20.7 Each loan to a Participant shall be evidenced by a promissory note
from such Participant for the amount of the loan, including interest, payable to
the order of the Trustee.
20.8 Notwithstanding anything herein to the contrary, no loan shall be made
to a Shareholder-Employee.
20.9 Any interest resulting from a Participant's loan shall be credited to
the Participant's respective Accounts from which the loan originated.
SECTION 21 - Hardship Distributions
21.1 In the discretion of the Committee in accordance with uniform
non-discriminatory principles consistently applied, the Committee, upon
application and consent of an Employee, may direct the Trustee to make a
Hardship distribution to an Employee. The consent shall be obtained within the
<PAGE>
ninety (90) day period before the Hardship distribution is made, Under no
circumstances shall a Hardship distribution exceed the aggregate total amount of
the Participant's Deferred Compensation portion in the Participant's Elective
Account as of the Valuation Date coinciding with or immediately preceding the
Hardship withdrawal request. No earnings credited for any period after December
31, 1988 shall be distributed as part of a Hardship withdrawal. Hardship
distributions shall be deemed to be made as of the Valuation Date coinciding
with or immediately preceding the Hardship withdrawal request and the Employee's
Elective Account shall be reduced accordingly
21.2 If an Employee receives a Hardship distribution, then
(i) the Employee may not defer any Compensation in the Plan until
at least twelve (12) months after the Employee receives the Hardship
distribution, and (ii) the Employee shall not make Elective
contributions for the Employee's taxable year immediately following
the taxable year of the Hardship distribution in excess of the
applicable limits under Code Section 402(g) for the next taxable year
less the amount of such Employee's Elective Contributions for the
taxable year of the Hardship distribution.
SECTION 22 - Cash or Deferred Limitations
22.1 No Participant shall be permitted to have Elective Deferrals made
under this Plan, or any other qualified plan maintained by the Employer, during
any taxable year, in excess of the dollar limitation contained in Code Section
402(g) in effect at the beginning of such taxable year.
22.2 A Participant may assign to this Plan any Excess Elective Deferrals
made during a taxable year of the Participant by notifying the Committee in
writing on or before February 15 of the amount of the Excess Elective Deferrals
to be assigned to the Plan. A Participant is deemed to notify the Committee of
any Excess Elective Deferrals that arise by taking into account only those
Elective Deferrals made to this Plan and any other plans of this Employer.
Notwithstanding any other provision of the Plan, Excess Elective Deferrals,
plus any income and minus any loss allocable thereto, shall be distributed no
later than April 15 to any Participant to whose Account Excess Elective
Deferrals were assigned for the preceding year and who claims Excess Elective
Deferrals for such taxable year.
When used in this Plan, the following terms shall have the indicated
meanings:
(a) "Elective Deferrals" shall mean any Employer contributions made to
the Plan at the election of the Participant, in lieu of cash compensation,
and shall include contributions made pursuant to a salary reduction
agreement or other deferral mechanism. With respect to any taxable year, a
Participant's Elective Deferral is the sum of all Employer contributions
made on behalf of such Participant pursuant to an election to defer under
any qualified cash or deferred arrangement (CODA) as described in Code
Section 401 (k), any simplified Employee pension cash or deferred
arrangement as described in Code Section 402(h) (1) (B), any eligible
deferred compensation plan under Code Section 457, any plan as described
under Code Section 501 (c) (18), and any Employer contributions made on the
behalf of a Participant for the purchase of an annuity contract under Code
Section 403(b) pursuant to a salary reduction agreement. Elective Deferrals
shall not include any deferrals properly distributed as excess annual
additions.
(b) "Excess Elective Deferrals" shall mean those Elective Deferrals
that are includible in a Participant's gross income under Code Section
402(g) to the extent such Participant's Elective Deferrals for a taxable
year exceed the dollar limitation under such Code Section. Excess Elective
Deferrals shall be treated as annual additions under the plan, unless such
amounts are distributed no later than the first April 15 following the
close of the Participant's taxable year.
22.3 Excess Elective Deferrals shall be adjusted for any income or loss up
to the date of distribution. The income or loss allocable to Excess Elective
Deferrals is the sum of:
(a) income or loss allocable to the Participant's Elective Deferral
account for the taxable year multiplied by a fraction, the numerator of
which is such Participant's Excess Elective Deferrals for the year and the
denominator is the Participant's Account balance attributable to Elective
<PAGE>
Deferrals without regard to any income or loss occurring during such
taxable year; and (b) ten (10%) percent of the amount determined under (a)
multiplied by the number of whole calendar months between the end of the
Participant's taxable year and the date of distribution, counting the month
of distribution if distribution occurs after the 15th of such month.
22.4 Qualified Matching Contributions and Qualified Non-Elective
Contributions may be taken into account as Elective Deferrals for purposes of
calculating the Actual Deferral Percentages. In determining Elective Deferrals
for the purpose of the Actual Deferral Percentage test, the Employer shall
include Qualified Matching Contributions and Qualified Non-Elective
Contributions under this Plan or any other plan of the Employer, as provided by
regulations under the Code.
The amount of Qualified Matching Contributions made under the Employer
Non-Elective Contributions and Elective Contributions Section of this Plan and
taken into account as Elective Deferrals for purposes of calculating the Actual
Deferral Percentage, subject to such other requirements as may be prescribed by
the Secretary of the Treasury, shall be: such Qualified Matching Contributions
that are needed to meet the Actual Deferral Percentage test stated in this Cash
or Deferred Limitations Section. The amount of Qualified Non-Elective
Contributions made under the Employer Non-Elective Contributions and Elective
Contributions Section of this Plan and taken into account as Elective Deferrals
for purposes of calculating the Actual Deferral Percentages, subject to such
other requirements as may be prescribed by the Secretary of the Treasury, shall
be: such Qualified Non-Elective Contributions that are needed to meet the Actual
Deferral Percentage test stated in this Cash or Deferred Limitations Section.
22.5 The Actual Deferral Percentage (hereinafter "APP") for Participants
who are Highly Compensated Employees for each Plan Year and the APP for
Participants who are Non-Highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(a) The APP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the APP for Participants who are Non-Highly
Compensated Employees for the same Plan Year multiplied by 1.25; or
(b) The APP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the APP for Participants who are Non-Highly
Compensated Employees for the same Plan Year multiplied by 2.0, provided
that the APP for Participants who are Highly Compensated Employees does not
exceed the ADP for Participants who are Non-Highly Compensated Employees by
more than two (2) percentage points.
The following special rules shall apply:
(a) The SPP for any Participant who is a Highly Compensated Employee
for the Plan Year and who is eligible to have Elective Deferrals (and
Qualified Non-Elective Contributions or Qualified Matching Contributions,
or both, if treated as Elective Deferrals for purposes of the APP test)
allocated to his accounts under two or more arrangements described in Code
Section 401(k), that are maintained by the Employer, shall be determined as
if such Elective Deferrals (and, if applicable, such Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both) were made under
a single arrangement. If a Highly Compensated Employee participates in two
or more cash or deferred arrangements that have different Plan Years, all
cash or deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement.
(b) In the event that this Plan satisfies the requirements of Code
Sections 401 (k), 401(a) (4), or 410(b) only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such
Code Sections only if aggregated with this Plan, then this Section shall be
applied by determining the ADP of Employees as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Code Section 401(k) only if they have the
same Plan Year.
(c) For purposes of determining the APP of a Participant who is a Five
Percent Owner or one of the ten most highly-paid Highly Compensated
Employees, the Elective Deferrals (and Qualified Non-Elective Contributions
or Qualified Matching Contributions, or both, if treated as Elective
Deferrals for purposes of the APP test) and Compensation of such
Participant shall include the Elective Deferrals (and, if applicable,
Qualified Non-Elective Contributions and Qualified Matching Contributions,
or both) and Compensation for the Plan Year of Family Members (as defined
in Code Section 414 (q) (6)) Family Members, with respect to such Highly
<PAGE>
Compensated Employees, shall be disregarded as separate Employees in
determining the APP both for Participants who are Non-Highly Compensated
Employees and for Participants who are Highly Compensated Employees.
(d) For purposes of determining the APP test, Elective Deferrals,
Qualified Non-Elective Contributions and Qualified Matching Contributions
must be made before the last day of the twelve-month period immediately
following the Plan Year to which contributions relate.
(e) The Employer shall maintain records sufficient to demonstrate
satisfaction of the APP test and the amount of Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both, used in such
test. Qualified Non-Elective Contributions and Matching Contributions may
only be used in the test if they satisfy Regulation 1,401(k)-1(b) (3).
(f) The determination and treatment of the ADP amounts of any
Participant shall satisfy such other requirements as may be prescribed by
the Secretary of the Treasury.
When used in this Plan, the following terms shall have the indicated
meaning:
(a) "Actual Deferral Percentage" shall mean, for a specified group of
Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in such group) of (i) the amount of
Employer contributions actually paid over to the Trust on behalf of such
Participant for the Plan Year to (ii) the Participant's Compensation for
such Plan Year. Employer contributions on behalf of any Participant shall
include:
(1) any Elective Deferrals made pursuant to the Participant's
deferral election (including Excess Elective Deferrals of Highly
Compensated Employees), but excluding (a) Excess Elective Deferrals of
Non-highly Compensated Employees that arise solely from Elective
Deferrals made under the plan or plans of this Employer and
(b) Elective Deferrals that are taken into account in the Contribution
Percentage test (provided the ADP test is satisfied both with and without
exclusion of these Elective Deferrals); and (2) at the election of the
Employer, Qualified Non-Elective Contributions and Qualified Matching
Contributions. For purposes of computing Actual Deferral Percentages, an
Employee who would be a Participant but for the failure to make Elective
Deferrals shall be treated as a Participant on whose behalf no Elective
Deferrals are made.
22.6 Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan Year to Participants to
whose accounts such Excess Contributions were allocated for the preceding Plan
Year. If such excess amounts are distributed more than 2 1/2 months after the
last day of the Plan Year in which such excess amounts arose, a ten (10%)
percent excise tax will be imposed on the Employer maintaining the Plan with
respect to such amounts. Such distributions shall be made to Highly Compensated
Employees on the basis of the respective portions of the Excess contributions
attributable to each of such Employees. Excess Contributions shall be allocated
to Participants who are subject to the family member aggregation rules of Code
Section 414(q) (6) among the family members in proportion to the Elective
Contribution of each family member that is combined to determine the Actual
Deferral Percentage in accordance with Treasury regulations.
22.7 Excess Contributions (including the amounts recharacterized if
otherwise allowed herein) shall be treated as annual additions under this Plan.
22.8 Excess Contributions shall be or loss up to the date of distribution.
allocable to Excess Contributions is the adjusted for any income The income or
loss sum of
(a) income or loss allocable to the Participant's Elective Deferral
account (and, if applicable, the Qualified Non-Elective Contribution
account or the Qualified Matching Contributions account or both) for the
Plan Year multiplied by a fraction, the numerator of which is such
Participant's Excess Contributions for the year and the denominator is the
Participant's Account balance attributable to Elective Deferrals (and
Qualified Non-Elective Contributions or Qualified Matching Contributions,
or both, if any of such contributions are included in the ALP test) without
regard to any income or loss occurring during such Plan Year; and (b) ten
<PAGE>
(10%) percent of the amount determined under (a) multiplied by the number
of whole calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if distribution occurs
after the 15th of such month.
Excess Contributions shall be distributed from the Participant's Elective
Deferral account and Qualified Matching Contribution account (if applicable) in
proportion to the Participant's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the ALP test) for the Plan Year. Excess
Contributions shall be distributed from the Participant's Qualified Non-Elective
Contribution account only to the extent that such Excess Contributions exceed
the balance in the Participant's Elective Deferral account and Qualified
Matching Contribution account. Excess Contributions shall be distributed to
Participants who are subject to the family member aggregation rules of Code
Section 414(q) (6) among the family members in proportion to the Elective
Contribution of each family member that is combined to determine the Actual
Deferral Percentage in accordance with Treasury regulations.
Excess Contributions shall be reduced by the amount of excess Elective
Deferrals already distributed,
When used in this Plan, the following terms shall have the indicated
meanings:
(a) "Excess Contribution" shall mean, with respect to any Plan Year,
the excess of:
(i) The aggregate amount of Employer contributions actually taken
into account in computing the ALP of Highly Compensated Employees for
such Plan Year, over
(ii) The maximum amount of such contributions permitted by the
ALP test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the ADPs, beginning with the
highest of such percentages)
22.9 If this Plan and Trust otherwise specifically permit all Participants
to make voluntary non-deductible contributions, then a Participant may treat his
Excess Contributions as an amount distributed to the Participant and then
contributed by the Participant to the Plan. Recharacterized amounts will remain
nonforfeitable and subject to the same distribution requirements as Elective
Deferrals. Amounts may not be recharacterized by a Highly Compensated Employee
to the extent that such amount in combination with other Employee Contributions
made by that Employee would exceed any stated limit under the Plan on Employee
Contributions.
Recharacterization must occur no later than two and one-half months after
the last day of the Plan Year in which such Excess Contributions arose and is
deemed to occur no earlier than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the Participant for the Participant's
tax year in which the Participant would have received them in cash. Under no
circumstances shall recharacterization be permitted if the Plan and Trust does
not otherwise specifically permit voluntary non-deductible contributions by all
Participants.
22.10 The Employer may make Qualified Matching Contributions to the Plan.
"Qualified Matching Contributions" shall mean Matching Contributions which are
subject to the distribution and nonforfeitability requirements under Code
Section 401(k) when made, Further, after December 31, 1988 Qualified Matching
Contributions may not be distributed to a Participant or Beneficiary because of
Hardship, if Hardship distributions are otherwise specifically permitted in this
Plan and Trust.
22.11 The Actual Contribution Percentage (hereinafter "ACP") for
Participants who are Highly Compensated Employees for each Plan Year and the ACP
for Participants who are Non-Highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(a) The ACP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the ACP for Participants who are Non-Highly
Compensated Employees for the same Plan Year multiplied by 1.25; or
(b) The ACP for Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the ACP for Participants who are Non-Highly
Compensated Employees for the same Plan Year multiplied by two (2) provided
<PAGE>
that the ACP for Participants who are Highly Compensated Employees exceed
the ACP for Participants who are Non-Highly Compensated Employees by more
than two (2) percentage points.
The following special rules shall apply:
(a) If one or more Highly Compensated Employees participate in both a
CODA and a plan subject to the ACP test maintained by the Employer (whether
or not one or more plans exist) and the sum of the ALP and ACP of those
Highly Compensated Employees subject to either or both tests exceeds the
Aggregate Limit, then the ALP of those Highly Compensated Employees who
also participate in a CODA will be reduced (beginning with such Highly
Compensated Employee whose AD? is the highest) so that the limit is not
exceeded. The amount by which each Highly Compensated Employee's
Contribution Percentage Amounts is reduced shall be treated as an Excess
Contribution. The ALP and ACP of the Highly Compensated Employees are
determined after any corrections required to meet the ALP and ACP tests.
Multiple use does not occur if both the ALP and AC? of the Highly
compensated Employees does not exceed 1.25 multiplied by the ALP and ACP of
the Non-Highly Compensated Employees.
(b) For purposes of this Section, the contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible to
have Contribution Percentage Amounts allocated to his account under two or
more plans described in Code Section 401(a), or arrangements described in
Code Section 401(k) that are maintained by the Employer, shall be
determined as if the total of such Contribution Percentage Amounts was
under each plan. If a Highly Compensated Employee made participates in two
or more cash or deferred arrangements that have different plan years, all
cash or deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement.
(c) In the event that this Plan satisfies the requirements of Code
Sections 401 (m) 401(a) (4) or 410(b) only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this Plan, then this Section
shall be applied by determining the contribution Percentage of Employees as
if all such plans were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated in order to satisfy Code Section
401(m) only if they have the same Plan Year.
(d) For purposes of determining the Contribution Percentage of a
Participant who is a Five-Percent Owner or one of the ten most highly-paid
Highly Compensated Employees, the Contribution Percentage Amounts and
Compensation of such participant shall include the Contribution Percentage
Amounts and Compensation for the Plan Year of Family Members (as defined in
Code Section 414 (q) (6)). Family Members, with respect to Highly
Compensated Employees, shall be disregarded as separate Employees in
determining the Contribution Percentage both for Participants who are
Non-Highly Compensated Employees and for Participants who are Highly
Compensated Employees.
(e) For purposes of determining the Contribution Percentage test
Employee Contributions are considered to have been made in the Plan Year in
which contributed to the Trust. Matching Contributions and Qualified
Non-Elective Contributions will be considered made for a Plan Year if made
no later than the end of the twelve (12) month period beginning on the day
after the close of the Plan Year.
(f) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified Non-Elective
Contributions or Elective Contributions, or both, used in such test.
Qualified Non-Elective Contributions and Elective Contributions may only be
used in the test if they satisfy Regulation l,401(m)-1(b) (2).
(g) The determination and treatment of the Contribution Percentage of
any Participant shall satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
When used in this Plan, the following terms shall have the indicated meanings:
(a) "Aggregate Limit" shall mean the sum of (i) 125 percent of the
greater of the ADP of the Non-Highly Compensated Employees for the Plan
Year or the ACP of Nonhighly Compensated Employees under the Plan subject
to Code Section 401(m) for the Plan Year beginning with or within the Plan
Year of the CODA and (ii) the lesser of 200% or two plus the lesser of such
ALP or ACP, For Plan Years beginning before the later of January 1, 1992 or
the date that is sixty (60) days after publication of final regulations
regarding multiple use, the Aggregate limit is increased to the greater of
the Aggregate Limit in the preceding sentence or the sum of 125 percent of
the lesser of (i) the AD? of Non-Highly Compensated Employees for the Plan
<PAGE>
Year or the ACP of Non-Highly Compensated Employees under the Plan subject
to Code Section 401(m) for the Plan Year beginning with or within the Plan
Year of the CODA and (ii) the greater of 200% or two plus the greater of
such ADP or ACP.
(b) "Average Contribution Percentage" shall mean the average of the
Contribution Percentages of the Eligible Participants in a group.
(c) "Contribution Percentage" shall mean the ratio (expressed as a
percentage) of the Participant's Contribution Percentage Amounts to the
Participant's Compensation for the Plan Year (whether or not the Employee
was a Participant for the entire Plan Year),
(d) "Contribution Percentage Amounts" shall mean the sum of the
Employee Contributions, Matching Contributions, and Qualified Matching
Contributions (to the extent not taken into account for purposes of the AD?
test) made under the Plan on behalf of the Participant for the Plan Year.
Such Contribution Percentage Amounts shall include forfeitures of Excess
Aggregate Contributions or Matching Contributions allocated to the
Participant's account which shall be taken into account in the year in
which such forfeiture is allocated. The Employer may include Qualified
Non-Elective Contributions in the Contribution Percentage Amounts. The
Employer also may elect to use Elective Deferrals in the Contribution
Percentage Amounts so long as the ALP test is met before the Elective
Deferrals are used in the ACP test and continues to be met following the
exclusion of those Elective Deferrals that are used to meet the ACP test.
(e) "Eligible Participant" shall mean any Employee who is eligible to
make an Employee Contribution, or an Elective Deferral (if the Employer
takes such contributions into account in the calculation of the
Contribution Percentage), or to receive a Matching Contribution (including
forfeitures) or a Qualified Matching Contribution. If an Employee
Contribution is required as a condition of participation in the Plan, any
Employee who would be a Participant in the Plan if such Employee made such
a contribution shall be treated as an eligible Participant on behalf of
whom no Employee Contributions are made.
(f) "Employee Contribution" shall mean any contribution made to the
Plan by or on behalf of a Participant that is included in the Participant's
gross income in the year in which made and that is maintained under a
separate account to which earnings and losses are allocated.
(g) "Matching Contribution" shall mean an Employer contribution made
to this or any other defined contribution plan on behalf of a Participant
on account of an Employee Contribution made by such Participant, or on
account of a Participant's Elective Deferral, under a plan maintained by
the Employer.
22.12 Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall be
forfeited, if forfeitable, or if not forfeitable, distributed no later than the
last day of each Plan Year to Participants to whose accounts such Excess
Aggregate Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions shall be allocated to Participants who are subject to
the family member aggregation rules of Code Section 414(q) (6) among the family
members in proportion to the Employee Contributions and Matching Contributions
of each family member that are combined to determine the Actual Contribution
Percentage in accordance with Treasury regulations. If such Excess Aggregate
Contributions are distributed sore than 2 1/2 months after the last day of the
Plan Year in which such excess amounts arose, a ten (10%) percent excise tax
will be imposed on the Employer maintaining the Plan with respect to those
amounts. Excess Aggregate Contributions shall be treated as annual additions
under the Plan.
Excess Aggregate Contributions shall be adjusted for any income or loss up
to the date of distributions. The income or loss allocable to Excess Aggregate
Contributions is the sum of:
(a) income or loss allocable to the Participant's Employee
Contribution account, Matching Contribution account (if any, and if all
amounts therein are not used in the AD? test) and, if applicable, qualified
Non-Elective Contribution account and Elective Deferral account for the
Plan Year multiplied by a fraction, the numerator of which is such
Participant's Excess Aggregate Contributions for the year and the
denominator is the Participant's account balance(s) attributable to
Contribution Percentage Amounts without regard to any income or loss
occurring during such Plan Year; and (b) ten (10%) percent of the amount
determined under (a) multiplied by the number of whole calendar months
<PAGE>
between the end of the Plan Year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of such month.
Forfeitures of Excess Aggregate Contributions shall be applied to reduce
Employer contributions.
Excess Aggregate Contributions shall be forfeited, if forfeitable or
distributed on a pro-rata basis from the Participant's Employee Contribution
account, Matching Contribution account, and Qualified Matching Contribution
account (and, if applicable, the Participant's Qualified Non-Elective
Contribution account or Elective Deferral account, or both).
When used in this Plan, the following terms shall have the indicated
meanings:
(a) "Excess Aggregate Contributions" shall mean, with respect to any
plan Year, the excess of:
(i) The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution percentage
actually made on behalf of Highly Compensated Employees for such Plan
Year, over
(ii) The maximum Contribution Percentage Amounts permitted by the
ACP test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages)
Such determination shall be made after first determining Excess Elective
Deferrals and then determining Excess Contributions.
22.13 In lieu of distributing Excess Contributions, or Excess Aggregate
Contributions, the Employer may make Qualified between investments pursuant to
the terms and conditions of this Investment Direction By Participant Section.
The Trustee shall carry out the Participant's investment direction as soon as
reasonably practical.
The Committee shall have the sole authority for establishing the
investments.
23.2 In the event a Participant does not make a subsequent investment
direction of his Accounts then the prior investment direction shall continue to
apply.
23.3 Any investment direction made by a Participant shall remain in effect
until another valid written direction has been made by the Participant. The
Participant shall be responsible for his investment directions and the
Committee, the Trustee and the Employer shall be relieved of any liability of
any kind therefor. Any investment direction made by a Participant shall apply to
present or future contributions, earnings or losses in such fund until the
investment direction is changed as provided herein. The Participant's directed
investment Accounts shall not share in any earnings, gains, profits or losses of
the Trust Fund, but instead any earnings, gains, profits or losses shall be
credited or debited to the directed investment Accounts as appropriate to
properly reflect such directed investments.
23.4 All investments in the Employer Stock fund shall be made by the
Trustee by purchasing Employer common stock from the Employer or in the open
market at a price per share equal to the prevailing market price at the time of
the purchase, as determined by the Trustee, and if such stock is acquired from
any party in interest (within the meaning of Section 3(14) of ERISA without
payment of any commission. If any options, rights, or warrants shall be granted
or issued with respect to any Employer Stock held in the Employer Stock fund,
the Trustee shall exercise or sell such options, rights, or warrants in the open
market, as directed by the Participants according to their pro-rata investment
in the Employer Stock fund.
Voting rights with respect to any Registration-Type Securities held in
trust shall be passed through to the Participants.
<PAGE>
In the event that any Registration-Type Securities held in trust have not
been allocated to the Accounts of the Participants at the time of voting or
Registration-Type Securities held in trust have been allocated to the Accounts
of the Participants at the time of voting but the Participants have failed to
direct on how to vote such shares, the Trustee shall vote the shares.
Notwithstanding the directions by a Participant, the Trustee may, pursuant
to the written directions of the Committee, limit the amount that may be used to
acquire or sell Employer Stock so as to maintain a prudent investment policy for
the Plan.
To the extent that a Participant exercises control over the assets by
directing them toward the purchase of Employer common stock, neither the
Committee, the Trustee nor any other fiduciary shall be liable for any loss or
any breach of fiduciary duties as a result of the Participant's direction to
invest such funds in Employer common stock, other than the responsibilities of
acquiring, holding, and disposing of such qualifying Employer common stock as
directed by the Participant or a Beneficiary.
If a Participant directs investment of any portion of his Account in
Employer common stock, any dividends paid on such common stock shall either be
invested in additional Employer common stock or under uniform rules which the
Committee may establish from time to time. For purposes of this Investment
Direction By Participant Section the following definitions shall apply:
(a) "Registration-Type Securities" shall mean the shares of common
stock of the Employer that are either (i) a class of securities required to
be registered under section 12 of the Securities Exchange Act of 1934 or
(ii) a class of securities which would be required to be so registered
except for the exemption from registration provided in subsection (9) (2)
(H) of such section 12.
(b) "Employer Stock fund" shall mean the investment fund consisting of
the common stock of the Hampshire Group, Limited
SECTION 24 - Withdrawal
24.1 After a Participant attains age sixty-two (62) he may withdraw from
the following Accounts the percentage of the vested portion of the Account
balance indicated:
% of Vested Portion
Account of Account Balance
Elective Account 100%
Non-Elective Account 100%
The amount of the vested portion of the Account balance shall be determined
as of the preceding Valuation Date. Any distribution shall be subject to the
Annuity Requirements Section.
IN WITNESS WHEREOF, the Employer, by its duly authorized officer, and the
Trustee, have caused this amended and restated Plan and Trust Agreement to be
executed as of the day and year first above written.
Witnesses: /s/ William E. Kennedy, Jr.
/s/ Lanna M. West
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
Its: Vice President
Witnesses: /s/ William E. Kennedy, Jr.
/s/ Lanna M. West
/s/ Charles W. Clayton, Trustee
/s/ Lawrence J. MacDowell, Trustee
/s/ Horace D. Padgett, Jr., Trustee
HAMPSHIRE GROUP, LIMITED
VOLUNTARY DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND EXECUTIVES
AMENDED AND RESTATED
EFFECTIVE DECEMBER 30, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I Definitions. . . . . . . . . . . . . . . . . . . 1
ARTICLE II Participation. . . . . . . . . . . . . . . . . . 3
ARTICLE III Deferred Compensation Account Credits . .. . . . 4
ARTICLE IV Deferred Compensation Accounts . . . . . . . . 5
ARTICLE V Vesting . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI Payment of Deferred Compensation; Withdrawals . 6
ARTICLE VII Funding . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VIII Administration . . . . . . . . . . . . . . . . 9
ARTICLE IX Amendment and Termination . . . . . . . . . . . 10
ARTICLE X General Provisions . . . . . . . . . . . . . . 10
EXHIBIT 1 Election Form . . . . .. . . . . . . . . . . . 12
-i-
<PAGE>
HAMPSHIRE GROUP, LIMITED
VOLUNTARY DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND EXECUTIVES
ARTICLE I
Definitions
Section 1.1 As used in this Plan, the following terms shall have the meanings
hereinafter set forth:
"Annual Director Fees" means the fees paid during a Plan Year to a Director for
serving on the Board of Directors of the Company.
"Beneficiary" means any person(s) or legal entity(ies) designated by the
Participant or otherwise in accordance with Section 10.7.
"Board" means the Board of Directors of the Company.
"Bonus" means the bonus paid by an Employer to a Key Employee during any Plan
Year excluding any bonus prepaid on a monthly basis.
"Committee" means the Committee appointed by the Board which administers the
Plan in accordance with Article VIII hereof.
"Common Stock" means the common stock of Hampshire Group, Limited, par value
$0.10 per share.
"Company" means Hampshire Group, Limited, a Delaware corporation, and its
successors and assigns.
"Deferred Compensation Account" means one or more accounts established and
maintained under the Plan to reflect deferrals made by a Participant hereunder.
"Director" means a member of the Board who is not also a Key Employee.
"Disability" means disability as defined under the long-term disability plan of
the Company, as amended from time to time.
"Effective Date" means December 30, 1997
"Employer" means the Company and any subsidiary or affiliate thereof which shall
be designated by the Committee as a participating employer under the Plan.
"Financial Hardship" means severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the Participant or
a dependent, loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. The circumstances that will
constitute a Financial Hardship will depend upon the facts of each case and will
be determined by the Committee in its sole discretion; but distributions may not
be made to the extent that such hardship is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise or (ii) by liquidation
of the participant's assets, to the extent the liquidation of such assets would
not itself cause severe financial hardship.1
"401(k) Plan" means the Hampshire Group, Limited and Subsidiaries 401(k)
Retirement Savings Plan, as amended from time to time.
"Installments" means substantially equal payments payable semi-annually as of
the last day of June and December and as of the anniversary thereof in each
<PAGE>
succeeding year over a period certain not to exceed eight (8) years, commencing
not later that two (2) years following the Participant's Separation from
Service, as elected by a Participant in accordance with Section 6.1, but subject
to Section 6.4 hereof.
"Key Employee" means an employee of an Employer who is (i) a member of a select
group of management or highly-compensated employees and (ii) designated by the
Committee as eligible to participate in the Plan.
"Notional Fund" means the investment funds available under the 401(k) Plan
designated by the Committee from time to time and shall not be less than three
such funds, but shall not include the Hampshire Group, Limited Common Stock
Fund.
"Participant" for any Plan Year means a Key Employee or a Director who elects to
participate in the Plan in accordance with Article II hereof.
"Plan" means the Hampshire Group, Limited Voluntary Deferred Compensation Plan
for Directors and Executives, as embodied herein and as amended from time to
time.
"Plan Year" means the calendar year, with the first Plan Year beginning on
January 1 and ending on December 31, 1997.
"Salary" means the base salary paid to a Key Employee for any Plan Year by the
Employer plus any bonus prepaid on a monthly basis.
"Separation from Service" means termination of a Participant's employment with
his Employer for any reason, unless such termination is in connection with the
transfer of the Participant to another Employer. "Trust" means a grantor trust,
of which the Company is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the United States Internal Revenue Code
of 1986, as amended, and shall be construed accordingly.
"Trustee" shall mean the trustee of the Trust.
Wherever any words are used herein in the masculine gender, they shall be
construed as though they were also used in the feminine gender in all cases
where they would so apply, and wherever any words are used herein in the
singular form, they shall be construed as though they were also used in the
plural form in all cases where they would so apply.
ARTICLE II
Participation
Section 2.1 To participate in the Plan:
(a) Prior to the December 15th preceding a Plan Year, or such other date(s)
as determined by the Committee, each Key Employee and each Director may
irrevocably elect to participate in the Plan for such Plan Year by delivering
written notice to the Committee; which notice must specify, subject to the
provisions of Sections 2.2, 6.1 and 6.2, (i) in the case of a Key Employee, the
percentage of Salary and Bonus to be deferred and the time and form of payment,
and (ii) in the case of a Director, the percentage of Annual Director Fees to be
deferred; provided, however, that (x) the Committee may establish procedures and
forms which are applicable to all Key Employees and Directors under which Key
Employees and Directors may elect to participate in the Plan on a prospective
basis as of some other date(s) specified in such procedures; and (y) a Key
Employee's election with respect to Salary and Bonus and a Director's election
with respect to Annual Director Fees shall remain in effect for subsequent Plan
Years unless revoked or changed by delivery of written notice to the Committee
by the Key Employee prior to the December 15th preceding the Plan Year with
respect to which such revocation or change is effective.
<PAGE>
(b) Prior 15th day of the month preceding a quarter-end, or such other
date(s) as determined by the Committee, each Key Employee and each Director may
elect to change his Notional Fund election, both for current deferral and any
portion of the balance in his Deferred Compensation Account by delivering
written notice to the Committee. The change in election shall be effective the
first day of the following quarter, or in the case of the transfer of a balance,
shall be effective on the date the trade is finalized.
(c) Paragraph (a) of this Section 2.1 notwithstanding, (i) each Key
Employee will have 30 days following the adoption of the Plan, by delivering
written notice to the Committee otherwise consistent with Section 2.1(a), and
(ii) a Key Employee who is first designated by the Committee as eligible to
participate in the Plan during any Plan Year will have 30 days following the
date of notification of eligibility, to elect to defer Salary and Bonus for such
Plan Year by written notice to the Committee otherwise consistent with Section
2.1(a).
(d) Notwithstanding the above, upon application of any Participant and
approval thereof by the Committee in their sole discretion, the Participant may
at any time during a Plan Year revoke, by reason of Financial Hardship, his
election to participate in the Plan for such Plan Year. Upon such revocation,
any amount withheld for credit to his Deferred Compensation Account for such
period shall be paid to him without interest as soon as practicable thereafter.
Section 2.2 Participants may defer any whole number percentage of their Salary
and Bonus paid in the calendar year, from five percent (5%) to thirty percent
(30%), in the case of Key Employees; provided, however, that (i) no more than
twenty percent (20%) of a Participant's total annual compensation may be
deferred for any Plan Year.
Section 2.3 A Participant shall cease to be a Participant on the date of his
Separation from Service. Notwithstanding the above, compensation earned prior to
Separation from Service which is to be paid subsequently, shall be eligible for
deferral in accordance with the Participant's duly filed election form; except
that if the Separation from Service is the result of termination for cause, the
Participant's balance may be paid at the sole discretion of the Committee in a
lump-sum payment within six months of the Separation from Service.
ARTICLE III
Deferred Compensation Account Credits
Section 3.1 The Committee shall cause to be credited to each Participant's
Deferred Compensation Account for a Plan Year the amounts of Salary and Bonus
which he elected to defer in accordance with Article II. Such amounts shall be
so credited on a quarterly basis as of the end of each calendar quarter during
the Plan Year.
Section 3.2 Notwithstanding any provisions herein to the contrary, the Committee
in its sole discretion may suspend any and all deferrals under the Plan for such
period of time as it determines, but in any event all deferrals under the Plan
shall be suspended after December 31, 2001 for compensation earned subsequent to
that date; provided however, that no action taken shall adversely affect the
rights of any Participant hereunder to amount due and payable to such
Participant at the time such action is taken, unless the Participant otherwise
consents thereto.
<PAGE>
ARTICLE IV
Deferred Compensation Accounts
Section 4.1 The Committee shall establish and maintain a Deferred Compensation
Account for each Participant and shall maintain separate sub-accounts for each
Notional Investment within each Deferred Compensation Account.
Section 4.2 Amounts credited to a Deferred Compensation Account shall be
periodically adjusted for notional investment experience. In each case such
notional investment experience shall be determined by treating the Deferred
Compensation Account as though an equivalent dollar amount had been invested and
reinvested in one or more of the Notional Funds. The Notional Funds used as a
basis for determining notional investment experience with respect to any
Deferred Compensation Account shall be designated by the Participant by
delivering to the Company written instrument of election approved by the
Committee, and may be changed prospectively by similar delivered written
election before the 15th day of the month preceding a quarter-end, to be
effective as of the first day of the new quarter following such election as
presented in Section 2.1(b) hereof.
Section 4.3 The Committee may from time to time limit the Notional Funds
available for purposes of such election. If at any time any Notional Fund that
has previously been designated by a Participant as a notional investment shall
cease to exist or shall be unavailable for any reason, or if the Participant
fails to designate one or more Notional Funds pursuant to this Section 4.2, the
Committee may, at its discretion and upon notice to the Participant, treat any
amounts notionally invested in such Notional Fund (whether representing past
amounts credited to a Participant's Deferred Compensation Account or subsequent
deferrals or both) as having been invested in any such Notional Fund as the
Committee may from time to time designate, in all cases only until such time as
the Participant shall have made another investment election in accordance with
the foregoing procedures. Deferred Compensation Accounts shall continue to be
adjusted for notional investment experience until distributed in full in
accordance with the distribution method elected by the Participant pursuant to
Article VI hereof.
ARTICLE V
Vesting
Section 5.1 A Participant shall be fully vested at all times in his Deferred
Compensation Account for any Plan Year.
ARTICLE VI
Payment of Deferred Compensation; Withdrawals
Section 6.1 Subject to the limitations set forth in Section 6.4, at the time a
Key Employee first elects to become a Participant in the Plan, he shall elect in
writing to the Committee, on a form attached hereto, to have the portion of his
Deferred Compensation Account which is attributable to deferrals of Salary and
Bonus and earnings credited thereon paid either:
(A) In a lump sum or in such number of Installments as are indicated on
such election;
(B) On (or, in the case of Installments, commencing on) any date on or
after such Participant's Separation from Service, but not later than two years
following the date of such Separation from Service. This distribution shall be
subject to Section 2.3 hereof providing the Separation from Service is a result
of termination for cause.
<PAGE>
Section 6.2 Further, at the time a Key Employee first elects to become a
Participant in the Plan, he shall elect in writing delivered to the Committee,
on the form attached hereto, to have the portion of his Deferred Compensation
Account attributable to (i) dividend and capital gain distributions of
investments in Notional Funds which, in the aggregate on a per share basis,
exceed four (4%) of the per share value of the respective fund as of the current
year-end and (ii) realized gains resulting from the liquidation of investment(s)
in Notional Funds:
(A) Distributed by the Company to the Participant in the same Plan Year, OR
(B) Held in his Deferred Compensation Account less twenty percent (20%) of such
amounts (or a percentage equal to the Company's current income tax rate, if
greater) which will be retained by the Company to pay estimated current income
taxes payable on the dividends and taxable capital gains.
Section 6.3 Amounts retained by the Company to pay estimated current income
taxes on dividends and taxable gains shall be credited to the Participants
Deferred Compensation Account as a non-invested balance and such amounts shall
be distributed in full to the Participant in accordance with regular
distribution election as provided for in Section 6.1 above. Such non-invested
balances shall not accrue any interest nor earnings and shall be the last
amounts distributed to the Participant in any distribution.
Section 6.4 Notwithstanding anything herein to the contrary, (i) in the case of
an election for a lump-sum distribution, such distribution shall be made in full
not later than December 31, 2004 and (ii) in the case of an election for a
distribution in Installments such Installments shall commence not later than
December 31, 2002.
Section 6.5 Notwithstanding anything herein to the contrary, in the case of an
election for distribution in Installments, if initially the portion of a
Participant's Deferred Compensation Account which is attributable to deferrals
of Salary and Bonus and earnings credited thereon is less than $50,000, the
number of Installments elected by the Participant shall be adjusted to not more
than eight (8) semi-annual distributions; and if initially the portion of his
Deferred Compensation Account which is attributable to deferrals of Salary and
Bonus and earnings credited thereon is less than $25,000, the number of
Installments elected by the Participant shall be adjusted to not more than four
(4) semi-annual distributions, in each case commencing on the designated
commencement date.
Section 6.6 The election made by a Participant pursuant to Section 6.1 and
Section 6.2 may not be changed unless the Committee specifically consents to
such a change in its sole discretion.
Section 6.7 If a Participant fails to deliver to the Committee a timely payment
election in accordance with procedures established by the Committee and on the
form provided by the Committee, a Participant shall have the amount credited to
his Deferred Compensation Account paid to him in a single lump sum on a date
which is within six-months following his Separation from Service.
Section 6.8 Plan payments shall be considered cash compensation to the
Participant when paid, subject to all applicable federal, state and local income
taxes and withholding; and at the election of the Participant the distribution
shall be made in like-kind.
Section 6.9 Amounts paid under the Plan shall not be eligible for further
deferral under the Plan.
Section 6.10 If a Participant dies, at the request of his Beneficiary, the
Beneficiary shall be entitled to receive, as soon as administratively
practicable after the date of the Participant's death, the payment of his
Deferred Compensation Account in a lump-sum payment, less any applicable
federal, state and local income taxes and withholding, if any.
<PAGE>
Section 6.11 Notwithstanding anything herein to the contrary, a Participant may
request and receive a hardship distribution, provided the Participant is able to
demonstrate, to the satisfaction of the Committee in their sole discretion, that
he has suffered a Financial Hardship. A hardship distribution request must be
made on the form provided by the Committee and is subject to the rules
established by the Committee governing hardship distributions. The amount
distributed cannot exceed the lesser of (a) the Participant's Deferred
Compensation Account, or (b) the amount necessary to satisfy the Participant's
Financial Hardship. No hardship distribution may be made prior to the time the
Committee approves the distribution.
Section 6.12 All payments shall be subject to the provisions of Section 10.4
hereof.
Section 6.13 Any payment made to a Participant or his Beneficiary or estate
pursuant to the terms of the Plan shall constitute a complete discharge of the
obligations of the Company and the Committee with respect thereto.
ARTICLE VII
Funding
Section 7.1 The Board of Directors of the Company shall cause the Trust to be
created, shall appoint the Trustee and shall authorize the appropriate officers
of the Company to execute all necessary trust agreements and other instruments
necessary there- for; provided, however, that (i) the terms of the Trust shall
be consistent with the status of the Plan as "unfunded" for purposes of ERISA
and (ii) the Trust shall conform to the terms of the model grantor trust
contained in Revenue Procedure 92-64,1992-33 I.R.B. 11.
Section 7.2 Not later than ten (10) days following each quarter on which amounts
are credited to Deferred Compensation Accounts, the Company shall contribute to
the Trust cash equal to the amounts so credited.
Section 7.3 At each time payment of all or a portion of each Participant's
Deferred Compensation Account is due pursuant to an election made in accordance
with Article II (or pursuant to the death of a Participant in accordance with
Section 6.6), the Committee shall instruct the Trustee to distribute cash from
the Trust directly to such Participant or his Beneficiary in an amount equal to
the portion of his Deferred Compensation Account which is so payable. In the
absence of such an instruction to the Trustee by the Committee, a Participant
may directly instruct the Trustee to make such distribution, and the Trustee
shall do so if it determines that such distribution is in accordance with the
Participant's Article II election. If the Trustee fails to make any distribution
from the Trust required hereunder, the Company shall make such distribution
directly to the Participant entitled thereto from its general assets. If any
payment is made to a Participant by the Company pursuant to the preceding
sentence, the Participant shall be deemed to have assigned to the Company his
rights to receive such payment from the Trust, and the Company shall be
subrogated to all rights of the Participant therein.
ARTICLE VIII
Administration
Section 8.1 The Plan shall be administered by a three member Committee appointed
by the Board which shall consist of one member of the Compensation Committee of
the Board, the Chief Executive Officer of the Company and the individual
designated as the administrator.
Section 8.2 The complete authority to control and manage the operation and
administration of the Plan and the responsibility for carrying out its
provisions is vested in the Committee.
<PAGE>
Section 8.3 The Committee shall from time to time establish rules of
administration and interpretation of the Plan. The determination of the
Committee as to any disputed questions shall be conclusive and binding on all
parties, including the Participant, his Beneficiary, the Company and each
Employer.
Section 8.4 Any act which the Plan authorizes or requires the Committee to do
may be done by a majority of its members. The action of such majority, expressed
by a vote at a meeting or in writing without a meeting, shall constitute the
action of the Committee and shall have the same effect for all purposes as if
assented by all members of the Committee.
Section 8.5 The members of the Committee may authorize one or more of their
members to execute or deliver any instrument, make any payment or perform any
other act which the Plan authorizes or requires the Committee to do.
Section 8.6 The Committee may employ counsel and other agents and may procure
such clerical, accounting, and other services as they may require in carrying
out the provisions of the Plan. No member of the Committee shall receive any
compensation for his services as such. All expenses of administering the Plan,
including but not limited to, fees of accountants and counsel, shall be paid by
the Company up to $10,000 annually and any other costs are to be paid by the
Plan by prorating the amount to the individual Participants based on aggregate
investment in the Plan of each.
Section 8.7 The Company shall indemnify and save harmless each member of the
Committee against all expenses and liabilities arising out of membership on the
Committee, excepting only expenses and liabilities arising from his own gross
negligence or willful misconduct, as determined by the Board of Directors.
ARTICLE IX
Amendment and Termination
Section 9.1 The Company, by action of the Committee, may at any time or from
time to time modify or amend any or all of the provisions of the Plan or may at
any time terminate the Plan; provided, however, that no action taken shall
adversely affect the rights of any Participant hereunder to amounts due and
payable to such Participant at the time such action is taken, unless the
Participant otherwise consents thereto.
<PAGE>
ARTICLE X
General Provisions
Section 10.1 No Participant, Key Employee or employee of the Company or any
Employer shall have any right to any payment or benefit hereunder except to the
extent provided in the Plan.
Section 10.2 The employment rights of any Participant shall not be enlarged,
guaranteed or affected by reason of any of the provisions of the Plan.
Section 10.3 Assignment, pledge or other encumbrance of any payments or benefits
under the Plan shall not be permitted or recognized and to the extent permitted
by law, no such payments or benefits shall be subject to legal process or
attachment for the payment of any claim of any person entitle to receive the
same.
Section 10.4 The Company shall have the right to retain or to use any amounts
payable under the Plan to satisfy or otherwise offset amounts the Participant
owes to the Company.
Section 10.5 If the Committee determines that any person to whom a payment is
due hereunder is a minor or incompetent by reason of physical or mental
disability, the Committee shall have the power to cause the payments then due to
such person to be made to another for the benefit of the minor or incompetent,
without responsibility of the Company or the Committee to see to the application
of such payment, unless claim prior to such payment is made therefor by a duly
appointed legal representative. Payments made pursuant to such power shall
operate as a complete discharge of the Company and the Committee.
Section 10.6 The validity of the Plan or any of its provisions shall be
determined under, and it shall be construed and administered according to the
laws of the state in which the administrative offices of the Company are
maintained, which currently is South Carolina. In the event of a dispute which
results in a Participant or Beneficiary filing suit against the Company,
Employer, Board of Directors, Committee or officers of the Company, the
Participant shall have agreed that the party which the decision is rendered
against shall pay the legal expenses of the prevailing party. Further, the
Participant shall waive his right to a jury trial.
Section 10.7 Each Participant may designate, in writing and on a form provided
by the Committee, any person(s) or legal entity(ies), including his estate, as
his Beneficiary under the Plan; provided, however, that a Participant may
designate a trust as his Beneficiary only with the prior written approval of the
Committee. A Participant may at any time revoke his designation of a Beneficiary
or change his Beneficiary at any time prior to his death by delivering to the
Committee the appropriate beneficiary designation form. If no person or legal
entity shall be designated by a Participant as his Beneficiary or if no
designated Beneficiary survives him, his Beneficiary shall be his estate. To be
effective, any designation or revocation of Beneficiary must be on the
appropriate form provided by the Committee and on file with the Committee prior
to the date of the Participant's death. The provisions of the Plan shall be
binding on the Participant, the Company, and their respective heirs, executors,
administrators, successors and assigns.
<PAGE>
ADOPTED, this 30th day of December 1997, by the unanimous vote of the Committee
of the Hampshire Group, Limited Voluntary Deferred Compensation Plan for
Directors and Executives.
/s/ Ludwig Kuttner
- -----------------------
Ludwig Kuttner
Chairman
/s/ Harvey L. Sperry
- -----------------------
Harvey L. Sperry
/s/ Charles W. Clayton
- -----------------------
Charles W. Clayton
Secretary
<PAGE>
Exhibit I
HAMPSHIRE GROUP, LIMITED
VOLUNTARY DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND EXECUTIVES
ELECTION FORM of ________________________ _________________
(Name of Participant) (Social Security No.)
In accordance with and subject to the Hampshire Group, Limited Voluntary
Deferred Compensation Plan (the "Plan"), I hereby request to defer the receipt
of compensation as follows commencing for the Plan Year beginning January 1,
19____ , and each succeeding Plan Year until I deliver written notice to the
Committee specifying change(s) or revocation.
A. Amount to be Deferred: (not less than 5%, nor more than 30%)
Salary ____ % Bonus ____%
Annual Director Fees ____%
B. Notional Fund for Investment:__________________________________ ____%
(not less than 40% in any funds) ______________________________ ____%
C. Form of Distribution for Salary and Bonus Deferral:
___ Lump sum (not later than two years following Separation from Service
or December 31, 2004) or
____ Semi-annual Installments (not to exceed 8 years): _____ Years
D. Period of Deferral for Salary and Bonus:
Date on which payment should be made or commence: _____________________
(Not later than two years following Separation from Service. Installment
distributions must commence by December 31, 2002; lump sum distributions
must be made on or before December 31, 2004.)
NOTE: Once you have selected a Period of Deferral for Salary and Bonus, it will
apply to all subsequent deferrals and may not be changed without the specific
written consent of the Committee. If you do not select a specific date, payment
will be made or commence upon Separation from Service. Deferrals of Qualified
Stock Equivalents will be paid to you in accordance with your deferral and
distribution elections made under the Stock Purchase Plan.
E. Form of Distribution for Dividends and Gains:
_____ Lump sum in current Plan Year or
_____ Held in the Participant's Deferred Compensation Account less 20% (or
and amount equal to the Company's current tax rate, if greater) returned to
the Company for current taxes, until regular distribution.
Initial ______
<PAGE>
F. Designation of Beneficiary:
I hereby designate the following as my beneficiary(ies) in the event of my death
prior to receipt of all amounts credited to my Deferred Compensation Account, to
be paid in a lump sum.
___________________________________________ ____-___-_____ ___%
Primary Beneficiary Name Social Security No.
Address _____________________________________________
_____________________________________________
___________________________________________ ____-___-_____ ___%
Primary/Contingent Beneficiary Name Social Security No.
Address _____________________________________________
_____________________________________________
___________________________________________ ____-___-_____ ___%
Contingent Beneficiary Name Social Security No.
Address ________________________________________________
________________________________________________
A Participant should contact his tax advisor prior to making an election to
defer compensation and should be and should make their deferral decision based
exclusively on the professional advise of such independent advisor and not on
the advise of any member of the Board or the Plan Committee.
I acknowledge that I have received a copy of the Plan and have read it and
understand its terms. I have consulted a professional tax advisor in respect to
my decision to defer compensation under the Plan or I am professionally
qualified to understand the financial consequences of my deferral election and
my investment election.
I hereby agree that if there is a dispute which results in a lawsuit, that I
will pay the legal expenses of the prevailing party. Further, I hereby waive my
right to a jury trial.
Further, I understand that, in the event of my death prior to receipt of all
amounts payable to me pursuant to the Plan, all amounts credited to my Deferred
Compensation Account will be paid to my designated Beneficiary in the form of a
lump sum payment at the request of the Beneficiary.
I understand that this election will remain in effect for future years unless I
deliver a new election, or a revocation of this election, to the Committee by
December 15th preceding the Plan Year I wish such new election or revocation to
be effective.
Signed at _________________ this ____ day of ______________ , 19___ .
________________________________________ ______________________________
Signature of Participant Signature of Witness
Address ________________________________
________________________________
1This definition, along with the hardship distribution clause in Section 6.7,
constitute the IRS's view of allowable hardship distributions from non-qualified
deferred compensation plans.
STATE OF SOUTH CAROLINA )
) LEASE AGREEMENT
COUNTY OF ANDERSON )
THIS LEASE, made and entered into this first day of May, 1994, by and between
COMMERCE CENTER ASSOCIATES, INC., a South Carolina corporation, hereinafter
called "Owner", and HAMPSHIRE DESIGNERS, INC., a corporation organized and
existing under the laws of the State of Delaware, hereinafter called "Tenant".
WITNESSETH
1. Owner is the owner of a tract of land consisting of approximately 4.35
acres and improvements thereon located on By-Pass 28, Commerce Center
Subdivision, Anderson County, South Carolina.
2. Owner hereby leases to Tenant, and Tenant hereby leases and takes, upon
the terms, conditions and covenants hereinafter set forth approximately 10,500
square feet of space in the building on said lot, being the total square
footage.
3. Owner further grants to Tenant all space on the exterior of the
building, including all parking spaces for automobiles at the front and rear of
the building and together with rights of use for all driveways furnishing access
to the building and to the parking spaces.
4. To have and to hold the leased premises unto Tenant for a term of seven
years and zero months commencing on the first day of May, 1994 and ending on
April 30, 2001, unless sooner terminated as hereinafter provided.
5. Improvements to the premises, above the basic building described in the
plans and specifications, above referenced, will be designed and completed by
Owner, in accordance with the specifications of Tenant, and subject to his
approval. Owner will submit to Tenant an itemization of the desired
improvements, including the price of said improvements, for Tenant's approval
and acceptance. The cost of improvements will be the expense of Tenant.
6. Tenant hereby covenants and agrees to pay Owner on the first day of each
month, in advance, at its principal offices, or at such other place as Owner may
from time to time designate, as rent for the premises during the continuance of
this Lease, as shown on the following schedule:
Amount Amount
Term Monthly Annually
------- ----------- -----------
5/1/94 - 4/30/95 4,883 58,596
5/1/95 - 4/30/96 5,078 60,936
5/1/96 - 4/30/97 5,281 63,372
5/1/97 - 4/30/98 5,492 65,904
5/1/98 - 4/30/99 5,712 68,544
5/1/99 - 4/30/00 5,941 71,292
5/1/00 - 4/30/01 6,178 74,136
7. All real estate taxes and increases thereof, are the total
responsibility of the Tenant.
<PAGE>
8. Tenant shall carry fire and casualty insurance on the structure in an
amount not less than $500,000.
9. Owner shall have no further responsibility for repairs or maintenance of
the leased premises, including, but not limited to the mechanical system for
heating, ventilating, and air conditioning, plumbing and electrical equipment,
other than items in warranty. Tenant agrees that it will at its own expense keep
and maintain the building including plumbing, heating and air conditioning
equipment in good working order and repair during the term of the Lease.
10. It is understood and agreed that the Tenant shall not make or suffer to
be made any alterations or additions to said building unless it first obtained
the written consent of the Owner.
11. Tenant shall have the right to place signs or other advertising devices
on the building or premises provided that such signs complies in all respects
with laws and municipal ordinances relating thereto, and upon approval of Owner,
which approval shall not be unreasonably withheld. Upon termination of this
Lease or any extension thereof, the Tenant agrees to remove such signs, and
other devices and to repair any and all damage the signs, their installation or
removal may have caused.
12. Tenant, at its sole expense, shall comply with all laws, orders and
regulations of federal, state and municipal authorities, and with any directions
of any public officer, pursuant to law, which shall impose any duty upon the
Owner or the Tenant with respect to the leased premises. Tenant, at its sole
expense, shall obtain all licenses or permits which may be required for the
conduct of its business within the terms of this Lease, or for the making of
repairs, alterations, improvements or additions, and the Owner, when necessary,
will join the Tenant in applying for such permits or licenses.
13. Tenant, at its sole cost and expense, will maintain public liability
and property damage insurance applicable to the leased premises in a minimum
amount of $1,000,000. It shall be Tenant's sole responsibility to provide
whatever adequate insurance coverage is deemed proper for any goods, equipment,
furnishings, and fixtures installed for Tenant, or occupying the demised
premises.
14. The Tenant shall pay all charges for gas, electricity, light, heat,
power and telephone, or other communication service used, rendered, or supplied
upon or in connection with the leased premises and shall indemnify the Owner
against any liability or damages on such account.
15. The Tenant shall, on the last day of the term or upon the sooner
termination, peaceably and quietly surrender the leased premises to the Owner in
as good condition and repair as at the commencement of the term and as any new
buildings, structures, replacements, or additions or improvements constructed,
erected, added or placed thereon or when completed with the natural wear and
tear thereof excepted.
16. All signs, moveable equipment, and trade fixtures which shall be placed
or installed in or on the leased premises shall remain the property of the
Tenant which shall have the right to remove same in ten (10) days after the
termination of this Lease, provided Tenant shall not be in default hereunder and
provided further, that Tenant shall repair or reimburse the Owner for the cost
of repair of any and all damage resulting to the leased premises from the
removal of such equipment. All other fixtures and equipment which are become and
remain the property of the Owner.
17. If any rent payable by Tenant shall remain unpaid for more than ten
(10) days after the same becomes due and payable, or if the Tenant shall violate
or default in any of the covenants or agreements herein set forth, and said
default continues for a period of twenty (20) days after written notice thereof,
Owner may at its option, declare the Lease terminated and take immediate
possession of the premises, or it may institute suit to enforce the lease
agreement, and in the latter event, Tenant shall be liable for all costs
incident of such action, including reasonable attorney's fees. If the Lease is
terminated as aforesaid, Owner shall release property if a new Lease is
obtainable and the Tenant shall continue liable for such loss as Owner may
sustain during the remaining life of said Lease, either by way of loss or rents
or expenses, including, but not limited to redecorating and commissions incident
to any releasing.
<PAGE>
18. The Tenant, upon the payment of the rents herein reserved and upon the
performance of all terms of this Lease, shall at all times during the Lease term
peaceably and quietly enjoy the leased premises without any disturbance from
Owner and from any other person claiming through Owner.
19. This Lease Agreement shall be construed under the laws of the State of
South Carolina.
20. No waiver of any condition or legal right or remedy shall be implied by
the failure of Owner to declare a forfeiture, or for any other reason, and no
waiver of any condition or covenant shall be valid unless it be in writing
signed by Owner.
21. The covenants and agreements herein contained shall be binding upon and
inure to the benefits of the parties hereto and their respective heirs,
successors, and assigns.
22. This Lease and the exhibits attached hereto and forming a part hereto,
set forth all of the covenants, promises, agreements, conditions, and
understandings between Owner and Tenant concerning the demised premises, and
there are no covenants, promises, agreements, conditions, or understandings
either oral or written, express or implied, between them other than are herein
set forth. Except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to the Lease shall be binding upon Tenant and
Owner unless reduced to writing and signed by both parties. The Tenant agrees
that the Owner and its agents have made to representations or promises with
respect to the premises or the building or property of which the same are a part
except as herein expressly set forth.
23. If any provision of this Agreement be determined to be invalid by any
court of competent jurisdiction, the remaining portions of this Agreement shall
nevertheless remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
COMMERCE CENTER ASSOCIATES, INC.
- ------------------------------ ----------------------------------
/s/ Lanna West By: /s/ Charles W. Clayton
Witness Its: President
HAMPSHIRE DESIGNERS, INC.
- ------------------------------ ----------------------------------
/s/ Tony Lamar Charping By: /s/ H. Edward Hurley
Witness Tenant
STATE OF SOUTH CAROLINA )
) LEASE AGREEMENT
COUNTY OF ANDERSON )
THIS LEASE, made and entered into this first day of May 1994, by and between
COMMERCE CENTER ASSOCIATES, INC., a South Carolina corporation, hereinafter
called "Owner", and HAMPSHIRE DESIGNERS, INC., a corporation organized and
existing under the laws of the State of Delaware, hereinafter called "Tenant".
WITNESSETH
1. Owner is the owner of a tract of land consisting of approximately 5.5
acres and improvements thereon located on New Court Road, Commerce Center
Subdivision, Anderson County, South Carolina.
2. Owner hereby leases to Tenant, and Tenant hereby leases and takes, upon
the terms, conditions and covenants hereinafter set forth approximately 57,000
square feet of space in the building on said lot, being the total square
footage.
3. Owner further grants to Tenant all space on the exterior of the
building, including all parking spaces for automobiles at the front and rear of
the building and together with rights of use for all driveways furnishing access
to the building and to the parking spaces.
4. To have and to hold the leased premises unto Tenant for a term of seven
years and zero months commencing on the first day of May, 1994 and ending on
April 30, 2001, unless sooner terminated as hereinafter provided.
5. Improvements to the premises, above the basic building described in the
plans and specifications, above referenced, will be designed and completed by
Owner, in accordance with the specifications of Tenant, and subject to his
approval. Owner will submit to Tenant an itemization of the desired
improvements, including the price of said improvements, for Tenant's approval
and acceptance. The cost of improvements will be the expense of Tenant.
6. Tenant hereby covenants and agrees to pay Owner on the first day of each
month, in advance, at its principal offices, or at such other place as Owner may
from time to time designate, as rent for the premises during the continuance of
this Lease, as shown on the following schedule:
Amount Amount
Term Monthly Annually
------- ----------- ----------
5/1/94 - 4/30/95 10,114 121,368
5/1/95 - 4/30/96 10,519 126,228
5/1/96 - 4/30/97 10,939 131,268
5/1/97 - 4/30/98 11,377 136,524
5/1/98 - 4/30/99 11,832 141,984
5/1/99 - 4/30/00 12,305 147,660
5/1/00 - 4/30/01 12,797 153,564
7. Real estate taxes and increases thereof, are the total responsibility of
the Tenant.
8. Tenant shall carry fire and casualty insurance on the structure in an
amount not less than $1,400,000.
9. Owner shall have no further responsibility for repairs or maintenance of
the leased premises, including, but not limited to the mechanical system for
heating, ventilating, and air conditioning, plumbing and electrical equipment,
other than items in warranty. Tenant agrees that it will at its own expense keep
and maintain the building including plumbing, heating and air conditioning
equipment in good working order and repair during the term of the Lease.
<PAGE>
10. It is understood and agreed that the Tenant shall not make or suffer to
be made any alterations or additions to said building unless it first obtained
the written consent of the Owner.
11. Tenant shall have the right to place signs or other advertising devices
on the building or premises provided that such signs complies in all respects
with laws and municipal ordinances relating thereto, and upon approval of Owner,
which approval shall not be unreasonably withheld. Upon termination of this
Lease or any extension thereof, the Tenant agrees to remove such signs, and
other devices and to repair any and all damage the signs, their installation or
removal may have caused.
12. Tenant, at its sole expense, shall comply with all laws, orders and
regulations of federal, state and municipal authorities, and with any directions
of any public officer, pursuant to law, which shall impose any duty upon the
Owner or the Tenant with respect to the leased premises. Tenant, at its sole
expense, shall obtain all licenses or permits which may be required for the
conduct of its business within the terms of this Lease, or for the making of
repairs, alterations, improvements or additions, and the Owner, when necessary,
will join the Tenant in applying for such permits or licenses.
13. Tenant, at its sole cost and expense, will maintain public liability
and property damage insurance applicable to the leased premises in a minimum
amount of $1,000,000. It shall be Tenant's sole responsibility to provide
whatever adequate insurance coverage is deemed proper for any goods, equipment,
furnishings, and fixtures installed for Tenant, or occupying the demised
premises.
14. The Tenant shall pay all charges for gas, electricity, light, heat,
power and telephone, or other communication service used, rendered, or supplied
upon or in connection with the leased premises and shall indemnify the Owner
against any liability or damages on such account.
15. The Tenant shall, on the last day of the term or upon the sooner
termination, peaceably and quietly surrender the leased premises to the Owner in
as good condition and repair as at the commencement of the term and as any new
buildings, structures, replacements, or additions or improvements constructed,
erected, added or placed thereon or when completed with the natural wear and
tear thereof excepted.
16. All signs, moveable equipment, and trade fixtures which shall be placed
or installed in or on the leased premises shall remain the property of the
Tenant which shall have the right to remove same in ten (10) days after the
termination of this Lease, provided Tenant shall not be in default hereunder and
provided further, that Tenant shall repair or reimburse the Owner for the cost
of repair of any and all damage resulting to the leased premises from the
removal of such equipment. All other fixtures and equipment which are become and
remain the property of the Owner.
17. If any rent payable by Tenant shall remain unpaid for more than ten
(10) days after the same becomes due and payable, or if the Tenant shall violate
or default in any of the covenants or agreements herein set forth, and said
default continues for a period of twenty (20) days after written notice thereof,
Owner may at its option, declare the Lease terminated and take immediate
possession of the premises, or it may institute suit to enforce the lease
agreement, and in the latter event, Tenant shall be liable for all costs
incident of such action, including reasonable attorney's fees. If the Lease is
terminated as aforesaid, Owner shall release property if a new Lease is
obtainable and the Tenant shall continue liable for such loss as Owner may
sustain during the remaining life of said Lease, either by way of loss or rents
or expenses, including, but not limited to redecorating and commissions incident
to any releasing.
<PAGE>
18. The Tenant, upon the payment of the rents herein reserved and upon the
performance of all terms of this Lease, shall at all times during the Lease term
peaceably and quietly enjoy the leased premises without any disturbance from
Owner and from any other person claiming through Owner.
19. This Lease Agreement shall be construed under the laws of the State of
South Carolina.
20. No waiver of any condition or legal right or remedy shall be implied by
the failure of Owner to declare a forfeiture, or for any other reason, and no
waiver of any condition or covenant shall be valid unless it be in writing
signed by Owner.
21. The covenants and agreements herein contained shall be binding upon and
inure to the benefits of the parties hereto and their respective heirs,
successors, and assigns.
22. This Lease and the exhibits attached hereto and forming a part hereto,
set forth all of the covenants, promises, agreements, conditions, and
understandings between Owner and Tenant concerning the demised premises, and
there are no covenants, promises, agreements, conditions, or understandings
either oral or written, express or implied, between them other than are herein
set forth. Except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to the Lease shall be binding upon Tenant and
Owner unless reduced to writing and signed by both parties. The Tenant agrees
that the Owner and its agents have made to representations or promises with
respect to the premises or the building or property of which the same are a part
except as herein expressly set forth.
23. If any provision of this Agreement be determined to be invalid by any
court of competent jurisdiction, the remaining portions of this Agreement shall
nevertheless remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMMERCE CENTER ASSOCIATES, INC.
- ----------------------------- ------------------------------
/s/ Lanna West By: /s/ Charles W. Clayton
Witness Its: President
HAMPSHIRE DESIGNERS, INC.
- ----------------------------- ------------------------------
/s/ Tony Lamar Charping By: /s/ H. Edward Hurley
Witness Tenant
MAIN BUILDING
LEASE
BETWEEN
LESLIE R. WOODWORTH AND ELLIE WOODWORTH, husband and wife,
PHYLLIS WOODWORTH, a single person, and
JOHN F. WOODWORTH AND BETTY WOODWORTH, husband and wife
LESSOR,
AND HAMPSHIRE DESIGNERS, INC.
LESSEE,
PREMISES: 902 EAST SECOND STREET
WINONA, MINNESOTA
LEASE DATE: OCTOBER 10, 1995
LEASE
THIS LEASE (this "Lease"), dated as of the 10th day of October, 1995, is
made by and between LESLIE R. WOODWORTH ("LW") and ELLIE WOODWORTH ("EW"),
husband and wife, having an address at 1304-A McNally Drive, Winona, Minnesota
55987, PHYLLIS WOODWORTH, a single person, having an address at Rural Route 3,
Box 49, Winona, Minnesota 55987, and JOHN F. WOODWORTH ("JW") and BETTY
WOODWORTH ("BW"), husband and wife, having an address at 1673 Clubview Road,
Winona, Minnesota 55987 (collectively, "Lessor") and HAMPSHIRE DESIGNERS, INC.,
a corporation organized under the laws of the State of Delaware having an
address at P.O. Box 2667, 215 Commerce Boulevard, Anderson, South Carolina 29622
("Lessee").
RECITALS
A. Lessor is the owner of the Demised Premises (hereinafter defined).
B. On the date hereof, the Winona Knitting Mills, Inc. (the "Company"),
Pete and Joyce Woodworth and Hampshire Group, Limited ("Hampshire") are entering
into that certain Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which the Company is being merged into Hampshire in accordance with the terms
thereof.
C. In connection with the Merger Agreement, Lessor desires to lease to
Lessee, and Lessee desires to lease from Lessor, the Demised Premises.
NOW, THEREFORE for good and valuation consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee agree as
follows:
ARTICLE I - Premises
1.1. Demised Premises. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, for the Term (hereinafter defined), at the rental, and upon
all of the Term covenants and conditions set forth herein, the following
(collectively, the "Demised Premises"):
(a) that certain real property located in the County of Winona, State
of Minnesota, commonly known as 902 East Second Street, Winona, Minnesota
and described in Exhibit A attached hereto and made a part hereof, together
with any buildings and improvements now or hereafter located therein or
thereon (collectively, the "Real Property");
<PAGE>
(b) all right, title and interest, if any, of Lessor in and to any
land lying in the bed of any street, road or avenue, open or proposed, in
front of or adjoining the Real Property to the center line;
(c) all right, title and interest, if any, of Lessor in and to any
strips and gores of land adjacent to, abutting, or used in connection with
the Real Property, and in and to easements, if any, ensuring to the benefit
of the Real Property or the fee owner;
(d) any appurtenances and hereditaments belonging or in any wise
appertaining to the Real Property; and
(e) any and all personal property located at the Real Property owned
by Lessor and used in connection with the operation of the Real Property as
a manufacturing and/or warehouse facility; and
(f) any and all leases, tenancies and occupancy agreements in any way
affecting the Real Property.
ARTICLE II - Term
2.1. Initial Term. The term of this Lease (as the same may be extended, the
"Term") shall commence on the date hereof (the "Commencement Date") and shall
continue until the third anniversary of the last day of the calendar month in
which the date of this Lease occurs (the "Initial Term").
2.2 Renewal Options.
(a) Lessee shall have the option to extend the Term on all of the
terms and provisions contained in this Lease, except for the payment of
Rent, for a three year renewal term (the "First Renewal Term") following
the expiration of the Initial Term of this Lease, by giving written notice
to Lessor of the exercise of this option to extend the Term not later than
135 days prior to the expiration of the Initial Term.
(b) Lessee shall have the option to extend the Term on all of the
terms and provisions contained in this Lease, except for the payment of
Rent, for a three year renewal term (the "Second Renewal Term") following
the expiration of the First Renewal Term of this Lease, by giving written
notice to Lessor of the exercise of this option to extend the term not
later than 135 days prior to the expiration of the First Renewal Term.
(c) Lessee shall have the option to extend the Term on all of the
terms and provisions contained in this Lease, except for the payment of
Rent, for a three year renewal term (the "Third Renewal Term") following
the expiration of the Second Renewal Term of this Lease, by giving written
notice to Lessor of the exercise of this option to extend the Term no later
than 135 days prior to the expiration of the Second Renewal Term.
ARTICLE III - Rent
3.1. Fixed Rent
(a) The term "Lease Year" shall mean each 12-month period commencing
on the day immediately succeeding the end of the previous Lease Year. The
initial Lease Year shall commence on the Commencement Date and shall end on
the first anniversary of the last day of the month in which the date of
this Lease occurs. Lessee shall, during the Term, pay to Lessor at such
place as Lessor shall designate in writing, from time to time, and, except
as expressly provided herein, without offset, counterclaim, defense or
demand therefor, the following annual minimum rentals (hereinafter, the
"Fixed Rent"):
<PAGE>
(i) during the initial Lease Year, $57,000 per annum; and
(ii) during each succeeding Lease Year (including, without
limitation, any Lease Year occurring during any renewal term
hereunder), an amount per annum which equals (x) the Fixed Rent for
the preceding Lease Year plus (y) 4% of the Fixed Rent for the
preceding Lease Year.
(b) The Fixed Rent shall be payable monthly in advance on the first
day of each month, in equal monthly installments equal to one-twelfth
(1/12) of the Fixed Rent.
(c) Fixed Rent for any period during the Term which is for less than
one calendar month shall be prorated based on the number of calendar days
in such calendar month that falls within the Term.
3.2 Additional Rent. Lessee shall, during the Term, pay to Lessor at such place
as Lessor shall designate in writing, from time to time, and, except as
expressly provided herein, without offset, counterclaim, defense or demand
thereof, additional rent ("Additional Rent") consisting of all other sums of
money that become due from Lessee and payable to Lessor hereunder. Fixed Rent
and Additional Rent are hereinafter collectively referred to as "Rent".
ARTICLE IV - Use
The Demised Premises shall be used for manufacturing, warehousing, storage,
distributing, general office purposes and/or any other lawful purposes. Lessee
shall obtain, at its sole cost and expense, all licenses, approvals and permits
required for Lessee's use and occupancy of the Demised Premises. Lessee shall
not use or permit the use of the Demised Premises, in violation of an applicable
law, statute, ordinance, code, rule, regulation order or decree, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, the Resource Conservation and Recovery Act, and so-called
"Superfund" or "Superlien" law, or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous, toxic
or dangerous waste, substance or material, as now or at any time hereafter in
effect.
ARTICLE V - Compliance With Law
5.1. Lessee Compliance. Lessee shall, at Lessee's expense, promptly comply
with all applicable laws, statutes, ordinances, rules, regulations and orders of
all federal, state, municipal and local governmental authorities having
jurisdiction (collectively, "Governmental Laws") over the Demised Premises
relating to the Demised Premises in effect during the Term or any part of the
Term regulating the use by Lessee of the Demised Premises.
5.2. Contests. Lessee shall have the right, to the extent permitted by law, at
its own expense to contest the validity and/or applicability of any Governmental
Laws relating the Demised Premises by appropriate proceedings diligently
conducted in good faith, and, notwithstanding the provisions of Paragraph 5.1
hereof, Lessee's compliance with such contested Governmental Laws may be
postponed or deferred during the pendency of such proceeding so long as neither
the Demised Premises nor any part thereof would, by reason of such noncompliance
be, in the reasonable judgment of Lessor, in danger of being forfeited or lost
and Lessor shall not be subject to any criminal or civil liability.
ARTICLE VI - Condition of the Demised Premises
Lessee hereby agrees to accept the Demised Premises in accordance with the terms
of this Lease, subject to all Governmental Laws and restrictions of record
governing and regulating the use of the Demised Premises, and accepts this Lease
subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto.
<PAGE>
ARTICLE VII - Maintenance and Repairs
Lessee shall, at its expense, take good care of the Demised Premises, the
fixtures, and appurtenances therein and any of Lessee's trade fixtures,
furnishings, equipment and personal property (collectively, "Lessee's
Property"). Lessee shall be responsible for an shall promptly make all repairs,
interior and exterior, structural and nonstructural, ordinary and extraordinary,
in and to the Demised Premises. Lessee, at its expense, shall be responsible for
the repair, maintenance and replacement of all mechanical, electrical, sanitary,
heating, ventilating, air-conditioning and other fixtures and equipment in the
Demised Premises (the "Building System").
ARTICLE VIII - Surrender
On the last day of the Term, or on any sooner termination of this Lease,
Lessee shall surrender the Demised Premises to Lessor in the same condition as
when received by Lessee broom clean, ordinary wear and tear and damage due to
perils beyond the reasonable control of Lessee excepted. These perils include,
but are not limited to, fire, earthquake, flood, windstorm and other so-called
"acts of God", vandalism, malicious mischief, and sprinkler damage.
ARTICLE IX - Lessor's and Lessee's Rights
If either party fails to perform its obligations hereunder, the other may
at its option (but shall not be required to) put the same in good order,
condition and repair, upon thirty (30) days written notice to the non-performing
party (which written notice shall not be required in the case of an emergency)
and the cost thereof, together with interest thereon at the Lease Interest Rate
(as defined in Paragraph 21.3) shall become due and payable from the
non-performing party to the other party within ten (10) days after demand by the
performing party; provided, however, if the obligation of the non-performing
party is not capable of being performed within such thirty (30) day period and
if the non-performing party is diligently endeavoring to perform such
obligation, the performing party shall not perform such obligation. All such
work performed by the performing party shall be performed in a good and
workmanlike manner, in compliance with all Governmental Laws. Neither Lessee nor
Lessor shall perform any such work until such time as it has received all
necessary permits, licenses and approvals from the applicable state, county and
municipal governmental authorities having jurisdiction over the Demised Premises
("Governmental Authorities"). If either party performs any such work, such party
shall, at all times, keep the Demised Premises free of liens and encumbrances
for labor and materials.
ARTICLE X - Alterations and Improvements
10.1. Lessee Alterations. Lessee shall have the right, at its own cost and
expense, to make such alterations and changes in and to the Demised Premises as
it shall deem expedient or necessary for its purposes. All such work shall be
done in a good and workmanlike manner, and in accordance with all Governmental
Laws. Lessor shall execute and deliver upon request of Lessee such reasonable
instrument or instruments embodying the approval of Lessor which may be required
by any Governmental Authority for the purpose of obtaining any license, permit
or approval for the making of alterations or changes in, to or upon the Demised
Premises, Lessee agreeing to pay for any such license, permit or approval.
Lessee shall not make any alterations to the Demised Premises until such time as
it has received all required permits, licenses and approvals from the applicable
Governmental Authority.
10.2. Removal of Improvements.
(a) Any and all alterations, improvements and installations made by
Lessee in, to or upon the Demised Premises, as well as any fixtures
installed on the Demised Premises by Lessee ("Lessee Improvements"), at
Lessee's option, may be removed from the Demised premises at any time and
from time to time during the Term and shall remain the property of Lessee
during and at the expiration of the Term of this Lease, provided that, if
<PAGE>
any such alterations, improvements, installations and/or fixtures are
removed by Lessee, any damage caused by such removal shall be promptly
repaired by Lessee at its sole cost and expense. If, prior to or within
fifteen (15) days after the expiration or sooner termination of this Lease,
Lessor shall so direct by written notice to Lessee, the Lessee shall, upon
such expiration or sooner termination of this Lease, promptly remove such
Lessee Improvements as are designated in said notice and, at its sole cost
and expense, repair any damage caused by such removal, or, in default
thereof, Lessor may effect said removals and repairs, and Lessee shall pay
to Lessor, on demand, the reasonable cost thereof.
(b) Notwithstanding the provisions of subparagraph 10.2(a) hereof, all
electrical panels, wiring, lighting fixtures, heating, air conditioning and
plumbing fixtures, or replacements thereof, which may be installed by
either Lessor or Lessee upon the Demised Premises, shall be left upon and
be surrendered with the Demised Premises as a part thereof, at the
termination of this Lease.
ARTICLE XI - Insurance
11.1 Insurance Coverage.
(a) Lessee shall, at Lessee's cost and expense maintain the following
insurance issued in the names of Lessor and Lessee as their interests may
appear:
(i) a policy of standard fire and extended coverage insurance on
all buildings and improvements included in the Demised Premises with
vandalism and malicious mischief endorsements, to the extent of full
replacement value; and
(ii) a policy of general public liability insurance against
claims for personal injury or property damage, with such limits as may
be reasonably requested by Lessor from time to time, but not more than
Two Million Dollars ($2,000,000) in respect of bodily injury or death
and One Million Dollars ($1,000,000) for property damage.
(b) All such insurance policies shall provide that any proceeds shall
be made payable to Lessee in accordance with the terms of this Lease.
(c) All such insurance policies may, at the option of Lessee, be
effected by blanket and/or umbrella policies issued to Lessee covering the
Demised Premises and other properties owned or leased by Lessee or its
affiliates.
(d) Lessor shall not obtain or continue to maintain any separate or
additional insurance which is contributing in the event of loss unless it
is properly endorsed and otherwise satisfactory to Lessee in all respects.
11.2. Certificates. All insurance provided for under this Lease shall be
effected under valid enforceable policies issued by insurers of recognized
responsibility and who are reasonably acceptable to Lessor and licensed to do
business in the State of Minnesota. Such insurance may be carried by Lessee as a
part of blanket coverage for such insurance covering all premises owned or
leased by Lessee wherever located. Certificates of Insurance evidencing the
current existence of such coverage shall be delivered to Lessor at least ten
days prior to the expiration date of any policy. Renewal certificates shall be
delivered by Lessee to Lessor, together with satisfactory evidence of payment of
the premium on such policies. To the extent obtainable, all such policies shall
contain agreements by the insurers that such policies shall not be canceled
except upon thirty days' prior written notice to each named insured and loss
payee, including Lessor.
11.3. Adjustments. All policies of insurance required herein shall name Lessor
and Lessee as the insureds as their respective interest may appear. The loss, if
any, under said policies referred to in this Article 11 shall be adjusted with
the insurance companies by Lessee to the extent that Lessee is obligated to
repair or restore the Demised Premises pursuant to Article 12 hereof and by
Lessor in the event that Lessee is not so obligated to restore.
<PAGE>
11.4 Proceeds. All proceeds payable by reason of any loss or damage to the
Demised Premises, or any portion thereof, and insured under any policy of
insurance required by this Article 11 shall be paid to Lessee and shall be used
only for reconstruction or repair, as the case may be, of any damage to or
destruction of the Demised Premises, or any portion thereof. Any excess proceeds
of insurance remaining after the completion of the restoration or reconstruction
of the Demised Premises shall be retained by Lessor. In the event Lessee is not
required or does not elect to repair and restore, and this Lease expires or is
terminated, all such insurance proceeds shall be paid to and retained by Lessor.
11.5 Waiver of Subrogation Rights. The parties, for themselves and their
insurers, each release and relive the others, and waive their entire right to
recovery against the others, for loss or damage arising out of or incident to
the perils of fire, explosion, or any other peril described in the "extended
coverage" insurance endorsement approved for use in the State of Minnesota,
which occurs in, on, upon, or about the Demised Premises, whether due to the
negligence of any of the parties hereto or their against or employees or
otherwise, but only to the extent that such loss or damage is covered by and
actually paid pursuant to insurance policies covering such loss or damage.
ARTICLE XII - Damage or Destruction
12.1. Restoration. Subject to the provisions of Paragraph 12.2 hereof, Lessee
covenants that in the event of damage to all or a portion of the Demised
Premises by fire or any other cause, similar or dissimilar, insured or uninsured
(a "Casualty"), Lessee will promptly, at its sole cost and expense, restore or
repair the Demised Premises so damaged or destroyed as nearly as possible to the
condition it was in immediately prior to such Casualty, or with such changes or
alterations as Lessee shall elect to make in conformity with Article 10 hereof,
whether or not any costs or expenses of such restoration exceeds the amount of
the insurance proceeds received in connection with such damage or destruction.
Such restoration, shall be commenced promptly and prosecuted with reasonable
diligence, unavoidable delays excepted.
12.2. Termination Option. Notwithstanding the provisions of Paragraph 12.1
hereof, in the event that at any time during the Term all or a portion of the
Demised Premises are damaged to the extent that, in Lessee's reasonable
judgment, either (x) the cost of the necessary repairs or restoration would
exceed fifty percent (50%) of the estimated marked value of the Demised Premises
as determined by the Winona County Assessor's Office for the year in which such
damage shall have occurred or (y) the necessary repairs or restoration would not
be substantially completed within six (6) months from the date of said casualty,
Lessee may terminate this Lease upon delivery of written notice to Lessor within
sixty (60) days after the occurrence of the casualty causing such damage and
Lessee shall be released from any liability under this Lease accruing from and
after the date of Lessor's receipt of said notice. In the event that Lessee
terminates this Lease as provided in the immediately preceding sentence, all
insurance proceeds resulting from said casualty shall be paid to and retained by
Lessor.
ARTICLE XIII - Taxes
13.1. Impositions. Lessee covenants and agrees to pay or cause to be paid, as
hereinafter provided, to the Governmental Authority imposing the same, all of
the following items ("Impositions") not later than the date on which same are
due without the payment of any fines, penalties or interest: (a) real property
taxes and assessments assessed and levied against the Demised Premises or any
part thereof, (b) personal property taxes, (c) water, water meter and sewer
rents, rates and charges, and (d) fines, penalties and other similar or like
governmental charges applicable to the foregoing and any interest or costs with
respect thereto only to the extent such fines, penalties and other similar or
like governmental charges are incurred by reason of Lessee's wrongful act or
omission or Lessee's failure fully and promptly to comply with any provisions of
this Lease. Each such Imposition, or installment thereof, during the Term shall
be paid prior to the last day the same may be paid without fine, penalty,
interest or additional cost; provided, however, that if, by law, any Imposition
may at the option of the taxpayer be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same in such installments and shall be
responsible for the payment of such installments only.
<PAGE>
13.2. Evidence of Payment. If Lessee is paying any Imposition directly to the
Governmental Authority imposing the same, then Lessee, from time to time upon
the request of Lessor, shall furnish to Lessor, within the earlier of (i) thirty
(30) days after the date when such Imposition is due and payable under this
Lease, or (ii) thirty (30) days after the date when an official receipt of the
Governmental Authority imposing the same is received, such official receipt or,
if no such receipt has been received by lessee, other evidence reasonably
satisfactory to Lessor, evidencing the payment of the Imposition.
13.3 Excluded Taxes. Nothing herein contained shall require Lessee to pay
municipal, state or federal income, inheritance, estate, succession, transfer or
gift taxes of Lessor, or any corporate franchise tax imposed upon Lessor or any
gross income or gross receipts taxes to the extent the same are imposed on
Lessor in lieu of net income taxes or corporate franchise taxes.
13.4. Apportionments. Any Imposition, relating to a fiscal period of the
imposing Governmental Authority, a part of which period is included within the
Term and a part of which is included in a period of time before the Commencement
Date or after the expiration of the Term (whether or not such Imposition shall
be assessed, levied, confirmed, imposed upon or in respect of or become a lien
upon the Demised Premises, or shall become payable, during the Term) shall be
apportioned between Lessor and Lessee as of the Commencement Date or the date of
expiration of the Term, as the case may be, so that Lessee shall pay that
portion of such Imposition which that part of such fiscal period included in the
period of time after the Commencement Date and before the date of expiration of
the Term.
13.5. Contests
(a) Lessee shall have the right, to the extent permitted by law, at
its own expense to contest the amount or validity, in whole or in part, of
any Imposition by appropriate proceedings diligently conducted in good
faith, and, notwithstanding the provisions of Paragraph 13.1 hereof, the
payment of such contested Imposition may be postponed or deferred so long
as neither the Demised premises nor any part thereof, nor any part of the
rents, issues and profits thereof, would, by reason of such postponement or
deferment, be, in the reasonable judgment of Lessor, in danger of being
forfeited or lost and Lessor shall not be subject to any criminal or civil
liability.
(b) Lessee shall have the right, to the extent permitted by law, and
at Lessee's sole cost and expense, to seek a reduction in the valuation of
the Demised Premises assessed for real property tax purposes and to
prosecute any action or proceeding in connection therewith.
(c) Lessor shall not be required to join in any proceedings referred
to in Paragraphs 13.5(a) and (b) hereof unless the provisions of any law,
rule or regulation at the time in effect shall require that such
proceedings be brought by and/or in the name of Lessor, in which event,
Lessor shall join and cooperate in such proceedings or permit the same to
be brought in its name, but shall not be liable for the payment of any
costs or expenses in connection with any such proceedings and Lessee shall
reimburse Lessor for any and all reasonable costs or expenses which lessor
may sustain or incur in connection with any such proceedings.
ARTICLE XIV - Utilities and Services
14.1. Charges. Lessee will pay, or cause to be paid all charges for electricity,
power, gas, oil, water and other utilities used in connection with the Demised
Premises during the Term of this Lease
<PAGE>
14.2. No Services. Lessor shall not be obligated to furnish utilities or
services to the Demised Premises.
ARTICLE XV. - Assignment
15.1 Except as expressly permitted in this Lease, Lessee shall not voluntarily
or by operation of law assign all or any part of Lessee's interest in this
Lease, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold, condition or delay. Any attempted assignment without such
consent shall be void and shall constitute a breach of this Lease, unless the
same is expressly permitted hereunder.
15.2. Notwithstanding the provisions of Paragraph 15.1 hereof, Lessee may assign
this Lease, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, to any person or entity
which acquired all the assets of Lessee as a going concern of the business that
is being conducted on the Demised Premises, or to any person or entity having,
in Lessor's reasonable judgment, a net worth greater than the net worth of
Lessee prior to such assignment, provided that said assignee assumes, in full,
the obligations of Lessee under this Lease and provided that Lessee shall remain
liable for all of its obligations to be performed or observed under this Lease.
For purposes of the foregoing definition, "control" (including "control by" and
"under common control with") shall mean ownership of not less than fifty percent
(50%) of each class of the authorized and outstanding stock of a corporation and
not less than fifty percent (50%) of all of the legal and equitable interests in
a partnership or other business entity.
ARTICLE XVI - Defaults; Remedies
16.1. Defaults. If any of the following events shall occur (each, a "Default"
and collectively "Defaults"):
(a) the failure by Lessee to make any payment of Rent or any other
payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of ten (10) days after written
notice from Lessor to Lessee;
(b) the failure by Lessee to observe or perform any of the material
covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in Paragraph 16.1 (a) above,
where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee specifying, in reasonable
detail, how Lessee has failed to perform; provided, however, that if
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in Default if
Lessee commenced such cure within said 30-day period and thereafter
diligently prosecutes such cure to completion; and
(c) the filing by Lessee of a voluntary petition in bankruptcy or the
institution against Lessee of proceedings in bankruptcy which proceedings
shall not be stayed or discharged within ninety (90) days; or the
appointment of a receiver of Lessee's assets, which is not stayed or
discharged within ninety (90) days.
16.2. Remedies. In the event of any such Default, Lessor may at any time
thereafter, with or without notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such default
or breach:
<PAGE>
(a) terminate Lessee's right to possession of the Demised premises by
any lawful means, in which case this Lease shall terminate, and Lessee
shall immediately surrender possession of the Demised Premises to Lessor.
In such event, Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by reason of the Default including, but not limited to,
the cost of recovering possession of the Demised Premises; expenses of
reletting including costs of necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and any real estate commission
actually paid; and the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent for the balance
of the Term after the time of such award exceeds the aggregate rental value
of the Demised Premises for the same period; or
(b) pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the State of Minnesota.
16.3. Lessor's Self-Help Remedy. If lessee shall fail, after thirty (30) days
notice form Lessor, to perform any of the covenants, terms or conditions
required to be performed by Lessee hereunder (except that in the event of an
emergency, the notice shall either be dispensed with or shortened as reasonably
required by the nature of the emergency), in addition to the provisions of this
Article 16, Lessor may do whatever is reasonably necessary for the performance
thereof for the account and at the expense of Lessee. In the event Lessor shall
pay any money by reason of said failure Lessee shall repay any such reasonable
sums so paid on its behalf together with Interest thereon which shall be deemed
Rent, and the same shall be payable within 30 days after presentation of the
request for payment, accompanied by Lessor's statement submitted to lessee by
Lessor showing in all reasonable detail the expenses of Lessor, why incurred, to
whom payment was made and the calculations of and supporting bills or records
showing Lessor's expenditures.
16.4. Lessee's Self-Help Remedy. If Lessor shall fail, after thirty (30) days
notice from Lessee, to perform any of the covenants, terms or conditions
required to be performed by Lessor hereunder (except that in the event of an
emergency, the notice shall either be dispensed with or shortened as reasonably
required by the nature of the emergency), Lessee may do whatever is reasonably
necessary for the performance thereof for the account and at the expense of
Lessor. In the event Lessee shall pay any money by reason of said failure,
Lessor shall repay any such reasonable sums so paid on its behalf together with
Interest thereon, and the same shall be payable within 30 days after
presentation of the request for payment, accompanied by Lessee's statement
submitted to Lessor by Lessee showing in all reasonable detail the expense of
Lessee, why incurred, to whom payment was made and the calculations of and
supporting bills or records showing Lessee's expenditures. If Lessor shall fail
to reimburse Lessee within thirty (30) days after receipt of Lessee's request
for reimbursement for money expended by Lessee under this Paragraph 16.4, Lessee
may set-off against Rent, next becoming due to Lessor, such amount together with
interest at the Lease Interest Rate from the date expended until Lessee has
recouped the money due it under this Paragraph 16.4.
16.5 In the event Lessor elects to terminate this Lease as provided in Paragraph
16.1 hereof, and this Lease is so terminated, and possession of the Demised
Premises is surrendered by Lessee in accordance with Article 8 hereof, except as
specified in Paragraph 16.2 hereof, neither Lessor nor Lessee shall have any
claim against the other for money owed or damages resulting from a breach of
this Lease, regardless of whether the claim accrued prior to or subsequent to
the termination of this Lease, except with respect to provisions herein which
expressly survive any termination or expiration of this Lease.
<PAGE>
Except for the expressed exclusively of remedy in the event of a termination of
this Lease as hereinabove provided in the first paragraph of this Paragraph
16.5, no remedy herein or otherwise conferred upon or reserved to Lessor or
Lessee shall be considered exclusive of any other remedy, but the same shall be
distinct, separate and cumulative and shall be in addition to every other remedy
given under this Lease, or now or hereafter existing at law or in equity or by
statute. Every power and remedy given by this Lease to Lessor, or Lessee, may be
exercised from time to time as often as occasion may arise, or as may be deemed
expedient. No delay or omission of Lessor or Lessee to exercise any right or
power arising form any default on the part of the other shall impair any such
right or power, or shall be construed to be a waiver of such default or any
other default or an acquiescence thereto. The consent or approval by Lessor or
Lessee to or of any act by the other requiring such consent or approval shall
not be deemed to waive or render unnecessary the consent or approval to or of
any subsequent similar acts by Lessor or Lessee, as the case may be.
16.6. Lessee Termination Right.
(a) Without limiting the provisions of Paragraph 16.5 and in addition
to all other remedies which the Lessee may have as stated elsewhere in this
Lease, at law or in equity, including the right to seek specific
performance or injunctive relief, Lessee shall have the right, but not the
obligation, on notice to lessor, to terminate this Lease if Lessor shall
fail to perform any of the terms, covenants and obligations of Lessor
herein.
(b) With respect to defaults as to which this Lease does not provide
any grace period or opportunity to cure, Lessor shall have thirty (30) days
after receipt of such notice from Lessee to cure the default giving rise to
Lessee's right to so terminate this Lease; provided, however, that if
Lessors' default is such that more than thirty (30) days are reasonably
required for its cure, then Lessor shall not be deemed to be in default if
Lessor commenced such cure within said 30-day period and thereafter
diligently prosecutes such cure to completion.
(c) If Lessor cures the default within the period set forth in
Paragraph 16.6(b), this Lease shall not terminate and shall continue in
full force and effect. If Lessor fails to cure the default within said cure
period, Lessee shall give notice to Lessor or Lessor's failure to cure the
same and this Lease shall terminate, as if by passage of time, on the date
set forth in Lessee's notice of termination.
ARTICLE XVII - Condemnation
If the Demised Premises or any portion thereof are taken under the power of
eminent domain, or sold under the threat of the exercise of said power (all of
which are herein called "Condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title to or
possession of the Demised Premises of such portion thereof, whichever first
occurs. If more than 40% of the floor area of the Demised premises, or more than
40% of the parking area included in the Demised Premises and used by Lessee, is
taken by Condemnation (or such lesser percentage if the remaining parking area
is insufficient for the reasonable needs of Lessee or would cause a violation of
any Governmental Law), Lessee may, at Lessee's option, to be exercised in
writing within twenty (20) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within twenty (20) days
after the condemning authority shall have taken title to or possession of the
Demised Premises or any part thereof) terminate this Lease as of the later of
<PAGE>
the date on which the condemning authority takes title to or possession of the
Demised Premises or any part thereof. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Demised Premises remaining, except that the Rent shall
be reduced from the date of the taking in a reasonable proportion based on the
amount of the Demised Premises so taken and the value or utility of such portion
so taken to the operation of Lessee's business on the Demised Premises. Any
dispute as to such reduction in Rent may be submitted by either party to
arbitration in accordance with Article XX hereof. Any award for the taking of
all or any part of the Demised Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property of
Lessor; provided, however, that Lessee shall be entitled to any award made as
compensation for diminution in value of the Lessee's leasehold estate, business
loss, moving expenses, loss of or damage to the Lessee's trade fixtures and
removable personal property. In the event that this Lease is not terminated by
reason of such Condemnation, Lessor shall, to the extent of an award received by
Lessor in connection with such Condemnation, repair any damage to the Demised
Premises caused by such Condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority.
Notwithstanding anything which may be to the contrary in this Article 17,
in connection with any taking, Lessee shall be entitled to make a separate
claim, and to prove and receive an award for (a) the diminution in value of
Lessee's leasehold estate, (b) the value of Lessee's property to the extent the
same is taken, and (c) any moving allowance and other expenses permitted by law.
ARTICLE XVIII - INTENTIONALLY OMITTED
ARTICLE XIX - Purchase Option; Right of First Refusal; Put
19.1. Certain Definitions. The following terms used herein shall have the
specified meanings:
"Interest" shall mean the fractional ownership interest of any Optionor in the
Demised Premises.
"Option Period" shall mean the period commencing on the Commencement Date and
terminating on the first anniversary date following the expiration of the Term.
"Options" shall mean, collectively, the Put, the Right of First Refusal and the
Purchase Option, as such terms are hereinafter defined.
"Optionees" shall mean, collectively, Pete Woodworth ("PW") and Lessee.
"Optionor" shall mean, individually, any of the fee owners of the Demised
Premises at the time the applicable Option is exercised (or, in the case of a
deceased fee owner, the estate to which such property interest shall have
passed) and "Optionors" shall mean, collectively, all of such fee owners;
provided, however, that notwithstanding the transfer of an Interest from an
Optionor to an Optionee, such Optionee shall in no event become or be deemed an
Optionor.
19.2. Ownership Representation; Consents of Spouses.
(a) Optionors represent and warrant (i) that they hold good,
marketable and insurable fee title to the Demised Premises, as tenants in
common, free and clear of all liens and exceptions to title other than as
set forth on Exhibit C hereto (the "Permitted Encumbrances") and (ii) that
the Interest owned by LW is an undivided one-quarter (1/4) interest in the
Demised Premises, the Interest owned by JW is an undivided five-twelfths
(5/12) interest in the Demised Premises, and the Interest owned by Phyllis
Woodworth is an undivided one-third (1/3) interest in the Demised Premises.
<PAGE>
(b) EW and BW each acknowledges and agrees that (i) she does not hold
an ownership interest in the Demised Premises, and (ii) she joins in the
execution of this Lease to evidence her consent to the terms hereof,
including, without limitation, the relinquishment of her dower interest and
other marital rights, if any, that she may have in the Demised Premises, if
and when an Interest is conveyed to an Optionee pursuant to this Article
XIX.
19.3. Restrictions on Optionors. Optionors may not, either individually or
collectively, during the Option Period, transfer, sell or in any other manner
dispose of or offer to any third party any Interest except subject to and in
accordance with the provisions of this Article XIX, and, in no event shall any
Interest be transferred, sold or otherwise disposed of other than in its
entirety. notwithstanding anything to the contrary contained herein, JW shall
have the right to devise or make an inter vivos transfer of his entire Interest
to BW, and LW shall have the right to devise or make an inter vivos transfer of
his entire Interest to PW (in the case of a devise, pursuant to the terms of the
respective last wills and testaments of each), without thereby giving rise to a
right in Optionees to exercise the Purchase Option or Right of First Refusal
with respect to such Interest; provided, however, that upon any transfer of an
Interest to BW, by devise, inter vivos transfer or otherwise, such Interest
shall thereafter remain subject to the terms and conditions of the applicable
Options, and BW shall be deemed an Optionor hereunder.
19.4. Purchase Option.
(a) Optionees are hereby granted an option (the "Purchase Option") to
purchase any or all of the Interest subject to the terms and conditions set
forth in this Paragraph 19.4.
(b) The Transferring Optionor (hereinafter defined) shall give prompt
notice (the "Optionor's Purchase Option Notice") to Optionees and the other
Optionors of the occurrence during the Option Period of either (i) the
death of an Optionor, (ii) the intention of such Transferring Optionor to
offer his or her Interest to a third party or (iii) the intention of such
Transferring Optionor to offer his or her Interest to Optionees for sale
pursuant to the terms of the Purchase Option. The Optionor with respect to
whose Interest such Optionor's Purchase Option Notice shall have been given
shall herein be referred to, with respect to such Interest, as the
"Transferring Optionor" Upon receipt of such Optionor's Purchase Option
Notice, PW shall have thirty (30) days in which to give notice (the
"Optionee's Purchase Option Notice") of his intention to exercise the
Purchase Option to purchase the applicable Interest of such Transferring
Optionor at the Option Price (hereinafter defined) subject to the terms and
conditions of this Paragraph 19.4. The Optionee's Purchase Option Notice
shall be delivered to all of the Optionors and, if delivered by PW, to
Lessee as well.
(c) If (i) PW shall fail to deliver the Optionee's Purchase Option
Notice within such thirty (30) day period or (ii) notwithstanding the
delivery of the Optionee's Purchase Option Notice by PW, PW shall fail
(other than for reasons beyond the reasonable control of PW) to conclude
the purchase of the Interest within sixty (60) days of such delivery of the
Optionee's Purchase Option Notice, then, in either such event, PW's right
to exercise the Purchase Option (as to such Interest only) shall expire
("PW's Option Expiration"). Upon the occurrence of PW's Option Expiration,
Lessee shall then have the exclusive right to exercise the Purchase Option
by delivery of an Optionee's Purchase Option Notice to the Transferring
Optionor no later than thirty (30) days after it shall have received notice
of PW's Option Expiration. If Lessee shall fail to deliver the Optionee's
Purchase Option Notice within the aforesaid thirty (30) day period after
PW's Option Expiration, Lessee's right to exercise the Purchase Option (as
to such Interest only) shall expire ("Lessee's Option Expiration").
<PAGE>
(d) In no event shall any Optionor be permitted to offer an Interest
for sale to a third party other than Optionees unless PW's Option
Expiration and Lessee's Option Expiration shall have occurred with respect
to such Interest.
(e) The price at which an Optionee may purchase an Interest pursuant
to the Purchase Option shall be an amount equal to the product of the
fractional ownership interest in the Demised Premises represented by such
Interest and one hundred (100%) percent of the estimated market value of
the Demised Premises as determined by, and pursuant to the most recent tax
statement issued by, the Winona County Assessor's Office, in the State of
Minnesota (with respect to such Interest, the "Option Price"). The Option
Price shall be payable in cash at closing or on other terms mutually
acceptable to the Transferring Optionor and the applicable Optionee.
(f) The closing of the conveyance of the Interest pursuant to an
Optionee's exercise of the Purchase Option (the "Option Closing") shall
occur not later than sixty (60) days after the date on which the applicable
Optionee delivered the Optionee's Purchase Option Notice to the
Transferring Optionor or Optionee's Purchase Option Notice to the
Transferring Optionor or on such other date as shall have been mutually
agreed upon in writing by the Transferring Optionor and such Optionee (the
"Purchase Option Closing Date")
(g) The following income and expenses shall be apportioned between the
Transferring Optionor and the applicable Optionee in the manner customary
in the County of Winona, in the State of Minnesota, as of 11:59 p.m. on the
day preceding the Purchase Option Closing Date, and the parties agree to
make the appropriate adjustment payment on the Purchase Option Closing
Date, to the extent the same may be applicable: rents payable under the
Lease or any other lease covering the Demised Premises; real property taxes
and assessments; personal property taxes; fuel oil; utility charges; water
meter and sewer rents, rates and charges; levies; license and permit fees;
charges for communications and other services rendered or used on or about
the Demised Premises; value charges; parking revenues; license, permit and
inspection fees; and any other items which otherwise are customarily
apportioned at real estate closings. Except as otherwise expressly provided
herein, the Transferring Optionor and the applicable Optionee shall each
pay its respective closing costs (including the fees of any lawyers,
accountants or others engaged by such party) in connection with the Option
Closing.
(h) Optionors and the applicable Optionee shall take any and all
actions necessary in order to comply with the provisions of any laws and
regulations applicable to the conveyance of the Interest pursuant to the
Purchase Option, including, without limitation, the payment of any
transfer, deed stamp, conveyance or other tax that may be determined to be
due under any such law or regulation and the preparation, execution and
filing of any and all affidavits and questionnaires required by any such
law or regulation. Optionors shall cooperate with the applicable Optionee
in the preparation of any such affidavits or questionnaires and shall make
available to Optionee any books and records of Optionors used in the
preparation of any such affidavits or questionnaires. The Transferring
Optionor shall (i) pay when due pursuant to applicable law any such tax
that may be determined to be due under any such law or regulation, without
regard to installment payment provisions, if any, and prior to the latest
date payments may be made without payment of penalty or late charge, and
(ii) indemnify, defend and save the applicable Optionee harmless from and
against any damage, liability, cost or expense (including, without
limitation, reasonable attorneys' fees) which may be suffered or incurred
by such Optionee by reason of the nonpayment thereof. The provisions of the
immediately preceding sentence shall survive the Option Closing and the
expiration or sooner termination of this Lease.
<PAGE>
(i) At the Option Closing, the Transferring Optionor shall execute and
deliver to such Optionee a good and sufficient warranty deed in recordable
form, conveying to such optionee (or its assignee, nominee or designee)
good, marketable and insurable fee simple title in and to the Interest,
free and clear of all liens and exceptions to title other than the
Permitted Encumbrances. In addition, at the Option Closing, Optionors shall
execute and deliver to such Optionee any and all assignments, tax returns,
affidavits (including, without limitation, a "FIRPTA" affidavit pursuant to
Section 1445(b)(2) of the Internal Revenue Code of 1986, as amended, or any
successor statute thereto) and other documentation as such Optionee may
deem necessary or appropriate in connection with the conveyance of the
Interest to such Optionee (or its assignee, nominee or designee).
(j) At the Option Closing and thereafter, Optionors and the applicable
Optionee (or its assignee, nominee or designee), shall take such actions
and promptly execute and deliver any other assurances and all such other
documents, instruments or agreements, as the case may be, which may be
necessary or reasonably appropriate to consummate the transactions
contemplated by this Paragraph 19.4.
19.5. Right of First Refusal.
(a) Optionees are each hereby granted a right (the "Right of First
Refusal"), subject to the terms and conditions set forth in this Paragraph
19.5, to purchase any Interest for the price and on substantially the same
terms and conditions as those specified in any contract (a "Contract")
entered into between a Transferring Optionor and a third party for the sale
of such Interest.
(b) If PW's Option Expiration and Lessee's Option Expiration shall
have both occurred with respect to an Interest, the Transferring Optionor
shall thereafter have the right to offer such Interest to a third party
(other than Optionees), subject to the terms and conditions of this
Paragraph 19.5.
(c) If a Transferring Optionor, at any time during the Option Period,
enters into a Contract, the Transferring Optionor shall give Optionees
prompt notice ("Optionor's ROFR Notice") of such Contract, accompanied by a
complete, true and correct copy of the Contract. Any Contract shall
expressly provide that it is subject to and contingent upon the
Transferring Optionor's compliance with the terms and conditions set forth
in this Article XIX.
(d) Upon receipt of the Optionor's ROFR Notice, PW shall have thirty
(30) days in which to give notice (the "Optionee's ROFR Notice") to the
Transferring Optionor, Lessee and the other Optionors of his exercise of
the Right of First Refusal.
(e) If (i) PW shall fail to deliver the Optionee's ROFR Notice within
such thirty (30) day period, or (ii) notwithstanding PW's delivery of the
Optionee's ROFR Notice, PW and the Transferring Optionor shall fail (other
than for reasons beyond the reasonable control of PW) to conclude the sale
of the Interest pursuant to the Contract within one hundred twenty (120)
days after delivery of Optionor's ROFR Notice with respect to such contract
or by such later closing date as shall have been specified in the Contract,
then in either such event, PW's right to exercise the Right of First
Refusal with respect to such Contract shall expire ("PW's ROFR
Expiration").
<PAGE>
(f) Upon the occurrence of PW's ROFR Expiration, Lessee shall then
have the exclusive right to require that the Transferring Optionor sell the
Interest to it for the price and on the terms and under the conditions
specified in the Contract by delivery of an Optionee's ROFR Notice to the
Transferring Optionor within thirty (30) days of PW's ROFR Expiration.
(g) The closing of the conveyance of the Interest pursuant to the
terms of the Contract (the "First Refusal Closing") shall occur on the date
(the "First Refusal Closing Date") specified in the Contract.
(h) If both Optionees fail to deliver the Optionee's ROFR Notice to
the Transferring Optionor within the periods referred to in the foregoing
subparagraphs (d) and (f) of this Paragraph 19.5, the Transferring Optionor
shall have the right to conclude a sale of the Interest to the person which
is the other party to the Contract, provided that (i) the Transferring
Optionor shall conclude the sale of the Interest pursuant to the Contract
within one hundred twenty (120) days of the date on which the Transferring
Optionor delivered Optionor's ROFR Notice with respect to such Contract (or
by such later closing date as shall have been specified in the Contract),
and (ii) the closing of such conveyance shall occur pursuant to and in
compliance with all of the terms and conditions of the Contract.
(i) Notwithstanding anything to the contrary contained herein, if the
Transferring Optionor shall fail to conclude the sale of the Interest to
the applicable third party pursuant to the Contract within the aforesaid
one hundred twenty (120) day period (or by such later closing date as shall
have been specified in the Contract), or if such Contract shall be
renegotiated on terms more favorable to the purchaser, the Transferring
Optionor shall thereafter be obligated once again to deliver an Optionor's
ROFR Notice with respect to such Contract or any other Contract, and
Optionees shall each have new thirty (30) day periods, as set forth in
subparagraphs (d) and (f), above, of this Paragraph 19.5, in which to
exercise the respective Right of First Refusal of each, pursuant to the
terms of this Paragraph 19.5.
19.6. Put.
(a) The transferring Optionor is hereby granted an option (the "Put"
to require Lessee to purchase its Interest at the Put Price (hereinafter
defined), subject to the terms and conditions of this Paragraph 19.6, and
provided Optionees shall have each failed to exercise its Purchase Option
pursuant to Paragraph 19.4 above.
(b) The Transferring Optionor may only exercise the Put with respect
to an Interest after the occurrence of Lessee's Option Expiration with
respect to such Interest, but prior to the earlier to occur of (x) the
expiration of the Lease or (y) the 120th day following the occurrence of
Lessee's Option Expiration with respect to such Interest.
(c) The price at which an Optionee shall be required to purchase an
Interest pursuant to the Put shall be an amount equal to the product of the
fractional ownership interest in the Demised Premises represented by such
Interest and fifty (50%) percent of the estimated market value of the
Demised Premises as determined by, and pursuant to the most recent tax
statement issued by, the Winona County Assessor's Office, in the State of
Minnesota (with respect to such Interest, the "Put Price"). The Put Price
shall be payable in cash at closing or on other terms mutually acceptable
to the Transferring Optionor and the applicable Optionee.
<PAGE>
(d) To exercise the Put, the Transferring Optionor shall give both
Optionees and the other Optionors notice of such exercise (the "Optionor's
Put Notice") at any time during the period described in subparagraph (b)
above of this Paragraph 19.6. If the Transferring Optionor fails timely to
deliver the Optionor's Put Notice, the Transferring Optionor's right to
exercise the Put with respect to the applicable Interest shall be deemed
waived by the Transferring Optionor and the Put shall terminate and be of
no further force or effect. The Optionor's Put Notice must (x) identify the
applicable Interest and (y) be accompanied by each of the following: (i) a
title report for the Demised Premises issued by a title company acceptable
to Lessee and (ii) a Phase I environmental report, and, if recommended by
such Phase I environmental report, a Phase II environmental report with
respect to the Demised Premises (collectively, the "Environmental Report").
(e) Upon receipt of the Optionor's Put Notice, PW shall have thirty
(30) days in which to give notice ("PW's Put Notice") to the transferring
Optionor, Lessee and the other Optionors of his exercise of the right (the
"Put Purchase Option") to require that the Transferring Optionor sell the
Interest to him at the Put Price. If PW elects to exercise the Put Purchase
Option, (i) the closing of the conveyance pursuant to such Put Purchase
Option shall be treated in the same manner as an Option Closing and shall
be governed by the terms of subparagraphs (f) through (j) of Paragraph
19.4, (ii) the Transferring Optionor's right to exercise the Put with
respect to the applicable Interest shall be deemed waived by the
Transferring Optionor and the Put shall terminate and be of no further
force and effect, and (iii) the remainder of this Paragraph 19.6 shall be
inapplicable.
(f) The following shall be conditions precedent to Lessee's obligation
to close the transaction contemplated in this Paragraph 19.6 pursuant to
the Transferring Optionor's exercise of the Put:
(i) Optionors shall have performed in all respects the covenants
and agreements to be performed by Optionors under this Paragraph 19.6.
(ii) Optionors shall have delivered to lessee the items described
in subparapgraphs (j) and (k) of this Paragraph 19.6.
(iii) The Demised Premises shall not be subject to any threatened
or pending eminent domain proceeding.
(iv) the Environmental Report shall be acceptable to Lessee in
all respects.
(g) the closing of the conveyance of the Interest pursuant to the
Transferring Optionor's exercise of the Put (the "Put Closing") shall occur
not later than sixty (60) days after the date on which the Transferring
Optionor shall have delivered the Optionor's Put Notice to Lessee or on
such other date as shall have been mutually agreed upon in writing by the
Transferring Optionor and such Lessee (the "Put Closing Date").
(h) The following income and expense shall be apportioned between the
Transferring Optionor and Lessee in the manner customary in the county of
Winona, in the State of Minnesota, as of 11:59 p.m. on the day preceding
the Put Closing Date, and the parties agree to make the appropriate
adjustment payment on the Put Closing Date, to the extent the same may be
applicable: rents payable under the Lease or any other Lease covering the
Demised Premises; real property taxes and assessments; personal property
taxes; fuel oil; utility charges; water meter and sewer rents, rates and
charges; levies; license and permit fees; charges for communications and
other services rendered or used on or about the Demised Premises; vault
charges; parking revenues; license, permit and inspection fees; and any
<PAGE>
other items which otherwise are customarily apportioned at real estate
closings. Except as otherwise expressly provided herein, the Transferring
Optionor and Lessee shall each pay its respective closing cost (including
the fees of any lawyers, accountants or others engaged by such party) in
connection with the Put Closing.
(i) Optionors and the Lessee shall take any and all actions necessary
in order to comply with the provisions of any laws and regulations
applicable to the conveyance of the Interest pursuant to the Put,
including, without limitation, the payment of any transfer, deed stamp,
conveyance or other tax that may be determined to be due under any such law
or regulation and the preparation, execution and filing of any and all
affidavits and questionnaires required by any such law or regulation.
Optionors shall cooperate with Lessee in the preparation of any such
affidavits or questionnaires and shall make available to Optionee any books
and records of Optionors used in the preparation of any such affidavits or
questionnaires. The Transferring Optionor shall (i) pay when due pursuant
to applicable law any such tax that may be determined to be due under any
such law or regulation, without regard to installment payment provisions,
if any, and prior to the latest date payments may be made without payment
of penalty or late charge, and (ii) indemnify, defend and save Lessee
harmless from and against any damage, liability, cost or expense
(including, without limitation, reasonable attorneys' fees) which may be
suffered or incurred by Lessee by reason of the nonpayment thereof. The
provisions of the immediately preceding sentence shall survive the Put
Closing and the expiration or sooner termination of this Lease.
(j) At the Put Closing, the Transferring Optionor shall execute and
deliver to Lessee a good and sufficient warranty deed in recordable form,
conveying to Lessee (or its assignee, nominee or designee) good, marketable
and insurable fee simple title in and to the Interest, free and clear of
all liens and exceptions to title other than the Permitted Encumbrances. In
addition, at the Put Closing, Optionors shall execute and deliver to Lessee
any and all assignments, tax returns, affidavits (including, without
limitation, a "FIRPTA" affidavit pursuant to Section 1445(b)(2) of the
Internal Revenue Code of 1986, as amended, or any successor statute
thereto) and other documentation as Lessee may deem necessary or
appropriate in connection with the conveyance of the Interest to Lessee (or
its assignee, nominee or designee).
(k) At the Put Closing and thereafter, Optionors and Lessee (or its
assignee, nominee or designee), shall take such actions and promptly
execute and deliver any other assurances and all such other documents,
instruments or agreements, as the case may be, which may be necessary or
reasonably appropriate to consummate the transactions contemplated by this
Paragraph 19.6.
19.7. Casualty and Condemnation. Notwithstanding anything to the contrary
contained herein if, prior to the closings of any conveyance of an Interest
pursuant to any of the Options, (i) any of the Demised Premises is damaged by
fire, vandalism, acts of God, or other casualty or cause, or (ii) any part of
the Demised Premises is taken by eminent domain, the applicable Optionee may, at
its option, either: (x) proceed with the closing and accept the Demised Premises
as is together with the Transferring Optionor's right, if any, to any and all
insurance proceeds or condemnation awards in connection with such damage or
condemnation, in which case Optionors shall cooperate with the applicable
Optionee in any loss adjustment or condemnation award negotiation, legal actions
and agreements with the insurance company or taking authority, and Transferring
Optionor shall assign to the applicable optionee at the closing its rights, if
any, to such insurance proceeds or condemnation award (and pay over to such
Optionee any such proceeds or award already received, but no yet expended) or
<PAGE>
(y) cancel the exercise of the applicable Purchase Option, Right of First
Refusal or Put, as the case may be, whereupon the conveyance contemplated
pursuant to such Option shall be canceled and the Transferring Optionor and the
applicable Optionee shall have no further rights or obligations with respect to
such exercise of the Option except that the Transferring Optionor shall return
any deposit (if applicable) made by the Optionee with respect to such Option and
except for those rights or obligations expressly stated herein to survive such a
termination.
19.8. Co-Tennancy Agreement. If any Interest shall have been conveyed to Lessee,
Lessor and Lessee shall, at Lessee's request, enter into a co-tenancy agreement
setting forth the rights, obligations and division of responsibilities between
Lessor and (to the extent of its fee ownership of the Demised Premises) Lessee,
with respect to the management and operation of the Demised Premises.
19.9. Superseding Agreement. The parties hereto acknowledge and agree that the
provisions of this Article XIX supersede the terms and provisions of the Option
Contract dated February 8, 1993 among LW, The Winona Knitting Mills, Inc.
("WKMI") and PW, the Option Contract dated June 18, 1993 among JW, WKMI and PW
and the Option Contract dated March 9, 1993 among PW, WKMI and Phyllis Woodworth
(collectively, the "Option Contracts"), which Option Contracts have been
terminated and are of no further force and effect.
19.10. Non-Merger. Notwithstanding the conveyance by Optionors to Lessee of one
or more Interests, the interest of Lessee and Lessor hereunder shall not merge,
and this Lease shall remain in full force and effect, unless and until all
Interests shall be conveyed to Lessee.
19.11. Specific Performance. Without limiting any other remedies which the
Lessee may have as stated elsewhere in this Lease, at law or in equity,
Optionees shall have the right to seek specific performance or injunctive relief
in connection with the exercise of their rights under the Purchase Option and
Right of First Refusal.
19.11. Time of the Essence. time shall be of the essence with respect to all
terms and condition so this Article XIX.
19.12. Survival. The rights and obligations of the parties hereto with respect
to the Right of First Refusal and the Purchase Option shall survive the
expiration or sooner termination of this Lease, except to the extent otherwise
expressly provided herein.
ARTICLE XX - Arbitration
20.1. Arbitration. In each case expressly specified in this Lease in which it
shall become necessary to resort to arbitration, such
arbitration shall be determined in the manner provided in this Article 20.
20.2. Arbitration Procedure. The party desiring such arbitration shall give
written notice to that effect to the other party and shall in such notice (the
"first notice") appoint an impartial person of recognized competence in the
field involved, having not less than ten (10) years' experience in the county in
which the Demised Premises are located, as arbitrator on its behalf. Within ten
(10) days thereafter, the other party shall by written notice to the original
party appoint a second impartial person of recognized competence in such field,
having not less than ten (10) years' experience in the county in which the
Demised Premises are located, as arbitrator on behalf of such other party.
Within ten (10) days thereafter, the arbitrators thus appointed shall appoint a
third similarly qualified impartial person of recognized competence in such
field, and such three arbitrators shall as promptly as possible determine such
matter, provided, however, that :
<PAGE>
(i) if the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall proceed to determine such
matter; and
(ii) if the two arbitrators appointed by the parties shall be
unable to agree, within ten days after the appointment of the second
arbitrator, upon the appointment of a third arbitrator, they shall
give written notice of such failure to agree to the parties, and, if
the parties fail to agree upon the selection of such third arbitrator
within ten days after the arbitrators appointed by the parties give
notice as aforesaid, then within five days thereafter either of the
parties upon written notice to the other party hereto may request such
appointment by the American Arbitration Association (or any
organization successor thereto), or in its absence, refusal, failure
or inability to act, may apply for a court appointment of such
arbitrator.
20.3. Rules. The arbitration shall be conducted, to the extent consistent with
this Article 20, in accordance with the then prevailing rules of the American
Arbitration Association (or any organization successor thereto). The arbitrators
shall render their decision and award, upon the concurrence of at least two of
their number, within thirty (30) days after the appointment of the third
arbitrator. Such decision and award shall be in writing and counterpart copies
thereof shall be delivered to each of the parties. In rendering such decision
and award, the arbitrators shall not add to, subtract from or otherwise modify
the provisions of this Lease. Judgment may be had on the decision and award of
the arbitrators so rendered.
20.4. Fees. Each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator and all other expenses of the arbitration shall be borne by
the parties equally.
ARTICLE XXI - General Provisions
21.1. Estoppel Certificates.
(a) Lessee shall at any time upon not less than twenty (20) days
prior written notice from Lessor execute, acknowledge and deliver to
Lessor or any party designated by Lessor a statements in writing (i)
certifying that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification and
certifying that this lease, as so modified, is in full force and
effect) and the date to which the Rent and other charges are paid in
advance, if any, (ii) acknowledging, as of the date of the
certificate, that, to its actual knowledge, there are no uncured
Defaults or events which with the giving of notice or the passage of
time or both would constitute a Default or specifying such Defaults or
events, if any are claimed and (iii) any other information reasonably
requested by Lessor. Such statement shall be binding on Lessee and may
be relied upon by Lessor or any other party designated by Lessor to
whom such certificate is delivered.
(b) Lessor shall at any time upon not less than twenty (20) days
prior written notice from Lessee execute, acknowledge and deliver to
lessee or any party designated by Lessee a statement in writing (i)
certifying that this lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and
effect) and the date to which the Rent and other charges are paid in
advance, if any, (ii) acknowledging, as of the date of the
certificate, that, to its actual knowledge, there are no unsecured
Defaults or events which with the giving of notice or the passage of
time or both would constitute a Default or specifying such Defaults or
<PAGE>
events, if any are claimed and (iii) any other information reasonably
requested by Lessee. Such statement shall be binding on Lessor and may
be relied upon by Lessee or any other party designated by Lessee to
whom such certificate is delivered.
21.2. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
21.3. Interest on Past-due Obligations. Except as expressly provided herein, any
amount due hereunder to either Lessor or Lessee from the other party which is
not paid when due and any amount paid by Lessor or Lessee on behalf of the other
in accordance with the terms hereof shall bear interest from the date due or the
date paid, as applicable, at the lesser of (a) the greater of 2% in excess of
the prime or base rate of interest announced by Citibank N.A. at its principal
office in New York City, New York (the "Lease Interest Rate"), and (b) the
maximum rate of interest permitted by applicable law with respect to said
amounts. Payment of such interest shall not excuse or cure any Default or event
of default by Lessee under this Lease; provided, however, that interest shall
not be payable on late charges incurred by Lessee nor on any amounts upon which
late charges are paid by Lessee.
21.4. Captions. Article and paragraph captions are not a part hereof and are for
convenience of reference only.
21.5. Incorporation of Prior Agreements; Amendments. This Lease contains the
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof. All prior agreements or understandings pertaining to the
subject matter hereof shall be of no force or effect. This Lease may only be
amended or modified in writing, signed by parties in interest at the time of
such amendment or modification.
21.6. Notices. Any notices required or permitted to be given hereunder shall be
sufficient if in writing and given at the addresses of Lessor and Lessee first
set forth above, or, if to PW, at 702 Main Street, Winona, Minnesota 55987.
Notices shall be sufficient if sent by certified mail, return receipt requested,
postage pre-paid; nationally recognized overnight courier service; or by hand.
Notices sent (i) by certified mail, return receipt requested shall be deemed
received three (3) days after deposit in a United States mail box, postage
prepaid, (ii) by nationally recognized overnight courier service shall be deemed
received on (1) business day after delivery to such courier service; and (iii)
by hand shall be deemed delivered upon receipt. A copy of any notice of default
sent to Lessee shall be sent to Willkie Farr & Gallagher, 153 East 53rd Street,
New York, New York 10022, Attn: Harvey Sperry, Esq. Any notice to lessee shall
be addressed to Mr. Charles W. Clayton.
21.7. Waivers. No waiver by either party of any term or provision hereof shall
be deemed a waiver of any other provision hereof or of any subsequent breach by
the other of the same or any of the provision. Lessor's consent to or approval
of any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of Rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
Rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such Rent.
21.8. Recording. Lessee shall not record this Lease without Lessor's prior
written consent. The parties hereto shall contemporaneously herewith execute and
record, at Lessee's expense, a Memorandum of lease in the form attached hereto
as Exhibit B.
<PAGE>
21.9. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
21.10. Binding Effect; Choice of Law. This Lease shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns,
heirs, distributees, executors, administrators and personal representatives;
provided, however, that all rights of PW pursuant to Article XIX hereof shall be
personal to PW and shall not inure to the benefit of his successors, assigns,
heirs, distributees, executors, administrators or personal representatives, as
the case may be. This Lease shall be governed by the laws of the State in which
the Demised Premises is located.
21.11. Subordination. (a) Provided Lessor obtains and delivers to Lessee a
subordination, nondisturbance and attornment agreement in form and substance
acceptable to Lessee (which provides, among other things, that so long as the
Lessee is not in default beyond applicable notice and grace periods under this
Lease, its possession of the Demised Premises in accordance with the terms of
this Lease shall not be disturbed) (the "SNDA") from the holder of any present
or future mortgage or deed of trust encumbering the Demised Premises (a
"Mortgagee"), then this Lease shall be subject and subordinate to the lien of
the mortgage or deed of trust, specifically referenced in such SNDA.
(b) If at any time a Mortgagee or any party claiming by or through a Mortgagee
shall succeed to the rights of Lessor as Lessor under this Lease, whether
through foreclosure action, assignment or deed in lieu of foreclosure or
otherwise (a "Successor Lessor"), at the request of such Successor Lessor, and
upon the written agreement of such Successor Lessor to accept Lessee's
attornment, Lessee shall attorn to and recognize such Successor Lessor as
Lessee's Lessor under this Lease. In confirmation of such attornment, lessee
shall promptly execute, acknowledge and deliver any instrument that Lessor or
such Successor Lessor requests to evidence such attornment. Upon any such
attornment, this Lease shall continue in full force and effect as, or as if it
were, a direct lease between such Successor Lessor and Lessee upon all of the
then executory terms, conditions and covenants as are set forth in this Lease
and which shall be applicable after such attornment, except that the Successor
Lessor shall not be:
(i) liable for any prior act or mission of Lessor;
(ii) subject to any offsets or defenses which Lessee may
have against Lessor;
(iii) bound by any payment of Rent which Lessee might have
made to Lessor for more than one month in advance of the date the
same was due under this Lease or bound by any security or other
deposits not actually received by such Successor Lessor;
(iv) bound by any obligation to make any payment to Lessee,
or provide any services or perform any repairs, maintenance or
restoration provided for under this Lease to be performed before
the date that the Successor Lessor becomes the Lessor of Lessee;
(v) bound by any obligation to construct any improvements on
the Demised Premises; or
(vi) bound by any modification of this Lease made without
the written consent of such Successor Lessor or the Mortgagee
through which such Successor Lessor is claiming its interest,
where such consent is required under the terms of the documents
evidencing its loan to Lessor, after written notice has been
given to Lessee of the existence of such Successor Lessor or
Mortgagee.
<PAGE>
(vii) If any act or omission of lessor would give Lessee the
right, immediately or after lapse of a period of time, to cancel
or terminate this Lease, or to claim a partial or total eviction,
Lessee shall not exercise such right until (a) Lessee gives
notice of such act or omission to Lessor and to each Mortgagee
whose name and address were previously furnished to Lessee and
(b) a reasonable period of time when such Mortgagee become
entitled under its Mortgage to remedy same (which reasonable
period shall in no event be less than the period to which Lessor
is entitled under this Lease or otherwise, after similar notice,
to effect such remedy or be longer than 45 days after notice from
Lessee to Mortgagee of such act or omission).
21.12. Lessor's Access. Subject to Lessee's reasonable security regulations,
Lessor and Lessor's agents shall have the right to enter the Demised Premises at
reasonable times upon reasonable notice for the purpose of inspecting the same,
showing the same to prospective purchasers, Lenders, or Lessees, and making such
alterations, repairs, improvements or additions to the Demised Premises as
lessor deems necessary or desirable. Any time during the last one hundred eighty
(180) days of the Term, Lessor may place on or about the Demised Premises any
ordinary "For Lease" sign.
21.13. Consents. Wherever in this Lease the consent of one party is required to
an act of the other party such consent shall not be
unreasonably withheld, conditioned or delayed.
21.14. Quiet Possession. Upon Lessee paying the Rent reserved hereunder and
observing and performing all of the material covenants, conditions and
provisions on Lessee's part to be observed and performed hereunder, Lessee shall
have quiet possession of the Demised Premises for the entire Term hereof subject
to all of the provisions of this Lease.
21.15. Signage. During the period in which Lessee occupies the Demised Premises,
Lessee shall have the right to place signs on the Demised Premises. All signs
erected or placed on the Demised Premises by Lessee shall comply with all
applicable Governmental Laws.
21.16. Brokers. Lessor and Lessee each covenant, warrant and represent to the
other that no broker was instrumental in bringing about or consummating this
Lease and that neither Lessor nor Lessee has had dealings with any broker or
other person concerning the leasing of the Demised Premises. Lessor and Lessee
shall each indemnify and hold the other harmless against and from any claims for
any brokerage commissions or fees, and all costs, expense and liabilities in
connection therewith, including, without limitation, attorneys' fees and expense
(a) in connection with such claim if any broker or other person claims to have
had dealings with the indemnifying party and/or (b) in connection with the
enforcement of a party's rights under this Paragraph 21.16.
21.17. Indemnities.
(a) Lessor shall indemnify, defend and hold harmless Lessee, its
officers, agents, employees, parents, subsidiaries and affiliate
organizations, from and against any claims, suits, loss, costs, (including
attorneys' fees and disbursements and cleanup cost), damages, expenses and
liabilities, including claims by reason of property damage or personal
injury (including death) of whatsoever nature against them individually or
collectively (collectively referred to as "Claims") arising out of the
ownership of the Demised Premises by Lessor or to the extent the same
results from Lessor's actions or in actions arising from any acts,
incidents, events, occurrences, or omissions which occurred or took place
prior to the effective date of this Lease including, but not limited to,
those related to ownership, tenancy, possession, construction, operation,
or use by Lessor or any other party of the Demised Premises or which result
in pollution, contamination or seepage and all maters relating to
<PAGE>
environmental waste disposal laws, regulations, or issues, other than
Claims relating to the gross negligence or willful misconduct of Lessee,
its officers, agents, employees, parents, subsidiaries and affiliate
organizations. This provision shall survive any termination or expiration
of this Lease.
(b) Lessee shall indemnify, defend and hold harmless Lessor, its
officers, agents, employees, parents, subsidiaries and affiliate
organizations, from and against any and all Claims arising out of the use
or maintenance of the Demised Premises by Lessee, its officers, agents,
employees, parents, subsidiaries and affiliate organizations and the
exercise by Lessee of enjoyment of the privileges herein granted or by
reason of any act or omission of Lessee, its officers, agents, employees,
parents, subsidiaries and affiliate organizations, from or in connection
with this Lease, other than Claims arising from the gross negligence or
willful misconduct of Lessor and other Lessees of the Demised Premises and
their respective officers, agents, employees, parents, subsidiaries and
affiliate organizations. This provision shall survive any termination or
expiration of this Lease.
21.18. Unavoidable Delays. In the event of any Unavoidable Delays (hereinafter
defined) under this Lease, the time of performance of the covenants and
obligations under this Lease in question shall automatically be extended for a
period of time equal to the aggregate period of the Unavoidable Delays.
"Unavoidable Delays" shall mean delays due to (i) strikes, lockouts, acts of
God, governmental restrictions or peremptions, enemy action, riot, civil
commotion, storms, fire, floods, earthquakes, or the inability to obtain labor
or materials due to governmental restrictions, (ii) the wrongful failure of
either party hereto to grant any consent or approval to the other party hereto,
(iii) fire or other casualty or other causes beyond the control of the parties
hereto and (iv) the breach or default of either party hereto in the performance
of its obligations under this Lease which directly prevents the other party from
proceeding to perform its obligations hereunder.
21.19. Authorization. Lessor and Lessee each represents to the other that all
necessary authorizations, consents and approvals required in connection with the
execution and delivery of this Lease have been obtained and that the entering
into of this Lease does not violate the organizational documents of such party
or any agreement, court order or law to which such party is subject.
21.20. No Partnership. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture of or between Lessor and
Lessee, or to create any relationship between the parties other than that of a
lessor and a lessee.
21.21. Release of Liability. Lessor hereby releases Lessee from all liabilities
arising out of loss or damage to the Demised Premises (except any damage to
Lessee's leasehold improvements which Lessee is required to insure under the
terms of this Lease) caused by perils covered under fire and extended coverage
insurance policies or all risk property insurance.
<PAGE>
21.22. Mortgage Defaults. If Lessor shall default under any mortgage encumbering
its interest in the Demised Premises, Lessee shall have the right to cure such
default and shall be entitled to offset the amounts paid by Lessee to so cure
such default against any amounts due to Lessor hereunder. Lessor shall promptly
notify Lessee of any default by Lessor under any such mortgage and shall
promptly deliver a copy to Lessee of any notices sent by either Lessor or the
mortgagee under such mortgage.
21.23. Ownership of Demised Premises. Lessor represents and warrants to Lessee
that Lessor is the fee owner of the Demised Premises and that Exhibit A
constitutes a true, correct and accurate description of the Real Property.
The parties hereto have executed this Lease as of the date set forth above.
LESSOR:
/s/ LESLIE R. WOODWORTH
- --------------------------
/s/ ELLIE WOODWORTH
- --------------------------
/s/ PHYLLIS WOODWORTH
- --------------------------
/s/ JOHN F. WOODWORTH
- --------------------------
/s/ BETTY WOODWORTH
- --------------------------
LESSEE:
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
- --------------------------
Name: Charles W. Clayton
Title: Vice President
Pete Woodworth agrees to the terms
and conditions of Article XIX:
/s/ PETE WOODWORTH
LEASE
BETWEEN
PETE WOODWORTH AND JOYCE WOODWORTH
HUSBAND AND WIFE
LESSOR,
AND HAMPSHIRE DESIGNERS, INC.
LESSEE,
PREMISES: 190 MAIN STREET
LA CRESCENT, MINNESOTA
LEASE DATE: OCTOBER 10, 1995
LEASE
THIS LEASE (this "Lease"), dated as of the 10th day of October, 1995, is made by
and among PETE WOODWORTH and JOYCE WOODWORTH, husband and wife, having an
address at 702 Main Street, Winona, Minnesota 55987 ("Lessor") and HAMPSHIRE
DESIGNERS, INC., a corporation organized under the laws of the State of Delaware
having an address at P.O. Box 2667, 215 Commerce Boulevard, Anderson, South
Carolina 29622 ("Lessee").
A. Lessor is the owner of the Demised Premises (hereinafter defined).
B. On the date hereof, the Winona Knitting Mills, Inc. (the "Company"), Pete and
Joyce Woodworth and Hampshire Group, Limited ("Hampshire") are entering into
that certain Agreement and Plan of Merger (the "Merger Agreement") pursuant to
which the Company is being merged into Hampshire in accordance with the terms
thereof.
C. In connection with the Merger Agreement, Lessor desire to lease to Lessee,
and Lessee desires to lease from Lessor, the Demised Premises.
NOW, THEREFORE for good and valuation consideration, the receipt and sufficiency
of which are hereby acknowledged, Lessor and lessee agree as follows:
ARTICLE I - Premises
1.1. Demised Premises. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, for the Term (hereinafter defined), at the rental, and upon all of
the Term covenants and conditions set forth herein, the following (collectively,
the "Demised Premises"):
(a) that certain real property located in the Main Street, La Crescent,
Minnesota and described in Exhibit A attached hereto and made a part hereof,
together with any buildings and improvements now or hereafter located therein or
thereon (collectively, the "Real Property");
(b) all right, title and interest, if any, of Lessor in and to any land lying in
the bed of any street, road or avenue, open or proposed, in front of or
adjoining the Real Property to the center line;
<PAGE>
(c) all right, title and interest, if any, of Lessor in and to any strips and
gores of land adjacent to, abutting, or used in connection with the Real
Property, and in and to easements, if any, ensuring to the benefit of the Real
Property or the fee owner;
(d) any appurtenances and hereditaments belonging or in any wise appertaining to
the Real Property; and
(e) any and all personal property located at the Real Property owned by Lessor
and used in connection with the operation of the Real Property as a
manufacturing and/or warehouse facility; and
(f) any and all leases, tenancies and occupancy agreements in any way affecting
the Real Property.
ARTICLE II - Term
2.1. Initial Term. The term of this Lease (as the same may be extended, the
"Term:) shall commence on the date hereof (the "Commencement Date") and shall
continue until the third anniversary of the last day of the calendar month in
which the date of this Lease occurs (the "Initial Term").
2.2 Renewal Options.
(a) Lessee shall have the option to extend the Term on all of the terms and
provisions contained in this Lease, except for the payment of Rent, for a three
year renewal term (the "First Renewal Term") following the expiration of the
Initial Term of this Lease, by giving written notice to Lessor of the exercise
of this option to extend the Term not later than 135 days prior to the
expiration of the Initial Term.
(b) Lessee shall have the option to extend the Term on all of the terms and
provisions contained in this Lease, except for the payment of Rent, for a three
year renewal term (the "Second Renewal Term") following the expiration of the
First Renewal Term of this Lease, by giving written notice to Lessor of the
exercise of this option to extend the term not later than 135 days prior to the
expiration of the First Renewal Term.
(c) Lessee shall have the option to extend the Term on all of the terms and
provisions contained in this Lease, except for the payment of Rent, for a three
year renewal term (the "Third Renewal Term") following the expiration of the
Second Renewal Term of this Lease, by giving written notice to Lessor of the
exercise of this option to extend the Term no later than 135 days prior to the
expiration of the Second Renewal Term.
ARTICLE III - Rent
3.1. Fixed Rent
(a) The term "Lease Year" shall mean each 12-month period commencing on the day
immediately succeeding the end of the previous Lease Year. The initial Lease
Year shall commence on the Commencement Date and shall end on the first
anniversary of the last day of the month in which the date of this Lease occurs.
Lessee shall, during the Term, pay to Lessor at such place as Lessor shall
designate in writing, from time to time, and, except as expressly provided
herein, without offset, counterclaim, defense or demand therefor, the following
annual minimum rentals (hereinafter, the "Fixed Rent"):
(i) during the initial Lease Year, $42,000 per annum; and
(ii) during each succeeding Lease Year (including, without limitation,
any Lease Year occurring during any renewal term hereunder), an amount per
annum which equals (x) the Fixed Rent for the preceding Lease Year plus (y)
4$ of the Fixed Rent for the preceding Lease Year.
<PAGE>
(b) The Fixed Rent shall be payable monthly in advance on the first day of each
month, in equal monthly installments equal to one-twelfth (1/12) of the Fixed
Rent.
(c) Fixed Rent for any period during the Term which is for less than one
calendar month shall be prorated based on the number of calendar days in such
calendar month that falls within the Term.
3.2 Additional Rent. Lessee shall, during the Term pay to Lessor at such place
as Lessor shall designate in writing, from time to time, and, except as
expressly provided herein, without offset, counterclaim, defense or demand
thereof, additional rent ('Additional Rent") consisting of all other sums of
money that become due from Lessee and payable to Lessor hereunder. Fixed Rent
and Additional Rent are hereinafter collectively referred to as "Rent".
ARTICLE IV - Use
The Demised Premises shall be used for manufacturing, warehousing, storage,
distributing, general office purposes and/or any other lawful purposes. Lessee
shall obtain, at its sole cost and expense, all licenses, approvals and permits
required for Lessee's use and occupancy of the Demised Premises. Lessee shall
not use or permit the use of the Demised Premises, in violation of an applicable
law, statute, ordinance, code, rule, regulation order or decree, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, the Resource Conservation and Recovery Act, and so-called
"Superfund" or "Superlien" law, or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous, toxic
or dangerous waste, substance or material, as now or at any time hereafter in
effect.
ARTICLE V. - Compliance With Law
5.1. Lessor Compliance. Lessor covenants and agrees with Lessee that during the
Term, the Demised Premises shall, but without regard to the use for which Lessee
will use the Demised Premises, comply with all applicable laws, statutes,
ordinances, rules, regulations and orders of all federal, state, municipal and
local governmental authorities having jurisdiction over the Demised Premises,
including, building and zoning codes, regulations and ordinances and
environmental codes, regulations and laws, including those related to pollution
and contamination (collectively "Governmental Laws"). If it is determined that
this covenant has been violated, then it shall be the obligation of Lessor,
after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation.
5.2. Lessee Compliance. Lessee shall, at Lessee's expense, promptly comply with
all Governmental Laws relating to the Demised Premises in effect during the Term
or nay part of the Term regulating the use by Lessee of the Demised Premises.
5.3. Contests. Lessee shall have the right, to the extent permitted by law, at
its own expense to contest the validity and/or applicability of any Governmental
laws relating the Demised Premises by appropriate proceedings diligently
conducted in good faith, and, notwithstanding the provisions of Paragraph 5.2
hereof, Lessee's compliance with such contested Governmental Laws may be
postponed or deferred during the pendency of such proceeding so long as neither
the Demised Premises nor any part thereof would, by reason of such noncompliance
be, in the reasonable judgment of Lessor, in danger of being forfeited or lost
and Lessor shall not be subject to any criminal or civil liability.
ARTICLE VI - Condition of the Demised Premises
Lessee hereby agrees to accept the Demised Premises in accordance with the terms
of this Lease, subject to all Governmental Laws and restrictions of record
governing and regulating the use of the Demised Premises, and accepts this Lease
subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto.
ARTICLE VII - Maintenance and Repairs
7.1. Lessee Repair Obligations. Lessee shall, at its expense, take good care of
the Demised Premises, the fixtures, and appurtenances therein and any of
Lessee's trade fixtures, furnishings, equipment and personal property
(collectively, "Lessee's Property"). Except as provided in Paragraph 7.2, Lessee
shall be responsible for an shall promptly make all repairs, interior and
exterior, structural and nonstructural, ordinary and extraordinary, in and to
the Demised Premises. Lessee, at its expense, shall be responsible for the
repair, maintenance and replacement of all mechanical, electrical, sanitary,
heating, ventilating, air-conditioning and other fixtures and equipment in the
Demised Premises (the "Building System").
<PAGE>
7.2. Lessor Repair Obligations. Lessor agrees, at its sole cost and expense, to
make any and all repairs and replacements of the roof of the Demised Premises.
ARTICLE VIII - Surrender
On the last day of the Term, or on any sooner termination of this Lease, Lessee
shall surrender the Demised Premises to Lessor in the same condition as when
received by Lessee broom clean, ordinary wear and tear and damage due to perils
beyond the reasonable control of Lessee excepted. These perils include, but are
not limited to, fire, earthquake, flood, windstorm and other so-called "acts of
God", vandalism, malicious mischief, and sprinkler damage.
ARTICLE IX - Lessor's and Lessee's Rights
If either party fails to perform its obligations hereunder, the other may at its
option (but shall not be required to) put the same in good order, condition and
repair, upon thirty (30) days written notice to the non-performing party (which
written notice shall not be required in the case of an emergency) and the cost
thereof, together with interest thereon at the Lease Interest Rate (as defined
in Paragraph 21.3) shall become due and payable from the non-performing party to
the other party within ten (10) days after demand by the performing party;
provided, however, if the obligation of the non-performing party is not capable
of being performed within such thirty (30) day period and if the non-performing
party is diligently endeavoring to perform such obligation, the performing party
shall not perform such obligation. All such work performed by the performing
party shall be performed in a good and workmanlike manner, in compliance with
all Governmental Laws. Neither Lessee nor Lessor shall perform any such work
until such time as it has received all necessary permits, licenses and approvals
from the applicable state, county and municipal governmental authorities having
jurisdiction over the Demised Premises ("Governmental authorities"). If either
party performs any such work, such party shall, at all times, keep the Demised
Premises free of liens and encumbrances for labor and materials.
ARTICLE X - Alterations and Improvements
10.1. Lessee Alterations. Lessee shall have the right, at its own cost and
expense, to make such alterations and change sin and to the Demised Premises as
it shall deem expedient or necessary for its purposes. All such work shall be
done in a good and workmanlike manner, and in accordance with all Governmental
Laws. lessor shall execute and deliver upon request of Lessee such reasonable
instrument or instruments embodying the approval of Lessor which may be required
by any Governmental Authority for the purpose of obtaining any license, permit
or approval for the making of alterations or changes in, to or upon the Demised
Premises, Lessee agreeing to pay for any such license, permit or approval.
Lessee shall not make any alterations to the Demised Premises until such time as
it has received all required permits, licenses and approvals from the applicable
Governmental Authority.
10.2. Removal of Improvements. Any and all alterations, improvements and
installations made by Lessee in, to or upon the Demised Premises, as well as any
fixtures installed on the Demised Premises by Lessee, at Lessee's option, may be
removed from the Demised premises at any time and from time to time during the
Term and shall remain the property of Lessee during and at the expiration of the
Term of this Lease, provided that, if any such alterations, improvements,
installations and/or fixtures are removed by Lessee, any damage caused by such
removal shall be promptly repaired by Lessee at its sole cost and expense.
ARTICLE XI - Insurance
11.1 Insurance Coverage.
(a) Lessee shall, at Lessee's cost and expense maintain the following insurance
issued in the names of Lessor and Lessee as their interests may appear:
<PAGE>
(i) a policy of standard fire and extended coverage insurance on all
buildings and improvements included in the Demised Premises with vandalism
and malicious mischief endorsements, to the extent of full replacement
value; and (ii) a policy of general public liability insurance against
claims for personal injury or property damage, with such limits as may be
reasonably requested by Lessor from time to time, but not more than Two
Million Dollars ($2,000,000) in respect of bodily injury or death and One
Million Dollars ($1,000,000) for property damage.
(b) All such insurance policies shall provide that any proceeds shall be made
payable to Lessee in accordance with the terms of this Lease.
(c) All such insurance policies may, at the option of Lessee, be effected by
blanket and/or umbrella policies issued to Lessee covering the Demised Premises
and other properties owned or leased by Lessee or its affiliates.
(d) Lessor shall not obtain or continue to maintain any separate or additional
insurance which is contributing in the event of loss unless it is properly
endorsed and otherwise satisfactory to Lessee in all respects.
11.2. Certificates. All insurance provided for under this Lease shall be
effected under valid enforceable policies issued by insurers of recognized
responsibility and who are reasonably acceptable to Lessor and licensed to do
business in the State of Minnesota. Such insurance may be carried by Lessee as a
part of blanket coverage for such insurance covering all premises owned or
leased by Lessee wherever located. Certificates of Insurance evidencing the
current existence of such coverage shall be delivered by Lessee to Lessor,
together with satisfactory evidence of payment of the premium on such policies.
To the extent obtainable, all such policies shall contain agreements by the
insurers that such policies shall not be canceled except upon thirty days' prior
written notice to each named insured and loss payee, including Lessor.
11.3. Adjustments. All policies of insurance required herein shall name Lessor
and Lessee as the insureds as their respective interest may appear. The loss, if
any, under said policies referred to in this Article 11 shall be adjusted with
the insurance companies by Lessee to the extent that Lessee is obligated to
repair or restore the Demised premises pursuant to Article 12 hereof and by
Lessor in the even that Lessee is not so obligated to restore.
11.4 Proceeds. All proceeds payable by reason of any loss or damage to the
Demised Premises, or any portion thereof, and insured under any policy of
insurance required by this Article 11 shall be paid to Lessee and shall be used
only for reconstruction or repair, as the case may be, of any damage to or
destruction of the Demised Premises, or any portion thereof. Any excess proceeds
of insurance remaining after the completion of the restoration or reconstruction
of the Demised Premises shall be retained by Lessee. In the event Lessee is not
required or does not elect to repair and restore, and this Lease expires or is
terminated, all such insurance proceeds shall be paid to and retained by Lessor.
ARTICLE XII - Damage or Destruction
12.1. Restoration. Subject to the provisions of Paragraph 12.2 hereof, Lessee
covenants that in the event of damage to all or a portion of the Demised
Premises by fire or any other cause, similar or dissimilar, insured or uninsured
(a "Casualty"), Lessee will promptly, at its sole cost and expense, restore or
repair the Demised Premises so damaged or destroyed as nearly as possible to the
condition it was in immediately prior to such Casualty, or with such changes or
alterations as Lessee shall elect to make in conformity with Article 10 hereof,
whether or not any costs or expenses of such restoration exceeds the amount of
the insurance proceeds received in connection with such damage or destruction.
Such restoration, shall be commenced promptly and prosecuted with reasonable
diligence, unavoidable delays excepted.
<PAGE>
12.2. Termination Option. Notwithstanding the provisions of Paragraph 12.1
hereof, in the event that at any time during the Term all or a portion of the
Demised Premises are damaged to the extent that, in Lessee's reasonable
judgment, either (x) the cost of the necessary repairs or restoration would
exceed fifty percent (50%) of the estimated marked value of the Demised Premises
as determined by the Winona county Assessor's Office for the year in which such
damage shall have occurred or (y) the necessary repairs or restoration would not
be substantially completed within six (6) months from the date of said casualty,
Lessee may terminate this Lease upon delivery of written notice to Lessor within
sixty (60) days after the occurrence of the casualty causing such damage and
Lessee shall be released from any liability under this Lease accruing from and
after the date of Lessor's receipt of said notice. In the event that lessee
terminates this Lease as provided in the immediately preceding sentence, all
insurance proceeds resulting from said casualty shall be paid to and retained by
Lessor.
ARTICLE XIII - Taxes
13.1. Impositions. Lessee covenants and agrees to pay or cause to be paid, as
hereinafter provided, to the Governmental Authority imposing the same, all of
the following items ("Impositions") not later than the date on which same are
due without the payment of any fines, penalties or interest: (a) real property
taxes and assessments assessed and levied against the Demised Premises or any
part thereof, (b) personal property taxes, (c) water, water meter and sewer
rents, rates and charges, and 9d) fines, penalties and other similar or like
governmental charges applicable to the foregoing and any interest or costs with
respect thereto only to the extent such fines, penalties and other similar or
like governmental charges are incurred by reason of Lessee's wrongful act or
omission or Lessee's failure fully and promptly to comply with any provisions of
this Lease. Each such Imposition, or installment thereof, during the Term shall
be paid prior to the last day the same may be paid without fine, penalty,
interest or additional cost; provided, however, that if, by law, any Imposition
may at the option of the taxpayer be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same in such installments and shall be
responsible for the payment of such installments only.
13.2. Evidence of Payment. If Lessee is paying any Imposition directly to the
Governmental Authority imposing the same, then Lessee, from time to time upon
the request of Lessor, shall furnish to Lessor, within the earlier of (i) thirty
(30) days after the date when such Imposition is due and payable under this
Lease, or (ii) thirty (30) days after the date when an official receipt of the
Governmental Authority imposing the same is received, such official receipt or,
if no such receipt has been received by lessee, other evidence reasonably
satisfactory to Lessor, evidencing the payment of the Imposition.
13.3 Excluded Taxes. Nothing herein contained shall require Lessee to pay
municipal, state or federal income, inheritance, estate, succession, transfer or
gift taxes of Lessor, or any corporate franchise tax imposed upon Lessor or any
gross income or gross receipts taxes to the extent the same are imposed on
Lessor in lieu of net income taxes or corporate franchise taxes.
13.4. Apportionments. Any Imposition, relating to a fiscal period of the
imposing Governmental Authority, a part of which period is included within the
Term and a part of which is included in a period of time before the Commencement
Date or after the expiration of the Term (whether or not such Imposition shall
be assessed, levied, confirmed, imposed upon or in respect of or become a lien
upon the Demised Premises, or shall become payable, during the Term) shall be
apportioned between Lessor and Lessee as of the Commencement Date or the date of
expiration of the Term, as the case may be, so that Lessee shall pay that
portion of such Imposition which that part of such fiscal period included in the
period of time after the Commencement Date and before the date of expiration of
the Term.
<PAGE>
13.5. Contests
(a) Lessee shall have the right, to the extent permitted by law, at its own
expense to contest the amount or validity, in whole or in part, of any
Imposition by appropriate proceedings diligently conducted in good faith, and,
notwithstanding the provisions of Paragraph 13.1 hereof, the payment of such
contested Imposition may be postponed or deferred so long as neither the Demised
premises nor any part thereof, nor any part of the rents, issues and profits
thereof, would, by reason of such postponement or deferment, be, in the
reasonable judgment of Lessor, in danger of being forfeited or lost and Lessor
shall not be subject to any criminal or civil liability.
(b) Lessee shall have the right, to the extent permitted by law, and at Lessee's
sole cost and expense, to seek a reduction in the valuation of the Demised
Premises assessed for real property tax purposes and to prosecute any action or
proceeding in connection therewith. Lessor shall fully cooperate with Lessee in
any such proceeding.
(c) Lessor shall not be required to join in any proceedings referred to in
Paragraphs 13.5(a) and (b) hereof unless the provisions of any law, rule or
regulation at the time in effect shall require that such proceedings be brought
by and/or in the name of Lessor, in which event, Lessor shall join and cooperate
in such proceedings or permit the same to be brought in its name, but shall not
be liable for the payment of any costs or expenses in connection with any such
proceedings and Lessee shall reimburse Lessor for any and all reasonable costs
or expenses which lessor may sustain or incur in connection with any such
proceedings.
ARTICLE XIV - Utilities and Services
14.1. Lessor Representation. Lessor represents and warrants that the Demised
Premises are equipped with all plumbing equipment, electrical facilities and
lighting fixtures and equipment, heating, air conditioning, ventilating, and
other appurtenant equipment and facilities necessary or appropriate for Lessee's
use of the Demised Premises in the manner used prior to the date hereof or as
otherwise required by Governmental Laws. Lessee will pay, or cause to be paid
all charges for electricity, power, gas, oil, water and other utilities used in
connection with the Demised Premises during the term of this Lease.
14.2. No Services. lessor shall not be obligated to furnish utilities or
services to the Demised premises.
ARTICLE XV. - Assignment
15.1 Except as expressly permitted in this Lease, Lessee shall not voluntarily
or by operation of law assign all or any part of Lessee's interest in this
Lease, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold, condition or delay. Any attempted assignment without such
consent shall be void and shall constitute a breach of this Lease, unless the
same is expressly permitted hereunder.
15.2. Notwithstanding the provisions of Paragraph 15.1 hereof, Lessee may assign
this Lease, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, to any person or entity
which acquired all the assets of Lessee as a going concern of the business that
is being conducted on the Demised premises, or to any person or entity having,
in Lessor's reasonable judgment, a net worth greater than the net worth of
Lessee prior to such assignment, provided that said assignee assumes, in full,
the obligations of Lessee under this Lease and provided that Lessee shall remain
liable for all of its obligations to be performed or observed under this Lease.
For purposes of the foregoing definition, "control" (including "control by" and
"under common control with") shall mean ownership of not less than fifty percent
(50%) of each class of the authorized and outstanding stock of a corporation and
not less than fifty percent (50%) of all of the legal and equitable interests in
a partnership or other business entity.
<PAGE>
ARTICLE XVI - Defaults; Remedies
16.1. Defaults. If any of the following events shall occur (each, a "Default"
and collectively "Defaults":
(a) the failure by Lessee to make any payment of Rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of ten (10) days after written notice from Lessor to
Lessee;
(b) the failure by lessee to observe or perform any of the material covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in Paragraph 16.1 (a) above, where such failure shall
continue for a period of thirty (30) days after written notice thereof from
Lessor to Lessee specifying, in reasonable detail, how Lessee has failed to
perform: provided, however, that if Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then Lessee shall not be
deemed to be in Default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion; and
(c) the filing by Lessee of a voluntary petition in bankruptcy or the
institution against Lessee of proceedings in bankruptcy which proceedings shall
not be stayed or discharged within ninety (90) days; or the appointment of a
receiver of Lessee's assets, which is not stayed or discharged within ninety
(90) days.
16.2. Remedies. In the event of nay such Default, Lessor may at any time
thereafter, with or without notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such default
or breach:
(a) terminate Lessee's right to possession of the Demised premises by any lawful
means, in which case this Lease shall terminate, and Lessee shall immediately
surrender possession of the Demised Premises to Lessor. In such event, Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of the Default including, but not limited to, the cost of recovering
possession of the Demised Premises; expenses of reletting including costs of
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; and the worth at the time of award
by the court having jurisdiction thereof of the amount by which the unpaid rent
for the balance of the Term after the time of such award exceeds the aggregate
rental value of the Demised Premises for the same period; or
(b) pursue any other remedy now or hereafter available to Lessor under the laws
or judicial decisions of the State of Minnesota.
16.3. Lessor's Self-Help Remedy. If lessee shall fail, after thirty (30) days
notice form Lessor, to perform any of the covenants, terms or conditions
required to be performed by Lessee hereunder (except that in the event of an
emergency, the notice shall either be dispensed with or shortened as reasonably
required by the nature of the emergency), in addition to the provisions of this
Article 16, Lessor may do whatever is reasonably necessary for the performance
thereof for the account and at the expense of Lessee. In the event Lessor shall
pay any money by reason of said failure Lessee shall repay any such reasonable
sums so paid on its behalf together with Interest thereon which shall be deemed
Rent, and the same shall be payable within 30 days after presentation of the
request for payment, accompanied by Lessor's statement submitted to lessee by
Lessor showing in all reasonable detail the expense of Lessor, why incurred, to
whom payment was made and the calculations of and supporting bills or records
showing Lessor's expenditures.
<PAGE>
16.4. Lessee's Self-Help Remedy. If Lessor shall fail, after thirty (30) days
notice from Lessee, to perform any of the covenants, terms or conditions
required to be performed by Lessor hereunder (except that in the event of an
emergency, the notice shall either be dispensed with or shortened as reasonably
required by the nature of the emergency), Lessee may do whatever is reasonably
necessary for the performance thereof for the account and at the expense of
Lessor. In the event lessee shall pay any money by reason of said failure,
Lessor shall repay any such reasonable sums so paid on its behalf together with
Interest thereon, and the same shall be payable within 30 days after
presentation of the request for payment, accompanied by Lessee's statement
submitted to Lessor by Lessee showing in all reasonable detail the expense of
Lessee, why incurred, to whom payment was made and the calculations of and
supporting bills or records showing Lessee's expenditures. If Lessor shall fail
to reimburse Lessee within thirty (30) days after receipt of Lessee's request
for reimbursement for money expended by Lessee under this Paragraph 16.4, Lessee
may set-off against Rent, next becoming due to Lessor, such amount together with
interest at the Lease Interest Rate from the date expended until Lessee has
recouped the money due it under this Paragraph 16.4.
16.5 In the event Lessor elects to terminate this Lease as provided in Paragraph
16.1 hereof, and this Lease is so terminated, and possession of the Demised
Premises is surrendered by Lessee in accordance with Article 8 hereof, except as
specified in Paragraph 16.2 hereof, neither Lessor nor Lessee shall have any
claim against the other for money owed or damages resulting from a breach of
this Lease, regardless of whether the claim accrued prior to or subsequent to
the termination of this Lease, except with respect to provisions herein which
expressly survive any termination or expiration of this Lease.
Except for the expressed exclusively of remedy in the event of a termination of
this Lease as hereinabove provided in the first paragraph of this Paragraph
16.5, no remedy herein or otherwise conferred upon or reserved to Lessor or
Lessee shall be considered exclusive of any other remedy, but the same shall be
distinct, separate and cumulative and shall be in addition to every other remedy
given under this Lease, or now or hereafter existing at law or in equity or by
statute. Every power and remedy given by this Lease to Lessor, or Lessee, may be
exercised from time to time as often as occasion may arise, or as may be deemed
expedient. No delay or omission of Lessor or Lessee to exercise any right or
power arising form any default on the part of the other shall impair any such
right or power, or shall be construed to be a waiver of such default or any
other default or an acquiescence thereto. The consent or approval by Lessor or
Lessee to or of any act by the other requiring such consent or approval shall
not be deemed to waive or render unnecessary the consent or approval to or of
any subsequent similar acts by Lessor or Lessee, as the case may be.
16.6. Lessee Termination Right. (a) Without limiting the provisions of Paragraph
16.5 an din addition to all other remedies which the Lessee may have as stated
elsewhere in this Lease, at law or in equity, including the right to seek
specific performance or injunctive relief, Lessee shall have the right, but not
the obligation, on notice to lessor, to terminate this Lease if lessor shall
fail to perform any of the terms, covenants and obligations of lessor herein.
(b) With respect to defaults as to which this Lease does not provide any grace
period or opportunity to cure, Lessor shall have thirty (30) days after receipt
of such notice from Lessee to cure the default giving rise to Lessee's right to
so terminate this Lease; provided, however, that if Lessors' default is such
that more than thirty (30) days are reasonably required for its cure, then
Lessor shall not be deemed to be in default if Lessor commenced such cure within
said 30-day period and thereafter diligently prosecutes such cure to completion.
(c) If Lessor cures the default within the period set forth in Paragraph
16.6(b), this Lease shall not terminate and shall continue in full force and
effect. If Lessor fails to cure the default within said cure period, Lessee
shall give notice to lessor or Lessor's failure to cure the same and this Lease
shall terminate, as if by passage of time, on the date set forth in lessee's
notice of termination.
<PAGE>
ARTICLE X VII - Condemnation
If the Demised Premises or any portion thereof are taken under the power of
eminent domain, or sold under the threat of the exercise of said power (all of
which are herein called "Condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title to or
possession of the Demised Premises of such portion thereof, whichever first
occurs. If more than 40% of the floor area of the Demised premises, or more than
40% of the paring area included in the Demised Premises and used by Lessee, is
taken by Condemnation (or such lesser percentage if the remaining parking area
is insufficient for the reasonable needs of Lessee or would cause a violation of
any Governmental Law), Lessee may, at lessee's option, to be exercised in
writing within twenty (20) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within twenty (20) days
after the condemning authority shall have taken title to or possession of the
Demised Premises or any part thereof) terminate this Lease as of the later of
the date on which the condemning authority takes title to or possession of the
Demised Premises or any part thereof. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Demised Premises remaining, except that the Rent shall
be reduced from the date of the taking in a reasonable proportion based on the
amount of the Demised Premises so taken and the value or utility of such portion
so taken to the operation of Lessee's business on the Demised Premises. Any
dispute as to such reduction in rent may be submitted by either party to
arbitration in accordance with Article XX hereof. Any award for the taking of
all or any part of the Demised Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property of
Lessor; provided, however, that Lessee shall be entitled to any award made as
compensation for diminution in value of the Lessee's leasehold estate, business
loss, moving expenses, loss of or damage to the Lessee's trade fixtures and
removable personal property. In the event that this Lease is not terminated by
reason of such Condemnation, Lessor shall, to the extent of an award received by
Lessor in connection with such Condemnation, repair any damage to the Demised
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority.
Notwithstanding anything which may be to the contrary in this Article 17, in
connection with any taking, Lessee shall be entitled to make a separate claim,
and to prove and receive an award for (a) the diminution in value of Lessee's
leasehold estate, (b) the value of Lessee's property to the extent the same is
taken, and (c) any moving allowance and other expenses permitted by law.
ARTICLE XVIII. - INTENTIONALLY OMITTED
ARTICLE XIX - Purchase
19.1. If Lessor desire to see or otherwise transfer its interest in the Demised
Premises to a third party and has received a bona-fide offer with respect
thereto (the "Offer"), lessor must first deliver to Lessee a notice (the
"Offering Notice") offering to sell the Demised Premises to Lessee at the price
and on the other terms and conditions contained in the Offer (the "Offering
Terms"). A true, correct and complete copy of the offer shall be delivered along
with the Offering Notice. Lessee shall have 30 days after it receives the Offer
Notice to notify Lessor whether it will purchase the Demised Premises at the
Offering Terms. If Lessee notifies Lessor that it will purchase the Demised
Premises, Lessee and lessor shall thereafter with reasonable promptness, enter
into a contract for the sale of the Demised Premises at the Offering Terms and
on such other terms and conditions as are customary in contacts of sale for the
sale of property similar to the Demised Premises. If Lessee fails to notify
lessor that it will purchase the Demised Premises within the time period
specified above, Lessor may sell the Demised Premises to such third party,
provided that if (x) the sales to such third party is closed more than one year
following the delivery of the Offer Notice to Lessee or (y) the sale to such
third party is made on terms more favorable to such third party than the
<PAGE>
Offering Terms, then Lessor must again offer the Demised Premises to Lessee in
accordance with this Article XIX before any such third party can become
effective. The provisions of this Article XIX shall apply to every Offer
received by Lessor with respect to the Demised Premises. Notwithstanding
anything to the contrary contained in this Article XIX, Pete Woodworth shall
have the right, such right being personal to Pete Woodworth, to transfer his
interest in the Demised Premises to his spouse or one or more of his children
without first offering to sell the Demised Premises to Lessee as provided
herein.
ARTICLE XX - Arbitration
20.1. Arbitration. In each case expressly specified in this Lease in which it
shall become necessary to resort to arbitration, such arbitration shall be
determined in the manner provided in this Article 20.
20.2. Arbitration Procedure. The party desiring such arbitration shall give
written notice to that effect to the other party and shall in such notice (the
"first notice") appoint an impartial person of recognized competence in the
field involved, having not less than ten (10) years' experience in the county in
which the Demised Premises are located, as arbitrator on its behalf. Within ten
(10) days thereafter, the other party shall by written notice to the original
party appoint a second impartial person of recognized competence in such field,
having not less than ten (10) years' experience in the county in which the
Demised Premises are located, as arbitrator on behalf of such other party.
Within ten (10) days thereafter, the arbitrators thus appointed shall appoint a
third similarly qualified impartial person of recognized competence in such
field, and such three arbitrators shall as promptly as possible determine such
matter, provided, however, that :
(i) if the second arbitrator shall not have been appointed as
aforesaid, the first arbitrator shall proceed to determine such matter; and
(ii) if the two arbitrators appointed by the parties shall be unable
to agree, within ten days after the appointment of the second arbitrator,
upon the appointment of a third arbitrator, they shall give written notice
of such failure to agree to the parties, and, if the parties fail to agree
upon the selection of such third arbitrator within ten days after the
arbitrators appointed by the parties give notice as aforesaid, then within
five days thereafter either of the parties upon written notice to the other
party hereto may request such appointment by the American Arbitration
Association (or any organization successor thereto), or in its absence,
refusal, failure or inability to act, may apply for a court appointment of
such arbitrator.
20.3. Rules. The arbitration shall be conducted, to the extent consistent with
this Article 20, in accordance with the then prevailing rules of the American
Arbitration Association (or any organization successor thereto). The arbitrators
shall render their decision and award, upon the concurrence of at least two of
their number, within thirty (30) days after the appointment of the third
arbitrator. Such decision and award shall be in writing and counterpart copies
thereof shall be delivered to each of the parties. In rendering such decision
and award, the arbitrators shall not add to, subtract from or otherwise modify
the provisions of this Lease. Judgment may be had on the decision and award of
the arbitrators so rendered.
20.4. Fees. Each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator and all other expenses of the arbitration shall be borne by
the parties equally.
ARTICLE XXI - General Provisions
21.1. Estoppel Certificates.
(a) Lessee shall at any time upon not less than twenty (20) days prior written
notice from Lessor execute, acknowledge and deliver to Lessor or any party
<PAGE>
designated by Lessor a statements in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this lease, as so modified, is in full
force and effect) and the date to which the Rent and other charges are paid in
advance, if any, (ii) acknowledging, as of the date of the certificate, that, to
its actual knowledge, there are no unsecured Defaults or events which with the
giving of notice or the passage of time or both would constitute a Default or
specifying such Defaults or events, if any are claimed and (iii) any other
information reasonably requested by Lessor. Such statement shall be binding on
Lessee and may be relied upon by Lessor or any other party designated by Lessor
to whom such certificate is delivered.
(b) Lessor shall at any time upon not less than twenty (20) days prior written
notice from Lessee execute, acknowledge and deliver to lessee or any party
designated by Lessee a statement in writing (i) certifying that this lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the Rent and other charges are paid in
advance, if any, (ii) acknowledging, as of the date of the certificate, that, to
its actual knowledge, there are no unsecured Defaults or events which with the
giving of notice or the passage of time or both would constitute a Default or
specifying such Defaults or events, if any are claimed and (iii) any other
information reasonably requested by Lessee. Such statement shall be binding on
Lessor and may be relied upon by Lessee or any other party designated by Lessee
to whom such certificate is delivered.
21.2. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof. 21.3. Interest on Past-due Obligations. Except as
expressly provided herein, any amount due hereunder to either Lessor or Lessee
from the other party which is not paid when due and any amount paid by Lessor or
Lessee on behalf of the other in accordance with the terms hereof shall bear
interest from the date due or the date paid, as applicable, at the lesser of (a)
the greater of 2% in excess of the prime or base rate of interest announced by
Citibank N.A. at its principal office in New York City, New York (the "Lease
Interest Rate"), and (b) the maximum rate of interest permitted by applicable
law with respect to said amounts. Payment of such interest shall not excuse or
cure any Default or event of default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
21.4. Captions. Article and paragraph captions are not a part hereof and are for
convenience of reference only.
21.5. Incorporation of Prior Agreements; Amendments. This Lease contains the
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof. All prior agreements or understandings pertaining to the
subject matter hereof shall be of no force or effect. This Lease may only be
amended or modified in writing, signed by parties in interest at the time of
such amendment or modification.
21.6. Notices. Any notices required or permitted to be given hereunder shall be
sufficient if in writing and given at the addresses of Lessor and Lessee first
set forth above. Notices shall be sufficient if sent by certified mail, return
receipt requested, postage pre-paid; nationally recognized overnight courier
service; or by hand. Notices sent (i) by certified mail, return receipt
requested shall be deemed received three (3) days after deposit in a United
States mail box, postage prepaid, (ii) by nationally recognized overnight
courier service shall be deemed received on (1) business day after delivery to
such courier service; and (iii) by hand shall be deemed delivered upon receipt.
A copy of any notice of default sent to Lessor shall be sent to Ron Benson,
Esq., 174 Main Street, Winona, Minnesota 55987. A copy of any notice of default
sent to Lessee shall be sent to Willkie Farr & Gallagher, 153 East 53rd Street,
New York, New York 10022, Attn: Harvey Sperry, Esq. Any notice to lessee shall
be addressed to Mr. Charles W. Clayton.
<PAGE>
21.7. Waivers. No waiver by either party of any term or provision hereof shall
be deemed a waiver of any other provision hereof or of any subsequent breach by
the other of the same or any of the provision. Lessor's consent to or approval
of any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of Rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
Rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such Rent.
21.8. Recording. Lessee shall not record this Lease without Lessor's prior
written consent. The parties hereto shall contemporaneously herewith execute and
record, at Lessee's expense, a Memorandum of lease in the form attached hereto
as Exhibit B.
21.9. cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
21.10. Binding Effect; Choice of Law. This Lease shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns,
heirs, distributees, executors, administrators and personal representatives.
This Lease shall be governed by the laws of the State in which the Demised
Premises is located.
21.11. Subordination. (a) Provided Lessor obtains and delivers to Lessee a
subordination, nondisturbance and attornment agreement in form and substance
acceptable to lessee (which provides, among other things, that so long as the
Lessee is not in default beyond applicable notice and grace periods under this
Lease, its possession of the Demised Premises in accordance with the terms of
this Lease shall not be distributed) (the "SNDA") from the holder of any present
or future mortgage or deed of trust encumbering the Demised Premises (a
"Mortgagee"), then this Lease shall be subject and subordinate to the lien of
the mortgage or deed of trust, specifically referenced in such SNDA.
(b) If at any time a Mortgagee or any party claiming by or through a Mortgagee
shall succeed to the rights of Lessor as Lessor under this Lease, whether
through foreclosure action, assignment or deed in lieu of foreclosure or
otherwise (a "Successor Lessor"), at the request of such Successor Lessor, and
upon the written agreement of such Successor Lessor to accept lessee's
attornment, Lessee shall attorn to and recognize such Successor lessor as
Lessee's lessor under this Lease. In confirmation of such attornment, lessee
shall promptly execute, acknowledge and deliver any instrument that Lessor or
such Successor Lessor requests to evidence such attornment. Upon any such
attornment, this Lease shall continue in full force and effect as, or as if it
were, a direct lease between such Successor lessor and Lessee upon all of the
then executory terms, conditions and covenants as are set forth in this Lease
and which shall be applicable after such attornment, except that the successor
lessor shall not be:
(i) liable for any prior act or mission of Lessor;
(ii) subject to any offsets or defenses which Lessee may have against
Lessor;
(iii) bound by any payment of Rent which lessee might have made to
Lessor for more than one month in advance of the date the same was due
under this Lease or bound by any security or other deposits not actually
received by such Successor Lessor;
(iv) bound by any obligation to make any payment to Lessee, or provide
any services or perform any repairs, maintenance or restoration provided
for under this Lease to be performed before the date that the Successor
Lessor becomes the lessor of Lessee;
<PAGE>
(v) bound by any obligation to construct any improvements on the
Demised Premises; or
(vi) bound by any modification of this Lease made without the written
consent of such Successor Lessor or the Mortgagee through which such
Successor Lessor is claiming its interest, where such consent is required
under the terms of the documents evidencing its loan to Lessor, after
written notice has been given to Lessee of the existence of such Successor
lessor or Mortgagee.
(vii) If any act or omission of lessor would give Lessee the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to claim a partial or total eviction, Lessee shall not exercise
such right until (a) Lessee gives notice of such act or omission to Lessor
and to each Mortgagee whose name and address were previously furnished to
Lessee and (b) a reasonable period of time when such Mortgagee become
entitled under its Mortgage to remedy same (which reasonable period shall
in no event be less than the period to which lessor is entitled under this
Lease or otherwise, after similar notice, to effect such remedy or be
longer than 45 days after notice from Lessee to Mortgagee of such act or
omission).
21.12. Lessor's Access. Subject to Lessee's reasonable security regulations,
Lessor and Lessor's agents shall have the right to enter the Demised Premises at
reasonable times upon reasonable notice for the purpose of inspecting the same,
showing the same to prospective purchasers, Lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Demised Premises as
lessor deems necessary or desirable. Any time during the last one hundred eighty
(180) days of the Term, Lessor may place on or about the Demised Premises any
ordinary "For Lease" sign.
21.13. Consents. Wherever in this Lease the consent of one party is required to
an act of the other party such consent shall not be unreasonably withheld,
conditioned or delayed.
21.14. Quiet Possession. Upon lessee paying the Rent reserved hereunder and
observing and performing all of the material covenants, conditions and
provisions on Lessee's part to be observed and performed hereunder, Lessee shall
have quiet possession of the Demised Premises for the entire Term hereof subject
to all of the provisions of this Lease.
21.15. Signage. During the period in which lessee occupies the Demised Premises,
Lessee shall have the right to place signs on the Demised Premises. All signs
erected or placed on the Demised Premises by Lessee shall comply with all
applicable Governmental Laws.
21.16. Brokers. Lessor and Lessee each covenant, warrant and represent to the
other that no broker was instrumental in bringing about or consummating this
Lease and that neither Lessor nor Lessee has had dealings with any broker or
other person concerning the leasing of the Demised Premises. Lessor and Lessee
shall each indemnify and hold the other harmless against and from any claims for
any brokerage commissions or fees, and all costs, expense and liabilities in
connection therewith, including, without limitation, attorneys' fees and expense
(a) in connection with such claim if any broker or other person claims to have
had dealings with the indemnifying party and/or (b) in connection with the
enforcement of a party's rights under this Paragraph 21.16.
21.17. Indemnities. (a) Lessor shall indemnify, defend and hold harmless Lessee,
its officers, agents, employees, parents, subsidiaries and affiliate
organizations, from and against any claims, suites, loss, costs, (including
attorneys' fees and disbursements and cleanup coast), damages, expenses and
liabilities, including claims by reason of property damage or personal injury
(including death) of whatsoever nature against them individually or collectively
(collectively referred to as "Claims") arising out of the ownership or
maintenance of the Demised Premises by lessor (to the extent such maintenance by
Lessor is required hereunder) or to the extent the same results from lessor's
actions or in actions arising from any acts, incidents, events, occurrences, or
omissions which occurred or took place prior to the effective date of this Lease
<PAGE>
including, but not limited to, those related to ownership, tenancy, possession,
construction, operation, or use by Lessor or any other party of the Demised
Premises or which result in pollution, contamination or seepage and all maters
relating to environmental waste disposal laws, regulations, or issues, other
than Claims relating to the gross negligence or willful misconduct of Lessee,
its officers, agents, employees, parents, subsidiaries and affiliate
organizations. This provision shall survive any termination or expiration of
this Lease.
(b) Lessee shall indemnify, defend and hold harmless Lessor, its officers,
agents, employees, parent, subsidiaries and affiliate organizations, from and
against any and all Claims arising out of the use or maintenance of the Demised
Premises by Lessee, its officers, agents, employees, parents, subsidiaries and
affiliate organizations and the exercise by Lessee of enjoyment of the
privileges herein granted or by reason of any act or omission of Lessee, its
officers, agents, employees, parents, subsidiaries and affiliate organizations,
from or in connection with this Lease, other than Claims arising from the gross
negligence or willful misconduct of Lessor and other lessees of the Demised
Premises and their respective officers, agents, employees, parents, subsidiaries
and affiliate organizations. This provision shall survive any termination or
expiration of this Lease.
21.18. Unavoidable Delays. In the event of any Unavoidable Delays (hereinafter
defined) under this Lease, the time of performance of the covenants and
obligations under this Lease in question shall automatically be extended for a
period of time equal to the aggregate period of the Unavoidable Delays.
"Unavoidable Delays" shall mean delays due to (i) strikes, lockouts, acts of
God, governmental restrictions or peremptions, enemy action, riot, civil
commotion, storms, fire, floods, earthquakes, or the inability to obtain labor
or materials due to governmental restrictions, (ii) the wrongful failure of
either party hereto to grant any consent or approval to the other party hereto,
(iii) fire or other casualty or other causes beyond the control of the parties
hereto and (iv) the breach or default of either party hereto in the performance
of its obligations under this Lease which directly prevents the other party from
proceeding to perform its obligations hereunder.
21.19. Authorization. Lessor and Lessee each represents to the other that al
necessary authorizations, consents and approvals required in connection with the
execution and delivery of this Lease have been obtained and that the entering
into of this Lease does not violate the organizational documents of such party
or any agreement, court order or law to which such party is subject.
21.20. No Partnership. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture of or between Lessor and
Lessee, or to create any relationship between the parties other than that of a
lessor and a lessee.
21.21. Release of Liability. Lessor hereby release Lessee from all liabilities
arising out of loss or damage to the Demised Premises (except any damage to
Lessee's leasehold improvements which Lessee is required to insure under the
terms of this Lease) caused by perils covered under fire and extended coverage
insurance policies or all risk property insurance.
21.22. Mortgage Defaults. If Lessor shall default under any mortgage encumbering
its interest in the Demised Premises, Lessee shall have the right to cure such
default and shall be entitled to offset the amounts paid by Lessee to so cure
such default against any amounts due to Lessor hereunder. Lessor shall promptly
notify Lessee of any default by lessor under any such mortgage and shall
promptly deliver a copy to Lessee of any notices sent by either Lessor or the
mortgagee under such mortgage.
21.23. Ownership of Demised premises. Lessor represents and warrants to Lessee
that Lessor is the fee owner of the Demised Premises and that Exhibit A
constitutes a true, correct and accurate description of the Real Property.
<PAGE>
The parties hereto have executed this Lease as of the date set forth above.
LESSOR:
/s/ Pete Woodworth
/s/ Joyce Woodworth
LESSEE:
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
METLIFE CAPITAL
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT entered into as of the 30th day of July 1993 by
and between MetLife Capital Corporation, a Delaware corporation, whose address
is 10900 NE 4th Street, Suite 500, P.O. Box C-97550, Bellevue, WA 98009
("Lender") and Hampshire Hosiery, Inc., a Delaware Corporation whose address is
215 Commerce Boulevard, Anderson, SC 29621 ("Borrower").
WHEREAS, Lender has agreed to make a commercial loan or loans to Borrower; and
WHEREAS, as a condition to making the loans, and in order to secure the
repayment thereof, Lender has required Borrower to execute and deliver to Lender
this Loan and Security Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Borrower and Lender agree as follows:
1. Creation of Security Interest. As security for the due and punctual payment
of any and all of the present and future obligations of the Borrower to Lender,
whether direct or contingent or joint or several, Borrower hereby conveys,
assigns and grants to Lender a continuing security interest in all of Borrower's
rights, title and interest in and to the equipment described in the Supplemental
Security Agreement(s) entered into pursuant to this Loan and Security Agreement
from time to time ("Equipment") including all present and future additions,
attachments and accessories thereto, all substitutions therefor and replacements
thereof and all proceeds thereof, including all proceeds of insurance (such
Equipment and property hereinafter called "Collateral").
2. The Loans. (a) Subject to the terms and conditions of this Loan and Security
Agreement, Lender agrees to make a loan or loans to Borrower. The maximum
principal amount of any loan or loans to be made by Lender to Borrower shall be
within Lender's discretion, subject to the exercise of Lender's reasonable
business judgment, and shall be as stated in the loan commitment letter issued
by Lender to Borrower, or in the event a commitment letter is not issued by
Lender, in Lender's internal credit approval (each such loan or loans shall be
referred to as "the Loan Amount").
(b) The Loan Amount shall be repaid by Borrower as a term loan or term
loans ("Term Loan"). The Term Loan shall be evidenced by a promissory note
or notes in the form attached hereto as Exhibit "A" ("Term Note"). The
payment provisions of each Term Note shall be stated therein.
(c) If requested by borrower, and in accordance with the terms and
conditions of Section 3 hereof. Lender shall make interim funding to
Borrower of a Term Loan as partial advances of the Loan Amount ("Interim
Loans"). The Interim Loans shall either be for the payment of the
acquisition cost of any items of Equipment delivered and accepted by
borrower prior to the expiration date of Lender's loan commitment to
Borrower ("Commitment Expiration Date") or to fund progress payments to the
vendor or manufacturer of the Equipment, if the making of progress payments
was agreed to by Lender in its commitment or approval to make the loan or
loans to Borrower. The Interim Loans shall be evidenced by promissory notes
in the form attached hereto as Exhibit "B" ("Interim Note"). Interest on
all Interim Loans shall be payable as provided therein. The principal
amount due under the Interim Loans shall be due as provided in the Interim
Notes, at which time, provided no Event of Default hereunder has occurred
and is continuing or event which with the passing of time or giving of
notice or both would become an Event of Default hereunder has occurred and
is continuing. Lender shall consolidate all Interim Loans and convert them
to a Term Loan evidenced by a Term Note or Notes. Whether or not a Term
Loan is evidenced by one or more Term notes shall be as agreed between
Lender and Borrower, or in the absence of such an agreement, as decided by
Lender, in the exercise of its reasonable business judgment.
<PAGE>
(d) In the event that the amount loaned pursuant to the Interim Loans
is less than the Loan Amount, subject to Borrower's compliance with the
terms and conditions of this Loan and Security Agreement (including the
satisfaction of the conditions of borrowing set forth in Section 7 of this
Loan and Security Agreement, including but not limited to providing Lender
with a description of the items of Equipment). Lender shall disburse to
Borrower the balance of the Loan Amount on the same date that the Interim
Loans are converted into a term loan.
3. Method for Borrowing On Interim Loan. Borrower shall give Lender at least
five (5) business days written notice of a request for the disbursement of an
Interim Loan ("Request"), specifying the date on which the Interim Loan is to be
disbursed. Such Request shall be in the form attached hereto as Exhibit "C".
Such Request shall be accompanied by an original copy of the invoice or invoices
to be paid from the Interim Loan. Such Request shall constitute a representation
and warranty by the Borrower that (i) as of the date of the Request no Event of
Default or event which with the passing of time or the giving of notice or both
would constitute an Event of Default hereunder has occurred and is continuing
and (ii) in the event items of Equipment have been delivered to the Borrower,
Borrower has unconditionally accepted the Equipment from the Lender thereof.
Subject to the conditions of this Loan and Security Agreement, Lender shall
disburse the Interim Loan to the invoicing party, or if Borrower shall have paid
the amount of such invoice. Lender shall reimburse Borrower, upon receipt of
proof of payment from Borrower.
4. Cross Collateral/Cross Default. All Collateral shall secure the payment and
performance of all of Borrower's liabilities and obligations to Lender hereunder
and under any of the loan documents relating hereto including, but not limited
to, all Interim Notes and all Term Notes (the Loan and Security Agreement, the
Interim Notes, the Term Notes, the Supplemental Security Agreement(s) and all
other loan documents may be referred to herein collectively as the "Loan
Document"). Lender's security interest in the Collateral shall not be terminated
until and unless all of Borrower's obligations to Lender under any of the Loan
Documents are fully paid and performed. The occurrence of an event of default
under any other of the Loan Documents shall be deemed to be an Event of Default
hereunder and an Event of Default hereunder shall be deemed to be an event of
default under any other of the Loan Documents.
5. Representations and Warranties. Borrower hereby represents and warrants as
follows:
(a) Power and Authorization. Borrower has the full power and
(corporate) authority to execute, deliver and perform Borrower's
obligations under the Loan Documents. The execution and delivery of the
Loan Documents have been authorized by all requisite corporate (or
partnership) action on the part of Borrower. The execution, delivery and
performance of the Loan Documents have not constituted and will not
constitute a breach, default, or violation of or under Borrower's articles
of incorporation, by-laws (partnership agreement), or any other agreement,
indenture, contract, lease, law, order, decree, judgment, or injunction to
which Borrower is a party or may be bound and have not resulted and will
not result in the creation of any lien upon the Equipment pursuant to any
agreement, indenture, lease, contract or other instrument to which Borrower
is a party, except the lien created by this Loan and Security Agreement.
(b) Existence. If Borrower is a corporation, Borrower (i) is duly
incorporated, validly existing and in good standing under the laws of its
state of incorporation, (ii) has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on it
business as now conducted, and (iii) is duly qualified to transact business
as a foreign corporation in each jurisdiction where the Equipment will be
located and in the jurisdiction where is principal place of business is
located. If borrower is a partnership, Borrower (i) has been duly formed as
a (limited or general) partnership under the laws of the state of its
organization. (ii) is comprised of the general partner(s) listed on the
Schedule of Partners attached to this Loan and Security Agreement, and
(iii) is in good standing under the laws of the state of its formation.
<PAGE>
(c) Binding Effect. This Loan and Security Agreement constitutes the
valid and binding agreement of the Borrower; the Interim Notes and the Term
Notes, when executed and delivered, will constitute the valid and binding
obligations of the Borrower; and the Loan Documents are enforceable in
accordance with their terms except as (i) the enforceability thereof may be
limited by the bankruptcy laws, and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles
or general applicability.
(d) Litigation. There is no action, suite or proceeding pending
against, or to the knowledge of the Borrower, threatened against or
affecting the Borrower, before any court or arbitrator or any governmental
body, agency or official which has not been previously disclosed to the
Lender in writing and in which there is a reasonable possibility of an
adverse decision which could materially adversely affect the business,
financial condition or results of operations of the Borrower or which would
in any manner draw into question the validity of any of the Loan Documents.
(e) Filing of Tax Returns. The borrower has filed all tax returns
required to have been filed and has paid all taxes shown to be due and
payable on such returns, including interest and penalties, and all other
taxes which are payable by it, to the extent the same have become due and
payable. the Borrower knows of no proposed tax assessment against it and
all tax liabilities of the Borrower are adequately provided for.
(f) Title. The borrower has or shall have at the time it executes the
Term Note good and indefeasible title to the Collateral fee and clear of
all liens other than the Lender's lien.
(g) Compliance with Law. The business and operations of the Borrower
have been and are being conducted in accordance with all applicable laws,
rules and regulations, other than violations which could not (either
individually or collectively) have a material adverse effect on the
financial condition or operations of the Borrower.
(h) Full Disclosure. All documents, records, instruments,
certificates, statements (including, but not by way of limitation,
financial statements of Borrower) and information provided to Lender by
Borrower in connection with this Loan and Security Agreement are true and
accurate in all material respects and do not contain any untrue statement,
or fail to contain any statement of a material fact necessary to make the
statements contained herein or therein not misleading. There is no fact
known to the borrower that Borrower has not disclosed in writing which
could materially and adversely affect the financial condition or operations
of Borrower.
(i) Security Interest. The security interest granted to Lender
hereunder is a valid, first priority security interest in the collateral
and has been or promptly after the execution of the Supplemental Security
Agreement describing the Collateral will be, perfected in accordance with
the requirements of all states in which any item of the Collateral is
located.
(j) Personal Property. Under the laws of the state(s) in which the
Collateral is to be located, the Collateral is deemed to consist solely of
personal property.
(k) Pollution and Environmental Control. Borrower has obtained all
permits, licenses and other authorizations which are required under, and is
in material compliance with, all federal, state, and local laws and
regulations relating to pollution, reclamation or protection of the
environment, including laws relating to emissions, discharges, release or
threatened releases of pollutants, contaminants or hazardous or toxic
materials or wastes into air, water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes. Borrower shall maintain all such permits, licenses,
and authorizations current.
<PAGE>
6. Covenants. Borrower hereby agrees and covenants as follows:
(a) Payment. Borrower shall pay the indebtedness secured hereby as
provided herein and in the Interim Notes and Term Notes.
(b) Location of Collateral. Borrower will keep the Collateral located
at the location or locations stated on the Supplemental Security
Agreements, provided, however, that borrower may change the location of the
collateral with Lender's prior written consent.
(c) No Liens. Except for the security interest granted hereby or under
any other agreement under which Lender is the secured party, whether as
mortgagee, beneficiary or otherwise, borrower shall keep the Collateral
free and clear of any security interest, lien or encumbrance of any kind
and borrower shall not sell, assign (by operation of law or otherwise)
exchange or otherwise dispose of any of the Collateral.
(d) Insurance. Borrower shall procure and continuously maintain and
pay for (a) all risk physical damage and property insurance covering loss
or damage to the equipment for not less than the full replacement value
thereof naming Lender as loss payee and (b) bodily injury and property
damage combined single limit liability insurance, all in such amounts and
against such risks and hazards as are reasonably required by Lender with
insurance companies and pursuant to contracts or policies and with
deductibles satisfactory to Lender. All contracts and policies shall
include provisions for the protection of Lender notwithstanding any act or
neglect of or breach or default by Borrower, shall provide for payment of
insurance proceeds to Lender shall provide that they may not be modified,
terminated or canceled unless Lender is given at least thirty (30) days'
advance written notice thereof, and shall provide that the coverage is
"primary coverage" for the protection of Borrower or Lender notwithstanding
any other coverage carried by Lender protecting against similar risks.
Borrower shall promptly notify any appropriate insurer and Lender of each
and every occurrence, which may become the basis of a claim or cause of
action against the insured and provide Lender with all data pertinent to
such occurrence, Borrower shall furnish Lender with certificates of such
insurance or copies of policies upon request and shall furnish Lender with
renewal certificates not less than thirty (30) days prior to the renewal
date. Proceeds of all insurance are payable first to Lender to the extent
of its interest.
(e) Financing Statements. At the request of Lender, Borrower will join
Lender in executing one or more financing statements pursuant to the
Uniform Commercial Code and other documents deemed necessary by Lender
under applicable law to record or perfect its security interest in the
collateral, including continuation statements, in form satisfactory to
lender and will pay the cost of filing the same in all public officer
wherever filing is deemed by Lender to be necessary or desirable. Borrower
hereby authorizes Lender, in such jurisdictions where such action is
authorized by law, to effect any such recordation or filing of financing
statements or other documents without Borrower's signature thereto.
(f) Change of Name or Address. Borrower will immediately notify Lender
in writing of any change in its place of business or the adoption or change
of any trade name or fictitious business name, and will upon request of
Lender, execute any additional financing statements or other similar
documents necessary to perfect or maintain its security interest.
(g) Use of Equipment, Maintenance. Borrower will cause the Equipment
to be used in a careful and proper manner, will comply with and conform to
all governmental laws, rules and regulations relating thereto, and will
cause the Equipment to be operated in accordance with the manufacturer's or
supplier's instructions or manuals and only by competent and duly qualified
personnel. Borrower will cause the Equipment to be kept and maintained in
good repair, condition and working order and will furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that
the value, condition and operating efficiency thereof will at all times be
<PAGE>
maintained and preserved, normal wear and tear excepted. All such repairs,
parts, mechanisms, devices and replacements shall immediately, without
further act, become part of the Equipment and subject to the security
interest created by this Loan and Security Agreement. Borrower will not
make any improvement, change, addition or alteration to the Equipment if
such improvement, change, addition or alteration will impair the originally
intended function or use of the Equipment or impair the value of the
Equipment as it existed immediately prior to such improvement, change,
addition or alteration. Any part added to the Equipment in connection with
any improvement, change, addition or alteration shall immediately, without
further act, become part of the Equipment and subject to the security
interest created by this Loan and Security Agreement.
(h) Inspection. Lender may at any reasonable time or times inspect the
Equipment and may at any reasonable time or times inspect the books and
records of Borrower.
(i) Taxes. Borrower shall promptly pay, when due, all charges, fees,
assessments and taxes (excluding all taxes measured by Lender's income)
which may now or hereafter be imposed upon the ownership, leasing,
possession, sale or use of the collateral.
(j) Performance by Lender. If borrower fails to perform any agreement
or obligation contained herein, Lender may itself perform, or cause the
performance of such agreement or obligation. Borrower will pay, or
reimburse Lender, on demand, for any and all fees, including attorneys'
fees, costs and expenses of whatever kind or nature incurred by Lender in
connection with (i) the creation, preservation and protection of Lender's
security interest in the collateral, including, without limitations, all
fees and taxes in connection with he recording or filing of instruments and
documents in public offices, (ii) payments or discharge of any taxes or
liens upon or in respect of the Collateral, (iii) premiums for insurance
with respect to the Equipment and (iv) this Loan and Security Agreement and
with protecting, maintaining or preserving the Collateral and Lender's
interests therein, whether through judicial proceedings or otherwise, or in
connection with defending or prosecuting any actions, suits, or proceedings
arising out of or related to the Loan and Security Agreement and the Loan
Documents or in connection with any debt restructuring, loan workout
negotiations or bankruptcy or insolvency case or proceedings. All such
amounts shall constitute obligations of Borrower secured by the Collateral
in the event that borrower fails to perform any of its agreements contained
herein, Borrower will, on demand, reimburse Lender for all such
expenditures, together with interest thereon from the date of such
expenditure until fully reimbursed at the rate of two percent (2%) per
month on the outstanding balance of such expenditures or the highest rate
permitted by law, whichever is less.
(k) Power of Attorney. borrower hereby irrevocably appoints Lender
Borrower's attorney-in-fact with full authority in the place and stead of
Borrower and in the name of Borrower or otherwise, from time to time in the
Lender's discretion, to take any action and to execute any instrument which
Lender may deem necessary or advisable to accomplish the purposes of this
Loan and Security Agreement, including, without limitation: (i) to obtain,
compromise and adjust insurance required to be paid to Lender; (ii) to ask,
demand, collect, sue for, recover, receive and give acquittance and
receipts for moneys due and to become due under or in respect to any of the
collateral; (iii) to receive, endorses, and collect any drafts or other
instruments, documents, and chattel paper in connection with clause (i) or
(ii) above: and (iv) to file any claims or take any action or institute any
proceedings which Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of Lender with
respect to any of the Collateral.
(l) No duties. The powers conferred on Lender hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon
it to exercise any such powers. Except for the safe custody of any
collateral in its possession and the accounting for moneys actually
received by it hereunder. Lender shall have no duty as to any collateral or
as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any collateral.
(m) Financial Data. Borrower will furnish to Lender and will cause any
guarantor of Borrower's obligations to furnish to Lender on request (i)
annual balance sheet and profit and loss statements prepared in accordance
with generally accepted accounting principles and practices consistently
applied and, if Lender so requires, accompanied by the annual audit report
<PAGE>
of an independent certified public accountant reasonably acceptable to
Lender, and (ii) all other financial information and reports that Lender
may from time to time reasonably request, including, if Lender so requires,
income tax returns of Borrower and any guarantor of Borrower's obligations
hereunder.
7. Conditions of Borrowing. Lender shall not be obligated to make any loan
hereunder unless:
(a) the Interim Notes or Term Notes evidencing such loan shall have
been duly executed and delivered to lender;
(b) Borrower shall have executed and delivered to Lender the
supplemental Security Agreement describing the collateral and stating,
except with respect to progress payment funding, the location thereof;
(c) Except with respect to progress payment funding, Lender shall have
received evidence (as described in Section 6d hereof) that insurance has
been obtained in accordance with the provisions of this Loan and Security
Agreement;
(d) Lender shall have received any and all third party consents,
waivers or releases deemed necessary or desirable by it in connection with
the loan and the collateral being financed, including, without limitation.
Uniform Commercial Code lien releases and the consent and waiver, in form
and substance satisfactory to Lender, of each and every realty owner,
landlord and mortgagee holding an interest in or encumbrance on the real
property where any of the collateral is to be located;
(e) All filings, recordings and other actions deemed necessary or
desirable by Lender in order to establish, protect, preserve and perfect
its security interest in the collateral by being financed by such loan as a
valid perfected first priority security interest shall have been duly
effected, including, without limitation, the filing of financing statements
and the recordation of landlord (owners) and/or mortgagee waivers or
disclaimers, all in form and substance satisfactory to Lender, and all
fees, taxes and other charges relating to such filings and recordings shall
have been paid by Borrower.
(f) The representations and warranties contained in this Loan and
Security Agreement shall be true and correct in all respects on and as of
the date of the making of any loan hereunder with the same effect as if
made on and as of such date;
(g) In the sole judgment of Lender, there shall have been no material
adverse change in the financial condition, business or operations of
Borrower from the earliest date of any financial statement, credit report,
business report or similar document submitted to Lender for its review.
(h) All Loan Documents shall be satisfactory to Lender's attorneys;
and
(i) Lender shall have received, in form and substance satisfactory to
lender, such other documents as Lender shall require including, but not
limited to a request, proof of payment, vendor invoices and certificates of
authority and incumbency.
8. Default. The occurrence of any of the following events, following the giving
of any required notice and/or the expiration of any applicable period of grace,
shall constitute an event of default ("Event of Default") hereunder:
(a) Borrower's default in payment of any installment of the principal
of or interest on any Interim Note or Term Note when and after the same
shall become due and payable, whether at the due date thereof or by
acceleration or otherwise, which default shall continue unremedied for ten
(10) days; or
(b) The failure by Borrower to make payment of any other amount
payable hereunder or under any Interim Note, and the continuance of such
failure for more than ten (10) days after written notice thereof by Lender
to Borrower; or
(c) The failure by borrower to perform or observe any covenant,
condition, obligation or agreement to be performed or observed by it
hereunder, which failure shall continue unremedied for thirty (30) days
after written notice thereof by Lender to Borrower; or 4
(d) The occurrence of a default described in Section X hereof; or
(e) Any warranty, representation or statement made or furnished with
respect to the Borrower or the Collateral to Lender by or on behalf of
Borrower, in connection with this Loan and Security Agreement, or the
indebtedness secured hereby, shall prove to have been false in any adverse,
material respect when made or furnished; or
<PAGE>
(f) Borrower shall become insolvent or bankrupt or make an assignment
for the benefit of creditors or consent to the appointment of a trustee or
receiver; or a trustee or a receiver shall be appointed for Borrower or for
a substantial part of its property without its consent and shall not be
dismissed for a period of sixty (60) days; or bankruptcy, reorganization,
liquidation, insolvency or dissolution proceedings shall be instituted by
or against borrower and, if instituted against Borrower, shall be consented
to or be pending and not dismissed for a period of sixty (60) days; or any
execution or writ of process shall be issued under any action or proceeding
against Borrower in such capacity whereby any of the collateral may be
taken or restrained; Borrower shall cease doing business as a going
concern; or, without the prior written consent of lender, borrower shall
sell, transfer or dispose of all or substantially all of its assets or
property; or
(g) The liquidation, merger, consolidation, reorganization, conversion
to an "S" status or dissolution. If borrower is a corporation or
partnership of Borrower, if in Lender's reasonable opinion, such act shall
materially and adversely affect Borrower's ability to perform under any of
the Loan documents; or
(h) Any item of collateral is seized or levied on under legal or
governmental process or for any reason Lender deems itself insecure. Lender
shall be entitled to deem itself insecure when some event occurs, fails to
occur or is threatened or some objective condition exists or is threatened
which significantly impairs the prospects that any of borrower's
obligations to Lender will be paid when due, which significantly impairs
the value of the collateral to Lender or which significantly affects the
financial or business condition of borrower.
The occurrence of an Event of Default shall terminate any commitment or
obligation by Lender to make any of the loans contemplated by this Loan and
Security Agreement.
9. Remedies Upon Default. Upon the occurrence of an Event of default hereunder,
Lender may, at its option, do any one or more of the following:
(a) Declare all obligations of Borrower to Lender to be immediately
due and payable, whereupon all unpaid principal of and interest on said
indebtedness and other amounts declared due and payable shall be an become
immediately due and payable;
(b) Take possession of all or any of the collateral and exclude
therefrom Borrower and all others claiming under Borrower, and thereafter
hold, store, use, operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to and exercise all
rights and powers of Borrower in respect to the Collateral or any part
thereof. In the event Lender demands, or attempts to take possession of the
collateral in the exercise of any rights under this Loan and Security
Agreement, Borrower promises and agrees to promptly turn over and deliver
complete possession thereof to Lender;
(c) Require Borrower to assemble the Collateral, or any portion
thereof, at a place designated by Lender and reasonably convenient to both
parties, and promptly to deliver such collateral to Lender, or an agent or
representative designated by it;
(d) Sell, lease or otherwise dispose of the Collateral at public or
private sale, without having the Collateral at the place of sale, and upon
terms and in such manner as Lender may determine ( and Lender may be a
purchaser at any sale); and
(e) Exercises any remedies of a secured party under the Uniform
commercial Code as adopted in the state where the Collateral is located or
any other applicable law.
Except as to portions of the Collateral which are perishable or threaten to
decline speedily in value or are of a type customarily sold on a recognized
market. Lender shall give borrower at least ten (10) days' prior written notice
<PAGE>
of the time and place of any public or private sale of the collateral or other
intended disposition thereof to be made. such notice may be mailed to Borrower
at the address et forth in the first paragraph of this Loan and Security
Agreement. Borrower hereby specifically agrees (to the extent that applicable
law and public policy allows it to effectively do so) that any public or private
sale held in accordance with the terms of this Loan and Security Agreement
shall, for the purpose of the uniform Commercial Code as adopted in the state
where the Collateral is located and for all other purposes, be deemed to have
been conducted in a commercially reasonable manner and in good faith.
The proceeds of any sale under Section 9(d) shall be applied as follows:
(i) To the repayment of the costs and expense of retaking,
holding and preparing for the sale and the selling of the Collateral
(including legal expenses and attorneys' fees) and the discharge of
all assessments, encumbrances, charges or liens, if any, on the
Collateral prior to the lien hereof (except any taxes, assessments,
encumbrances, charges or liens subject to which such sale shall have
been made);
(ii) To the payment of the whole amount then due and unpaid of
the indebtedness of Borrower to Lender;
(iii) To the payment of other amounts then secured hereunder; and
(iv) The surplus, if any shall be paid to the Borrower or to
whomsoever may be lawfully entitled to receive the same. Lender shall
have the right to enforce one or more remedies hereunder, successively
or concurrently, and such action shall not operate to estop or prevent
Lender from pursuing any further remedy which it may have, and any
repossession or retaking or sale of the Collateral pursuant to the
terms hereof shall not operate to release Borrower until full payment
of any deficiency has been made in cash.
10. Limitation on Interest: It is the intent of the parties to this Loan and
Security Agreement to contract in strict compliance with applicable usury laws
from time to time in effect. In furtherance thereof, the parties stipulate and
agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay for the use, forbearance or
detention of money at a rate in excess of the maximum interest rate permitted to
be charged by applicable law from time to time in effect.
11. Personal Property/Tags. No item of Equipment will be attached or affixed to
realty or any building without Lender's prior knowledge and written consent and
waiver of the landlord and the mortgagee, if any, of the real property. If so
requested by Lender, Borrower will affix tags supplied by Lender, reflecting
Lender's security interest in the Equipment.
12. Loss and Damage. Borrower shall bear the risk of damage, loss, theft, or
destruction, partial or complete of the Equipment, whether or not such loss or
damage is covered by insurance, except that while Borrower is not in default,
Lender agrees to apply toward payment of obligations of Borrower insurance
proceeds payable to Lender by reason of such damage, loss, theft, or
destruction. In the event of any damage, loss, theft, or destruction, partial or
complete, of any item of Equipment, Borrower shall promptly notify Lender in
writing and at the option of Lender (a) repair or restore the Equipment to good
condition and working order, or (b) replace the Equipment with similar equipment
in good repair, condition and working order, or (c) pay Lender, in cash, an
amount equal to the unamortized equipment cost for the item or if the Equipment
was not purchased with the loan proceeds, the prorata portion of the outstanding
principal balance due under the Interim Note or Term Note, as the case may be,
and all other amounts relating to that item of Equipment then due and owing
hereunder, and upon payment of that amount, Lender's lien shall be terminated
with respect to that item of Equipment only, and Lender will release its
interest in that item of Equipment.
13. Assignment. Borrower may not assign or transfer any rights under this Loan
and Security Agreement or to the Collateral without Lender's prior written
consent.
14. Indemnification. Borrower shall indemnify and hold harmless Lender from and
against any and all claims, losses, liabilities, causes of action, costs and
expenses (including the fees of Lender's attorneys) ("Claims") in any way
relating to or arising out of this Loan and Security Agreement, the other Loan
Documents or the collateral, except for any Claims resulting solely and directly
from Lender's gross negligence or willful misconduct.
<PAGE>
15. Notices. Whenever Borrower or Lender shall desire to give or serve any
notice, demand, requests or other communication with respect to this Loan and
Security Agreement, each such notice, demand, request or communication shall be
in writing and shall be effective only if the same is physically delivered or is
by certified mail, postage prepaid, return receipt requested, or by overnight
courier, postage prepaid, mailed to the parties at the addresses set forth in
the first paragraph of this Loan and Security Agreement, with a copy to Lender's
Vice President of Credit. Any party hereto may change its address for such
notices by delivering or mailing to the other parties hereto, as aforesaid, a
notice of such change.
16. No Waiver by Lender. By exercising or failing to exercise any of its rights,
options or election hereunder, Lender shall not be deemed to have waived any
breach or default on the part of Borrower or to have released Borrower from any
of the obligations secured hereby, unless such waiver or release is in writing
and is signed by Lender. In addition, the waiver by Lender of any breach hereof
for default in payment of an indebtedness secured hereby shall not be deemed to
constitute a waiver of any succeeding breach or default.
17. Further Agreements. From time to time, Borrower will execute such further
instruments as Lender may reasonably require, in order to protect, preserve, and
maintain the security interest granted hereby.
18. Binding upon Successors. All agreement, covenants, conditions and provisions
of this Loan and Security Agreement shall apply to and bind the successors and
assigns of all parties hereto.
19. Governing Laws. This Loan and Security Agreement shall be governed by the
laws of the State of Washington.
20. Amendment. This Loan and Security Agreement can be modified or rescinded
only by a writing expressly referring to this Loan and Security Agreement,
signed by both of the parties hereto.
21. Invalidity of Provisions. Every provision of this Loan and Security
Agreement is intended to be severable. In the event that any term or provision
hereof is declared by a court to be illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the balance of the
terms and provisions hereof, which terms and provisions shall remain binding and
enforceable, then to the extent possible all of the other provisions shall
nonetheless remain in full force and effect.
22. Security Substitution. If, during the term of the loan, any part of the
security becomes obsolete, Borrower shall have the right to substitute new
security of equal or greater value. Borrower agrees to pay for all costs
associated with a substitution.
Lender: METLIFE CAPITAL CORPORATION
By:
- -----------------------------------------
(Print Name):
Title: Vice President
Borrower: HAMPSHIRE HOSIERY, INC.
By: /s/ Charles W. Clayton
- ------------------------------------------
(Print Name): Charles W. Clayton
Title: Vice President and Treasurer
Social Security Number:
(if borrower is an individual)
Federal Tax Identification Number: 06-0961174
<PAGE>
TERM PROMISSORY NOTE NO. ONE
METLIFE CAPITAL
No. 5027993
$3,500,000.00
July 30, 1993
FOR VALUE RECEIVED, the undersigned, HAMPSHIRE HOSIERY, INC. ("Maker") promise
to pay to the order of METLIFE CAPITAL CORPORATION ("Payee"), at its office at
10900 N.E. 4th St., Suite 500, Box C-97550, Bellevue, Washington 98009, the
principal sum of Three Million Five Hundred Thousand ($3,500,000.00) Dollars
together with interest on unpaid principal from the date of disbursement of such
principal amount until payment in full at a rate of Seven and Fifty Nine
Hundredths percent (7.59%) per annum ("Rate") computed on the basis of a 360 day
year of twelve consecutive thirty day months. Interest hereunder shall be paid
on the unpaid principal, together with principal, in Sixty (60) installments of
Fifty Three Thousand Eight Hundred Thirty Nine and fifty-six cents ($56,839.56)
with an amortization of the loan over Eight-Four (84) months, or Seven (7) years
commencing on August 30, 1993 and Monthly thereafter until July 30, 1998 on
which date the entire balance of $1,249,197.92, including principal and interest
unpaid shall be due and payable. It is agreed that each installment, when paid,
shall be applied by the holder hereof, first so much as shall be required to the
payment of interest accrued as specified hereto, and the balance thereof to the
repayment of the principal sum.
Except as may be otherwise expressly provided herein, this Note may not be
prepaid in whole or in part, except with the prior written consent of Payee,
Maker shall have the privilege of prepaying all (but not part) of the then
outstanding balance under this Note on July 30, 1995 or on any installment due
date thereafter, subject to giving thirty (30) days prior written notice to
Payee specifying the date of prepayment and further subject to payment of a
prepayment premium equal to the amount, if any, required to offset the adverse
impact to Payee of any decline in interest rates. The prepayment premium is
determined by (i) calculating the decrease, expressed in basis points (but no
less than zero) in the current weekly average yield for Three (3) year U.S.
Treasury Notes as published in Federal Reserve Statistical Release H. 15(519)
(the "Index") from the weekly average yield of 4.50% as of June 22, 1993 to the
Friday (or, if Friday is not a business day, the last business day) of the week
immediately preceding the prepayment date (ii) dividing the difference by 100,
(iii) multiplying the result by the applicable "Premium Factor" set forth below,
and (iv) multiplying the product by the principal to be prepaid. Any prepayment
shall be applied first to the prepayment premium, if any, next to accrued
interest and late charges (if any), and thereafter to the principal then
outstanding. The Premium Factor shall be the amount shown on the following chart
for the month in which payment occurs.
Number of Months Remaining (Years) Premium Factor
26 - 25 (3) .022
24 - 13 (2) .017
12 - 1 (1) .011
In the event the Federal Reserve Board ceases to publish Statistical Release H.
15(519), then the decrease in Three (3) - Year U.S. Treasury Notes will be
determined from another source designated by Payee.
If Maker shall have given to Payee notice of Maker's intention to so prepay,
Maker shall not then be entitled to withdraw such notice, and the indebtedness
proposed to be prepaid in such notice together with the aforesaid prepayment
fee, if applicable, shall be due and payable upon the date specified for such
prepayment in such notice. Upon the occurrence of an Event of Default and
acceleration of payment of indebtedness evidenced hereby during a period open to
prepayment, Maker shall pay to Payee, in addition to any and all other sums due
and payable hereunder, as liquidated damages for the loss of Payee's investment
and not as a penalty, an amount equal to the prepayment fee which would have
been payable hereunder on such date of acceleration in the event of a voluntary
prepayment. Maker and Payee agree that the foregoing amounts do not constitute
penalties but rather constitute reasonable calculations of the investment loss
that would be sustained by Payee in the event of such prepayment.
It is specifically understood and agreed by Maker that, in the event of a
default under this Note or under any instrument securing the Note, a tender of
payment of the unpaid principal and accrued interest then outstanding shall be
<PAGE>
deemed a prepayment, and accordingly, said tender must include the premium
herein above required, or if said tender is made prior to the time this
privilege is operative, then said tender must include a premium equal to six (6)
months' interest at the Rate computed on the principal amount so tendered. It is
further understood and agreed by Maker that Payee shall not be obligated to
accept said tender, and said tender shall for all purposes be deemed ineffectual
and deficient, unless said tender shall include the premium herein above
required.
In the event that Payee does not receive any payment on the date due, Maker will
pay Payee a late charge of five percent (5%) of the payment outstanding together
with the payment and, provided said sum is received within ten (10) days of the
date due, Payee agrees not to demand immediate payment of the whole sum of
principal and interest as otherwise permitted herein.
If, from any circumstances whatsoever, payment of any obligation due under this
Note at the time such performance shall be due shall involve exceeding the
maximum amount currently prescribed by any applicable usury statue or any other
applicable law, then such obligation shall be reduced to such maximum amount, so
that in no even shall any payment be possible under this Note, or under any
other instrument evidencing or securing the indebtedness evidenced hereby, that
is in excess of such maximum amount.
In the event that an Event of Default shall occur under the Loan and Security
Agreement (as hereinafter defined) or other instrument now or hereafter securing
repayment hereof, following any required notice and/or the expiration of any
applicable period of grace, then, and in such event, the principal indebtedness
evidenced hereby, and any other sums advanced hereunder, together with all
unpaid interest accrued thereon, shall, at the option of Payee, at once become
due and payable and may be collected forthwith, regardless of the stipulated
date of maturity. TIME IS OF THE ESSENCE WITH RESPECT TO THIS NOTE. Interest
shall accrue on the outstanding principal for so long as such default continues,
regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby as set forth herein, at the rate equal to the lesser of fifteen
percent (15%) per annum or the maximum rate allowable under law. All such
interest shall be paid at the time of and as a condition precedent to the curing
of any such default should Payee, at its sole option, allow such default to be
cured. In the event this Note, or any part thereof, is collected by or through
an attorney-at-law. Maker agrees to pay all costs of collection including, but
not limited to, reasonable attorneys' fees, whether or not suit is filed.
This Note is one of the notes referred to in and is secured by the Loan and
Security Agreement dated July 30, 1993 between Maker and Payee. The terms of the
Loan and Security Agreement are incorporated herein by reference
This Note consolidates the following interim Notes executed by Maker in favor of
Payee
Interim Note Number Date Principal Amount
REQUEST FOR ADVANCE OF DATED: July 27, 1993 $3,500,000.00
LOAN PROCEEDS NO. ONE
Maker waives any right of exemption and waives presentment, protest and demand
and notice of protest, demand and of dishonor and nonpayment of this Note, and
consents that any holder hereof shall have the right, without notice, to grant
any extension or extensions of time for payment of this Note or any part thereof
or any other indulgences or forbearances whatsoever, or may release any of the
security for this Note without in any way affecting the liability of any other
party for the payment of this Note.
The due payment and performance of Maker's obligations hereunder shall be
without regard to any counterclaim, right of offset, or any other counterclaim
whatsoever which Maker may have against Payee and without regard to any other
obligations of any nature whatsoever which Payee may have to Maker, and no such
counterclaim or offset shall be asserted by Maker in any action, suite or
proceeding instituted by Payee for Payment of Maker's obligations hereunder.
This Note and the Loan and Security Agreement shall be governed by and construed
in accordance with the laws of the State of Washington.
<PAGE>
Maker acknowledges that there is no presumption that the value of the property
securing this note is equal to the face amount of the Note, and that a
deficiency judgment many be necessary in proceedings taken for enforcement
hereof.
No amendment to this Note shall be binding upon Payee unless it is in writing
and duly signed by Payee.
IN WITTINESS WHEREOF, the Maker has caused these presents to be duly signed and
the date first above written.
Borrower: HAMPSHIRE HOSIERY, INC.
By: /s/ Charles W. Clayton
Witness:/s/ Lanna M. West
(Print name): Charles W. Clayton
Title: Vice President/Treasurer
<PAGE>
METLIFE CAPITAL
SUPPLEMENTAL SECURITY AGREEMENT NO. ONE
This Supplemental Security Agreement is executed by HAMPSHIRE HOSIERY, INC.,
("Borrower") pursuant to the terms of a Loan and Security Agreement dated
_________ between Borrower and MetLife Capital Corporation ("Lender"). All
capitalized terms used herein that are not otherwise defined herein shall have
the respective meanings given to such terms in the Loan and Security Agreement.
In order to provide security for the payment and performance of Borrower's
obligations under the Loan Documents, Borrower has granted to Lender a first
priority security interest in the Collateral. In addition to said grant,
Borrower intends by this Supplemental Security Agreement to grant to Lender a
first priority security interest in the items of Equipment identified herein.
1. To further secure the payment and performance of all of Borrower's
obligations to lender under the Loan Documents, Borrower hereby grants to Lender
a first priority security interest in the items of Collateral described below,
including all present and future additions, attachments and accessories thereto,
all substitutions therefor and replacements thereof and all proceeds thereof,
including all proceeds of insurance: Cost or Qty. Model/Mfr. Description Serial
No. Appraised Value Equipment specified in the Equipment Appraisal as of 6/2/93
by Henderson Machinery, Inc. $3,500,000.00
2. Borrower hereby (a) affirms that the representations and warranties set forth
in Section 5 of the Loan and Security Agreement are true and correct as of the
date hereof; (b) represents and warrants that Lender has a first priority
security interest in the Collateral; and (c) represents and warrants that the
above described equipment will be maintained at the following locations(s):
103 Cross Street, Highway 19E, Spruce Pine, NC 28777
3. The Loan Amount for loans to be made pursuant to this Supplemental Security
Agreement is $3,500,000.00.
4. The Commitment Expiration Date for loans to be made pursuant to this
Supplemental Security Agreement is July 31, 1993.
5. The amount of liability insurance required to be maintained by Borrower
pursuant to Section 6(d) of the Loan and Security Agreement is $1,000,000.00.
6. All of the terms and provisions of the Loan and Security Agreement are hereby
incorporated in and made a part of this Supplemental Security Agreement to the
same extent as if fully set forth herein.
In witness whereof, Borrower has executed and delivered this supplemental
Security Agreement this 27th day of July, 1993.
Borrower: HAMPSHIRE HOSIERY, INC.
By: /s/ Charles W. Clayton
(Print name): Charles W. Clayton
Title: Vice President/Treasurer
METLIFE CAPITAL
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT entered into as of the _______ day of _____
19___ by and between MetLife Capital Corporation, a Delaware corporation, whose
address is 10900 NE 4th Street, Suite 500, P.O. Box C-97550, Bellevue, WA 98009
("Lender") and Hampshire Designers, Inc., Co-Borrower and San Francisco
Knitworks, Inc., Co-Borrower both Delaware corporations whose address is 215
commerce Boulevard, Anderson, SC 29621 ("Borrower").
WHEREAS, Lender has agreed to make a commercial loan or loans to borrower; and
WHEREAS, as a condition to making the loans, and in order to secure the
repayment thereof, Lender has required Borrower to execute and deliver to Lender
this Loan and Security Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Borrower and Lender agree as follows:
1. Creation of Security Interest. As security for the due and punctual payment
of any and all of the present and future obligations of the Borrower to Lender,
whether direct or contingent or joint or several, Borrower hereby conveys,
assigns and grants to Lender a continuing security interest in all of Borrower's
rights, title and interest in and to the equipment described in the Supplemental
Security Agreement(s) entered into pursuant to this Loan and Security Agreement
from time to time ("Equipment") including all present and future additions,
attachments and accessories thereto, all substitutions therefor and replacements
thereof and all proceeds thereof, including all proceeds of insurance (such
Equipment and property hereinafter called "Collateral").
2. The Loans. (a) Subject to the terms and conditions of this Loan and Security
Agreement, Lender agrees to make a loan or loans to Borrower. The maximum
principal amount of any loan or loans to be made by Lender to Borrower shall be
within Lender's discretion, subject to the exercise of Lender's reasonable
business judgment, and shall be as stated in the loan commitment letter issued
by Lender to Borrower, or in the event a commitment letter is not issued by
Lender, in Lender's internal credit approval (each such loan or loans shall be
referred to as "the Loan Amount").
(b) The Loan Amount shall be repaid by Borrower as a term loan or
term loans ("Term Loan"). The Term Loan shall be evidenced by a
promissory note or notes in the form attached hereto as Exhibit "A"
("Term Note"). The payment provisions of each Term Note shall be
stated therein.
(c) If requested by borrower, and in accordance with the terms
and conditions of Section 3 hereof. Lender shall make interim funding
to Borrower of a Term Loan as partial advances of the Loan Amount
("Interim Loans"). The Interim Loans shall either be for the payment
of the acquisition cost of any items of Equipment delivered and
accepted by borrower prior to the expiration date of Lender's loan
commitment to Borrower ("Commitment Expiration Date") or to fund
<PAGE>
progress payments to the vendor or manufacturer of the Equipment, if
the making of progress payments was agreed to by Lender in its
commitment or approval to make the loan or loans to Borrower. The
Interim Loans shall be evidenced by promissory notes in the form
attached hereto as Exhibit "B" ("Interim Note"). Interest on all
Interim Loans shall be payable as provided therein. The principal
amount due under the Interim Loans shall be due as provided in the
Interim Notes, at which time, provided no Event of Default hereunder
has occurred and is continuing or event which with the passing of time
or giving of notice or both would become an Event of Default hereunder
has occurred and is continuing. Lender shall consolidate all Interim
Loans and convert them to a Term Loan evidenced by a Term Note or
Notes. Whether or not a Term Loan is evidenced by one or more Term
notes shall be as agreed between Lender and Borrower, or in the
absence of such an agreement, as decided by Lender, in the exercise of
its reasonable business judgment.
(d) In the event that the amount loaned pursuant to the Interim
Loans is less than the Loan Amount, subject to Borrower's compliance
with the terms and conditions of this Loan and Security Agreement
(including the satisfaction of the conditions of borrowing set forth
in Section 7 of this Loan and Security Agreement, including but not
limited to providing Lender with a description of the items of
Equipment). Lender shall disburse to Borrower the balance of the Loan
Amount on the same date that the Interim Loans are converted into a
term loan.
3. Method for Borrowing On Interim Loan. Borrower shall give Lender at least
five (5) business days written notice of a request for the disbursement of an
Interim Loan ("Request"), specifying the date on which the Interim Loan is to be
disbursed. Such Request shall be in the form attached hereto as Exhibit "C".
Such Request shall be accompanied by an original copy of the invoice or invoices
to be paid from the Interim Loan. Such Request shall constitute a representation
and warranty by the Borrower that (i) as of the date of the Request no Event of
Default or event which with the passing of time or the giving of notice or both
would constitute an Event of Default hereunder has occurred and is continuing
and (ii) in the event items of Equipment have been delivered to the Borrower,
Borrower has unconditionally accepted the Equipment from the Lender thereof.
Subject to the conditions of this Loan and Security Agreement, Lender shall
disburse the Interim Loan to the invoicing party, or if Borrower shall have paid
the amount of such invoice. Lender shall reimburse Borrower, upon receipt of
proof of payment from Borrower.
4. Cross Collateral/Cross Default. All Collateral shall secure the payment and
performance of all of Borrower's liabilities and obligations to Lender hereunder
and under any of the loan documents relating hereto including, but not limited
to, all Interim Notes and all Term Notes (the Loan and Security Agreement, the
Interim Notes, the Term Notes, the Supplemental Security Agreement(s) and all
other loan documents may be referred to herein collectively as the "Loan
Document"). Lender's security interest in the Collateral shall not be terminated
until and unless all of Borrower's obligations to Lender under any of the Loan
Documents are fully paid and performed. The occurrence of an event of default
under any other of the Loan Documents shall be deemed to be an Event of Default
hereunder and an Event of Default hereunder shall be deemed to be an event of
default under any other of the Loan Documents.
5. Representations and Warranties. Borrower hereby represents and warrants as
follows:
(a) Power and Authorization. Borrower has the full power and
(corporate) authority to execute, deliver and perform Borrower's
obligations under the Loan Documents. The execution and delivery of the
Loan Documents have been authorized by all requisite corporate (or
partnership) action on the part of Borrower. The execution, delivery and
performance of the Loan Documents have not constituted and will not
constitute a breach, default, or violation of or under Borrower's articles
of incorporation, by-laws (partnership agreement), or any other agreement,
indenture, contract, lease, law, order, decree, judgment, or injunction to
which Borrower is a party or may be bound and have not resulted and will
not result in the creation of any lien upon the Equipment pursuant to any
agreement, indenture, lease, contract or other instrument to which Borrower
is a party, except the lien created by this Loan and Security Agreement.
<PAGE>
(b) Existence. If Borrower is a corporation, Borrower (i) is duly
incorporated, validly existing and in good standing under the laws of its
state of incorporation, (ii) has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted, and (iii) is duly qualified to transact business
as a foreign corporation in each jurisdiction where the Equipment will be
located and in the jurisdiction where is principal place of business is
located. If borrower is a partnership, Borrower (i) has been duly formed as
a (limited or general) partnership under the laws of the state of its
organization. (ii) is comprised of the general partner(s) listed on the
Schedule of Partners attached to this Loan and Security Agreement, and
(iii) is in good standing under the laws of the state of its formation.
(c) Binding Effect. This Loan and Security Agreement constitutes the
valid and binding agreement of the Borrower; the Interim Notes and the Term
Notes, when executed and delivered, will constitute the valid and binding
obligations of the Borrower; and the Loan Documents are enforceable in
accordance with their terms except as (i) the enforceability thereof may be
limited by the bankruptcy laws, and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles
or general applicability.
(d) Litigation. There is no action, suite or proceeding pending
against, or to the knowledge of the Borrower, threatened against or
affecting the Borrower, before any court or arbitrator or any governmental
body, agency or official which has not been previously disclosed to the
Lender in writing and in which there is a reasonable possibility of an
adverse decision which could materially adversely affect the business,
financial condition or results of operations of the Borrower or which would
in any manner draw into question the validity of any of the Loan Documents.
(e) Filing of Tax Returns. The borrower has filed all tax returns
required to have been filed and has paid all taxes shown to be due and
payable on such returns, including interest and penalties, and all other
taxes which are payable by it, to the extent the same have become due and
payable. The Borrower knows of no proposed tax assessment against it and
all tax liabilities of the Borrower are adequately provided for.
(f) Title. The borrower has or shall have at the time it executes the
Term Note good and indefeasible title to the Collateral fee and clear of
all liens other than the Lender's lien.
(g) Compliance with Law. The business and operations of the Borrower
have been and are being conducted in accordance with all applicable laws,
rules and regulations, other than violations which could not (either
individually or collectively) have a material adverse effect on the
financial condition or operations of the Borrower.
(h) Full Disclosure. All documents, records, instruments,
certificates, statements (including, but not by way of limitation,
financial statements of Borrower) and information provided to Lender by
Borrower in connection with this Loan and Security Agreement are true and
accurate in all material respects and do not contain any untrue statement,
or fail to contain any statement of a material fact necessary to make the
statements contained herein or therein not misleading. There is no fact
known to the borrower that Borrower has not disclosed in writing which
could materially and adversely affect the financial condition or operations
of Borrower
(i) Security Interest. The security interest granted to Lender
hereunder is a valid, first priority security interest in the collateral
and has been or promptly after the execution of the Supplemental Security
Agreement describing the Collateral will be, perfected in accordance with
the requirements of all states in which any item of the Collateral is
located.
(j) Personal Property. Under the laws of the state(s) in which the
Collateral is to be located, the Collateral is deemed to consist solely of
personal property.
<PAGE>
(k) Pollution and Environmental control. Borrower has obtained all
permits, licenses and other authorizations which are required under, and is
in material compliance with, all federal, state, and local laws and
regulations relating to pollution, reclamation or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic
materials or wastes into air, water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes. Borrower shall maintain all such permits, licenses,
and authorizations current.
6. Covenants. Borrower hereby agrees and covenants as follows:
(a) Payment. Borrower shall pay the indebtedness secured hereby as
provided herein and in the Interim Notes and Term Notes.
(b) Location of Collateral. Borrower will keep the Collateral located
at the location or locations stated on the Supplemental Security
Agreements, provided, however, that borrower may change the location of the
Collateral with Lender's prior written consent.
(c) No Liens. Except for the security interest granted hereby or under
any other agreement under which Lender is the secured party, whether as
mortgagee, beneficiary or otherwise, Borrower shall keep the Collateral
free and clear of any security interest, lien or encumbrance of any kind
and borrower shall not sell, assign (by operation of law or otherwise)
exchange or otherwise dispose of any of the Collateral.
(d) Insurance. Borrower shall procure and continuously maintain and
pay for (a) all risk physical damage and property insurance covering loss
or damage to the equipment for not less than the full replacement value
thereof naming Lender as loss payee and (b) bodily injury and property
damage combined single limit liability insurance, all in such amounts and
against such risks and hazards as are reasonably required by Lender with
insurance companies and pursuant to contracts or policies and with
deductibles satisfactory to Lender. All contracts and policies shall
include provisions for the protection of Lender notwithstanding any act or
neglect of or breach or default by Borrower, shall provide for payment of
insurance proceeds to Lender shall provide that they may not be modified,
terminated or canceled unless Lender is given at least thirty (30) days'
advance written notice thereof, and shall provide that the coverage is
"primary coverage" for the protection of Borrower or Lender notwithstanding
any other coverage carried by Lender protecting against similar risks.
Borrower shall promptly notify any appropriate insurer and Lender of each
and every occurrence, which may become the basis of a claim or cause of
action against the insured and provide Lender with all data pertinent to
such occurrence, Borrower shall furnish Lender with certificates of such
insurance or copies of policies upon request and shall furnish Lender with
renewal certificates not less than thirty (30) days prior to the renewal
date. Proceeds of all insurance are payable first to Lender to the extent
of its interest.
(e) Financing Statements. At the request of Lender, Borrower will join
Lender in executing one or more financing statements pursuant to the
Uniform Commercial Code and other documents deemed necessary by Lender
under applicable law to record or perfect its security interest in the
collateral, including continuation statements, in form satisfactory to
Lender and will pay the cost of filing the same in all public officer
wherever filing is deemed by Lender to be necessary or desirable. Borrower
hereby authorizes Lender, in such jurisdictions where such action is
authorized by law, to effect any such recordation or filing of financing
statements or other documents without Borrower's signature thereto.
(f) Change of Name or Address. Borrower will immediately notify Lender
in writing of any change in its place of business or the adoption or change
of any trade name or fictitious business name, and will upon request of
Lender, execute any additional financing statements or other similar
documents necessary to perfect or maintain its security interest.
(g) Use of Equipment, Maintenance. Borrower will cause the Equipment
to be used in a careful and proper manner, will comply with and conform to
all governmental laws rules and regulations relating thereto, and will
cause the Equipment to be operated in accordance with the manufacturer's or
supplier's instructions or manuals and only by competent and duly qualified
personnel. Borrower will cause the Equipment to be kept and maintained in
good repair, condition and working order and will furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that
the value, condition and operating efficiency thereof will at all times be
maintained and preserved, normal wear and tear excepted. All such repairs,
parts, mechanisms, devices and replacements shall immediately, without
further act, become part of the Equipment and subject to the security
<PAGE>
interest created by this Loan and Security Agreement. Borrower will not
make any improvement, change, addition or alteration to the Equipment if
such improvement, change, addition or alteration will impair the originally
intended function or use of the Equipment or impair the value of the
Equipment as it existed immediately prior to such improvement, change,
addition or alteration. Any part added to the Equipment in connection with
any improvement, change, addition or alteration shall immediately, without
further act, become part of the Equipment and subject to the security
interest created by this Loan and Security Agreement.
(h) Inspection. Lender may at any reasonable time or times inspect the
Equipment and may at any reasonable time or times inspect the books and
records of Borrower.
(i) Taxes. Borrower shall promptly pay, when due, all charges, fees,
assessments and taxes (excluding all taxes measured by Lender's income)
which may now or hereafter be imposed upon the ownership, leasing,
possession, sale or use of the collateral.
(j) Performance by Lender. If borrower fails to perform any agreement
or obligation contained herein, Lender may itself perform, or cause the
performance of such agreement or obligation. Borrower will pay, or
reimburse Lender, on demand, for any and all fees, including attorneys'
fees, costs and expenses of whatever kind or nature incurred by Lender in
connection with (i) the creation, preservation and protection of Lender's
security interest in the collateral, including, without limitations, all
fees and taxes in connection with the recording or filing of instruments
and documents in public offices, (ii) payments or discharge of any taxes or
liens upon or in respect of the Collateral, (iii) premiums for insurance
with respect to the Equipment and (iv) this Loan and Security Agreement and
with protecting, maintaining or preserving the Collateral and Lender's
interests therein, whether through judicial proceedings or otherwise, or in
connection with defending or prosecuting any actions, suits, or proceedings
arising out of or related to the Loan and Security Agreement and the Loan
Documents or in connection with any debt restructuring, loan workout
negotiations or bankruptcy or insolvency case or proceedings. All such
amounts shall constitute obligations of Borrower secured by the Collateral
in the event that borrower fails to perform any of its agreements contained
herein, Borrower will, on demand, reimburse Lender for all such
expenditures, together with interest thereon from the date of such
expenditure until fully reimbursed at the rate of two percent (2%) per
month on the outstanding balance of such expenditures or the highest rate
permitted by law, whichever is less.
(k) Power of Attorney. borrower hereby irrevocably appoints Lender
Borrower's attorney-in-fact with full authority in the place and stead of
Borrower and in the name of Borrower or otherwise, from time to time in the
Lender's discretion, to take any action and to execute any instrument which
Lender may deem necessary or advisable to accomplish the purposes of this
Loan and Security Agreement, including, without limitation: (i) to obtain,
compromise and adjust insurance required to be paid to Lender; (ii) to ask,
demand, collect, sue for, recover, receive and give acquittance and
receipts for moneys due and to become due under or in respect to any of the
collateral; (iii) to receive, endorses, and collect any drafts or other
instruments, documents, and chattel paper in connection with clause (i) or
(ii) above: and (iv) to file any claims or take any action or institute any
proceedings which Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of Lender with
respect to any of the Collateral.
(l) No duties. The powers conferred on Lender hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon
it to exercise any such powers. Except for the safe custody of any
collateral in its possession and the accounting for moneys actually
received by it hereunder. Lender shall have no duty as to any Collateral or
as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any collateral.
(m) Financial Data. borrower will furnish to Lender and will cause any
guarantor of Borrower's obligations to furnish to Lender on request (i)
annual balance sheet and profit and loss statements prepared in accordance
with generally accepted accounting principles and practices consistently
applied and, if Lender so requires, accompanied by the annual audit report
of an independent certified public accountant reasonably acceptable to
Lender, and (ii) all other financial information and reports that Lender
may from time to time reasonably request, including, if Lender so requires,
income tax returns of Borrower and any guarantor of Borrower's obligations
hereunder.
<PAGE>
7. Conditions of Borrowing. Lender shall not be obligated to make any loan
hereunder unless:
(a) the Interim Notes or Term Notes evidencing such loan shall have
been duly executed and delivered to lender;
(b) Borrower shall have executed and delivered to Lender the
Supplemental Security Agreement describing the collateral and stating,
except with respect to progress payment funding, the location thereof;
(c) Except with respect to progress payment fundings, Lender shall
have received evidence (as described in Section 6d hereof) that insurance
has been obtained in accordance with the provisions of this Loan and
Security Agreement;
(d) Lender shall have received any and all third party consents,
waivers or releases deemed necessary or desirable by it in connection with
the loan and the collateral being financed, including, without limitation,
Uniform Commercial Code lien releases and the consent and waiver, in form
and substance satisfactory to Lender, of each and every realty owner,
landlord and mortgagee holding an interest in or encumbrance on the real
property where any of the Collateral is to be located;
(e) All filings, recordings and other actions deemed necessary or
desirable by Lender in order to establish, protect, preserve and perfect
its security interest in the Collateral by being financed by such loan as a
valid perfected first priority security interest shall have been duly
effected, including, without limitation, the filing of financing statements
and the recordation of landlord (owners) and/or mortgagee waivers or
disclaimers, all in form and substance satisfactory to Lender, and all
fees, taxes and other charges relating to such filings and recordings shall
have been paid by Borrower.
(f) The representations and warranties contained in this Loan and
Security Agreement shall be true and correct in all respects on and as of
the date of the making of any loan hereunder with the same effect as if
made on and as of such date;
(g) In the sole judgment of Lender, there shall have been no material
adverse change in the financial condition, business or operations of
Borrower from the earliest date of any financial statement, credit report,
business report or similar document submitted to Lender for its review;
(h) All Loan Documents shall be satisfactory to Lender's attorneys;
and
(i) Lender shall have received, in form and substance satisfactory to
Lender, such other documents as Lender shall require including, but not
limited to a request, proof of payment, vendor invoices and certificates of
authority and incumbency.
8. Default. The occurrence of any of the following events, following the giving
of any required notice and/or the expiration of any applicable period of grace,
shall constitute an event of default ("Event of Default") hereunder:
(a) Borrower's default in payment of any installment of the principal
of or interest on any Interim Note or Term Note when and after the same
shall become due and payable, whether at the due date thereof or by
acceleration or otherwise, which default shall continue unremedied for ten
(10) days; or
(b) The failure by Borrower to make payment of any other amount
payable hereunder or under any Interim Note, or Term Note and the
continuance of such failure for more than ten (10) days after written
notice thereof by Lender to Borrower; or
(c) The failure by borrower to perform or observe any covenant,
condition, obligation or agreement to be performed or observed by it
hereunder, which failure shall continue unremedied for thirty (30) days
after written notice thereof by Lender to Borrower; or
<PAGE>
(d) The occurrence of a default described in Section 4 hereof; or
(e) Any warranty, representation or statement made or furnished with
respect to the Borrower or the Collateral to Lender by or on behalf of
Borrower, in connection with this Loan and Security Agreement, or the
indebtedness secured hereby, shall prove to have been false in any adverse,
material respect when made or furnished; or
(f) Borrower shall become insolvent or bankrupt or make an assignment
for the benefit of creditors or consent to the appointment of a trustee or
receiver; or a trustee or a receiver shall be appointed for Borrower or for
a substantial part of its property without its consent and shall not be
dismissed for a period of sixty (60) days; or bankruptcy, reorganization,
liquidation, insolvency or dissolution proceedings shall be instituted by
or against Borrower and, if instituted against Borrower, shall be consented
to or be pending and not dismissed for a period of sixty (60) days; or any
execution or writ of process shall be issued under any action or proceeding
against Borrower in such capacity whereby any of the Collateral may be
taken or restrained; Borrower shall cease doing business as a going
concern; or, without the prior written consent of Lender, Borrower shall
sell, transfer or dispose of all or substantially all of its assets or
property; or
(g) The liquidation, merger, consolidation, reorganization, conversion
to an "S" status or dissolution. If Borrower is a corporation or
partnership of Borrower, if in Lender's reasonable opinion, such act shall
materially and adversely affect Borrower's ability to perform under any of
the Loan documents; or
(h) Any item of collateral is seized or levied on under legal or
governmental process or for any reason Lender deems itself insecure. Lender
shall be entitled to deem itself insecure when some event occurs, fails to
occur or is threatened or some objective condition exists or is threatened
which significantly impairs the prospects that any of Borrower's
obligations to Lender will be paid when due, which significantly impairs
the value of the Collateral to Lender or which significantly affects the
financial or business condition of Borrower.
The occurrence of an Event of Default shall terminate any commitment or
obligation by Lender to make any of the loans contemplated by this Loan and
Security Agreement.
9. Remedies Upon Default. Upon the occurrence of an Event of default hereunder,
Lender may, at its option, do any one or more of the following:
(a) Declare all obligations of Borrower to Lender to be immediately
due and payable, whereupon all unpaid principal of and interest on said
indebtedness and other amounts declared due and payable shall be and become
immediately due and payable;
(b) Take possession of all or any of the Collateral and exclude
therefrom Borrower and all others claiming under Borrower, and thereafter
hold, store, use, operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to and exercise all
rights and powers of Borrower in respect to the Collateral or any part
thereof. In the event Lender demands, or attempts to take possession of the
Collateral in the exercise of any rights under this Loan and Security
Agreement, Borrower promises and agrees to promptly turn over and deliver
complete possession thereof to Lender;
(c) Require Borrower to assemble the Collateral, or any portion
thereof, at a place designated by Lender and reasonably convenient to both
parties, and promptly to deliver such collateral to Lender, or an agent or
representative designated by it;
(d) Sell, lease or otherwise dispose of the Collateral at public or
private sale, without having the Collateral at the place of sale, and upon
terms and in such manner as Lender may determine ( and Lender may be a
purchaser at any sale); and
(e) Exercises any remedies of a secured party under the Uniform
Commercial Code as adopted in the state where the Collateral is located or
any other applicable law.
Except as to portions of the Collateral which are perishable or threaten to
decline speedily in value or are of a type customarily sold on a recognized
market. Lender shall give Borrower at least ten (10) days' prior written notice
<PAGE>
of the time and place of any public or private sale of the Collateral or other
intended disposition thereof to be made. Such notice may be mailed to Borrower
at the address et forth in the first paragraph of this Loan and Security
Agreement. Borrower hereby specifically agrees (to the extent that applicable
law and public policy allows it to effectively do so) that any public or private
sale held in accordance with the terms of this Loan and Security Agreement
shall, for the purpose of the uniform Commercial Code as adopted in the state
where the Collateral is located and for all other purposes, be deemed to have
been conducted in a commercially reasonable manner and in good faith.
The proceeds of any sale under Section 9(d) shall be applied as follows:
(i) to the repayment of the costs and expense of retaking, holding and
preparing for the sale and the selling of the Collateral (including legal
expenses and attorneys' fees) and the discharge of all assessments,
encumbrances, charges or liens, if any, on the Collateral prior to the lien
hereof (except any taxes, assessments, encumbrances, charges or liens
subject to which such sale shall have been made);
(ii) To the payment of the whole amount then due and unpaid of the
indebtedness of Borrower to Lender;
(iii) To the payment of other amounts then secured hereunder; and
(iv) the surplus, if any shall be paid to the Borrower or to
whomsoever may be lawfully entitled to receive the same. Lender shall have
the right to enforce one or more remedies hereunder, successively or
concurrently, and such action shall not operate to estop or prevent Lender
from pursuing any further remedy which it may have, and any repossession or
retaking or sale of the Collateral pursuant to the terms hereof shall not
operate to release Borrower until full payment of any deficiency has been
made in cash.
10. Limitation on Interest: It is the intent of the parties to this Loan and
Security Agreement to contract in strict compliance with applicable usury laws
from time to time in effect. In furtherance thereof, the parties stipulate and
agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay for the use, forbearance or
detention of money at a rate in excess of the maximum interest rate permitted to
be charged by applicable law from time to time in effect.
11. Personal Property/Tags. No item of Equipment will be attached or affixed to
realty or any building without Lender's prior knowledge and written consent and
waiver of the landlord and the mortgagee, if any, of the real property. If so
requested by Lender, Borrower will affix tags supplied by Lender, reflecting
Lender's security interest in the Equipment.
12. Loss and Damage. Borrower shall bear the risk of damage, loss, theft, or
destruction, partial or complete of the Equipment, whether or not such loss or
damage is covered by insurance, except that while Borrower is not in default,
Lender agrees to apply toward payment of obligations of Borrower insurance
proceeds payable to Lender by reason of such damage, loss, theft, or
destruction. In the event of any damage, loss, theft, or destruction, partial or
complete, of any item of Equipment, Borrower shall promptly notify Lender in
writing and at the option of Lender (a) repair or restore the Equipment to good
condition and working order, or (b) replace the Equipment with similar equipment
in good repair, condition and working order, or (c) pay Lender, in cash, an
amount equal to the unamortized equipment cost for the item or if the Equipment
was not purchased with the loan proceeds, the prorata portion of the outstanding
principal balance due under the Interim Note or Term Note, as the case may be,
and all other amounts relating to that item of Equipment then due and owing
hereunder, and upon payment of that amount, Lender's lien shall be terminated
with respect to that item of Equipment only, and Lender will release its
interest in that item of Equipment.
13. Assignment. Borrower may not assign or transfer any rights under this Loan
and Security Agreement or to the Collateral without Lender's prior written
consent.
14. Indemnification. Borrower shall indemnify and hold harmless Lender from and
against any and all claims, losses, liabilities, causes of action, costs and
expenses (including the fees of Lender's attorneys) ("Claims") in any way
relating to or arising out of this Loan and Security Agreement, the other Loan
<PAGE>
Documents or the collateral, except for any Claims resulting solely and directly
from Lender's gross negligence or willful misconduct.
15. Notices. Whenever Borrower or Lender shall desire to give or serve any
notice, demand, requests or other communication with respect to this Loan and
Security Agreement, each such notice, demand, request or communication shall be
in writing and shall be effective only if the same is physically delivered or is
by certified mail, postage prepaid, return receipt requested, or by overnight
courier, postage prepaid, mailed to the parties at the addresses set forth in
the first paragraph of this Loan and Security Agreement, with a copy to Lender's
Vice President of Credit. Any party hereto may change its address for such
notices by delivering or mailing to the other parties hereto, as aforesaid, a
notice of such change.
16. No Waiver by Lender. By exercising or failing to exercise any of its rights,
options or election hereunder, Lender shall not be deemed to have waived any
breach or default on the part of Borrower or to have released Borrower from any
of the obligations secured hereby, unless such waiver or release is in writing
and is signed by Lender. In addition, the waiver by Lender of any breach hereof
for default in payment of an indebtedness secured hereby shall not be deemed to
constitute a waiver of any succeeding breach or default.
17. Further Agreements. From time to time, Borrower will execute such further
instruments as Lender may reasonably require, in order to protect, preserve, and
maintain the security interest granted hereby.
18. Binding upon Successors. All agreement, covenants, conditions and provisions
of this Loan and Security Agreement shall apply to and bind the successors and
assigns of all parties hereto.
19. Governing Laws. This Loan and Security Agreement shall be governed by the
laws of the State of Washington.
20. Amendment. This Loan and Security Agreement can be modified or rescinded
only by a writing expressly referring to this Loan and Security Agreement,
signed by both of the parties hereto.
21. Invalidity of Provisions. Every provision of this Loan and Security
Agreement is intended to be severable. In the event that any term or provision
hereof is declared by a court to be illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the balance of the
terms and provisions hereof, which terms and provisions shall remain binding and
enforceable, then to the extent possible all of the other provisions shall
nonetheless remain in full force and effect. Co-Borrower: HAMPSHIRE DESIGNERS,
INC.
By: /s/ Charles W. Clayton
- ----------------------------------
(Print Name): Charles W. Clayton
title: Vice President
Federal Tax ID Number: 13-2949983
IN WITNESS WHEREOF, Borrower and Lender have duly executed this Loan and
Security Agreement the day and year first above written.
Lender: METLIFE CAPITAL CORPORATION
By:
- ----------------------------------
(Print Name):
Title:
Co-Borrower:SAN FRANCISCO KNITWORKS, INC.
By: /s/ Horace D. Padgett, Jr.
- -------------------------------------
(Print Name): Horace D. Padgett, Jr.
Title: Asst. Secretary and Treasurer
Social Security Number:
(if borrower is an individual)
Federal Tax Identification Number: 57-0804425
<PAGE>
TERM PROMISSORY NOTE NO. ONE
METLIFE CAPITAL
No. 5006594
$1,300,000.00
May 13, 1994
FOR VALUE RECEIVED, the undersigned, Hampshire Designers, Inc. ("Co-Borrower")
and San Francisco Knitworks, Inc. ("Co-Borrower"), ("Maker"), promise to pay to
the order of MetLife Capital Corporation ("Payee"), at its office at 10900 N.E.
4th St., Suite 500, Box C-97550, Bellevue, Washington 98009, the principal sum
of One Million three Hundred Thousand ($1,300,000.00) Dollars together with
interest on unpaid principal from the date of disbursement of such principal
amount until payment in full at a rate of 7.55 percent (7.55%) per annum
("Rate") computed on the basis of a 360 day year of twelve consecutive thirty
day months. Interest hereunder shall be paid on the unpaid principal, together
with principal, in Sixty (60) installments of Twenty Six Thousand Eighty and
23/100 ($26,080.23) commencing on 6/13/94 and Monthly thereafter until 5/13/99
on which date the entire balance of principal and interest unpaid shall be due
and payable. It is agreed that each installment, when paid, shall be applied by
the holder hereof, first so much as shall be required to the payment of interest
accrued as specified hereto, and the balance thereof to the repayment of the
principal sum.
Except as may be otherwise expressly provided herein, this Note may not be
prepaid in whole or in part, except with the prior written consent of Payee,
Maker shall have the privilege of prepaying all (but not part) of the then
outstanding balance under this Note on 5/13/96 or on any installment due date
thereafter, subject to giving thirty (30) days prior written notice to Payee
specifying the date of prepayment and further subject to payment of a prepayment
premium equal to the amount, if any, required to offset the adverse impact to
Payee of any decline in interest rates. The prepayment premium is determined by
(i) calculating the decrease, expressed in basis points (but no less than zero)
in the current weekly average yield for Three (3) year U.S. Treasury Notes as
published in Federal Reserve Statistical Release H. 15(519) (the "Index") from
the weekly average yield of 4.810% as of February 18, 1994 to the Friday (or, if
Friday is not a business day, the last business day) of the week immediately
preceding the prepayment date (ii) dividing the difference by 100, (iii)
multiplying the result by the applicable "Premium Factor" set forth below, and
(iv) multiplying the product by the principal to be prepaid. Any prepayment
shall be applied first to the prepayment premium, if any, next to accrued
interest and late charges (if any), and thereafter to the principal then
outstanding. The Premium Factor shall be the amount shown on the following chart
for the month in which prepayment occurs.
Number of Months Remaining (Years) Premium Factor
36 - 25 (3) .014
24 - 13 (2) .010
12 - 1 (1) .005
In the event the Federal Reserve Board ceases to publish Statistical Release H.
15(519), then the decrease in Three (3) - Year U.S. Treasury Notes will be
determined from another source designated by Payee.
If Maker shall have given to Payee notice of Maker's intention to so prepay,
Maker shall not then be entitled to withdraw such notice, and the indebtedness
proposed to be prepaid in such notice together with the aforesaid prepayment
fee, if applicable, shall be due and payable upon the date specified for such
prepayment in such notice. Upon the occurrence of an Event of Default and
acceleration of payment of indebtedness evidenced hereby during a period open to
prepayment, Maker shall pay to Payee, in addition to any and all other sums due
and payable hereunder, as liquidated damages for the loss of Payee's investment
and not as a penalty, an amount equal to the prepayment fee which would have
been payable hereunder on such date of acceleration in the event of a voluntary
prepayment. Maker and Payee agree that the foregoing amounts do not constitute
penalties but rather constitute reasonable calculations of the investment loss
that would be sustained by Payee in the event of such prepayment.
It is specifically understood and agreed by Maker that, in the event of a
default under this Note or under any instrument securing the Note, a tender of
payment of the unpaid principal and accrued interest then outstanding shall be
deemed a prepayment, and accordingly, said tender must include the premium
herein above required, or if said tender is made prior to the time this
privilege is operative, then said tender must include a premium equal to six (6)
months' interest at the Rate computed on the principal amount so tendered. It is
further understood and agreed by Maker that Payee shall not be obligated to
accept said tender, and said tender shall for all purposes be deemed ineffectual
and deficient, unless said tender shall include the premium herein above
required.
<PAGE>
In the event that Payee does not receive any payment on the date due, Maker will
pay Payee a late charge of five percent (5%) of the payment outstanding together
with the payment and, provided said sum is received within ten (10) days of the
date due, Payee agrees not to demand immediate payment of the whole sum of
principal and interest as otherwise permitted herein.
If, from any circumstances whatsoever, payment of any obligation due under this
Note at the time such performance shall be due shall involve exceeding the
maximum amount currently prescribed by any applicable usury statue or any other
applicable law, then such obligation shall be reduced to such maximum amount, so
that in no even shall any payment be possible under this Note, or under any
other instrument evidencing or securing the indebtedness evidenced hereby, that
is in excess of such maximum amount.
In the event that an Event of Default shall occur under the Loan and Security
Agreement (as hereinafter defined) or other instrument now or hereafter securing
repayment hereof, following any required notice and/or the expiration of any
applicable period of grace, then, and in such event, the principal indebtedness
evidenced hereby, and any other sums advanced hereunder, together with all
unpaid interest accrued thereon, shall, at the option of Payee, at once become
due and payable and may be collected forthwith, regardless of the stipulated
date of maturity. TIME IS OF THE ESSENCE WITH RESPECT TO THIS NOTE. Interest
shall accrue on the outstanding principal for so long as such default continues,
regardless of whether or not there has been an acceleration of the indebtedness
evidenced hereby as set forth herein, at the rate equal to the lesser of fifteen
percent (15%) per annum or the maximum rate allowable under law. All such
interest shall be paid at the time of and as a condition precedent to the curing
of any such default should Payee, at its sole option, allow such default to be
cured. In the event this Note, or any part thereof, is collected by or through
an attorney-at-law. Maker agrees to pay all costs of collection including, but
not limited to, reasonable attorneys' fees, whether or not suit is filed.
This Note is one of the notes referred to in and is secured by the Loan and
Security Agreement dated April 19, 1994 between Maker and Payee. The terms of
the Loan and Security Agreement are incorporated herein by reference.
Maker waives any right of exemption and waives presentment, protest and demand
and notice of protest, demand and of dishonor and nonpayment of this Note, and
consents that any holder hereof shall have the right, without notice to grant
any extension or extensions of time for payment of this Note or any part thereof
or any other indulgences or forbearances whatsoever, or may release any of the
security for this Note without any way affecting the liability of any other
party for the payment of this Note.
The due payment and performance of Maker's obligations hereunder shall be
without regard to any counterclaim, right of offset, or any other counterclaim
whatsoever which Maker may have against Payee and without regard to any other
obligations of any nature whatsoever which Payee may have to Maker, and no such
counterclaim or offset shall be asserted by Maker in any action, suite or
proceeding instituted by Payee for Payment of Maker's obligations hereunder.
This Note and the Loan and Security Agreement shall be governed by and construed
in accordance with the laws of the State of Washington.
Maker acknowledges that there is no presumption that the value of the property
securing this note is equal to the face amount of the Note, and that a
deficiency judgment many be necessary in proceedings taken for enforcement
hereof.
No amendment to this Note shall be binding upon Payee unless it is in writing
and duly signed by Payee.
IN WITTINESS WHEREOF, the Maker has caused these presents to be duly signed and
the date first above written.
Co-Borrower: Hampshire Designers, Inc. Borrower: San Francisco Knitworks, Inc.
By:/s/ Charles W. Clayton By: /s/ Horace D. Padgett, Jr.
- ------------------------------------ ----------------------------------------
Witness: /s/ Tony Lamar Charping
(Print name): Charles W. Clayton (Print name):Horace D. Padgett, Jr.
Title: Vice President Title:Assistant Secretary
<PAGE>
METLIFE CAPITAL
SUPPLEMENTAL SECURITY AGREEMENT NO. ONE
This Supplemental Security Agreement is executed by Hampshire Designers, Inc.,
("Co-Borrower") and San Francisco Knitworks, Inc. San Francisco Knitworks, Inc.,
("Co-Borrower") pursuant to the terms of a Loan and Security Agreement dated
_________ between Borrower and MetLife Capital Corporation ("Lender"). All
capitalized terms used herein that are not otherwise defined herein shall have
the respective meanings given to such terms in the Loan and Security Agreement.
In order to provide security for the payment and performance of Borrower's
obligations under the Loan Documents, Borrower has granted to Lender a first
priority security interest in the Collateral. In addition to said grant,
Borrower intends by this Supplemental Security Agreement to grant to Lender a
first priority security interest in the items of Equipment identified herein.
1. To further secure the payment and performance of all of Borrower's
obligations to Lender under the Loan Documents, Borrower hereby grants to Lender
a first priority security interest in the items of Collateral described below,
including all present and future additions, attachments and accessories thereto,
all substitutions therefor and replacements thereof and all proceeds thereof,
including all proceeds of insurance: Cost or Qty. Model/Mfr. Description Serial
No. Appraised Value
Various used textile manufacturing equipment as per the attached Exhibit "A",
herein incorporated by this reference $1,300,000.00
2. Borrower hereby (a) affirms that the representations and warranties set forth
in Section 5 of the Loan and Security Agreement are true and correct as of the
date hereof; (b) represents and warrants that Lender has a first priority
security interest in the Collateral; and (c) represents and warrants that the
above described equipment will be maintained at the following locations(s):
375 ALABAMA STREET, SAN FRANCISCO, CA 94110
3. The Loan Amount for loans to be made pursuant to this Supplemental Security
Agreement is $1,300,000.00.
4. The Commitment Expiration Date for loans to be made pursuant to this
Supplemental Security Agreement is May 15, 1994.
5. The amount of liability insurance required to be maintained by Borrower
pursuant to Section 6(d) of the Loan and Security Agreement is $1,000,000.00.
6. All of the terms and provisions of the Loan and Security Agreement are hereby
incorporated in and made a part of this Supplemental Security Agreement to the
same extent as if fully set forth herein.
In witness whereof, Borrower has executed and delivered this supplemental
Security Agreement this 18th day of April 1994.
Borrower: HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
(Print name): Charles W. Clayton
Title: Vice President
Borrower: SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
(Print name): Charles W. Clayton
Title: Vice President
<PAGE>
CORPORATE GUARANTY AND CERTIFIED COPY
OF BOARD RESOLUTION AUTHORIZING GUARANTY
For valuable consideration, the receipt of which is hereby acknowledged, the
undersigned (hereinafter called "Guarantor") unconditionally guarantees to pay
to or perform for METLIFE CAPITAL CORPORATION and/or METLIFE CAPITAL, LIMITED
PARTNERSHIP (hereinafter "METLIFE"), its successors and assigns, any and all
obligations and liabilities whatsoever of HAMPSHIRE DESIGNERS, INC., CO-BORROWER
AND SAN FRANCISCO KNITWORKS, INC.., CO-BORROWER (hereinafter called the
"Obligor"), such obligations and liabilities including but not limited to
indebtedness, promissory notes, security agreements, obligations under equipment
leases, conditional sales contracts, and finance agreements, (hereinafter called
"Obligations"), which the Obligor now has or may hereafter incur or be under to
METLIFE. If default shall at any time be made or suffered by the Obligor in the
prompt and timely payment of the installments, rents, or other sums to be paid
thereunder, or in the performance of any other covenant or condition contained
therein, at the times and in the manner provided, the undersigned, for itself
and its successors and assigns, agrees to pay upon demand said installments,
rents, or any other sums that the Obligor may be liable for thereunder, together
with all damages that may arise in consequence of the nonperformance by Obligor
of any of said covenants and conditions, and fully to perform and carry out all
other covenants and conditions of any such obligation on the part of Obligor to
be performed. The duty of the undersigned to pay or to perform for METLIFE under
any Obligations with respect to which the Obligor is in default is primary and
independent of the duties of Obligor, of any other guarantors, and of all other
persons.
The Obligations of Obligor secured hereby are intended to be construed in the
most comprehensive sense and shall include all Obligations of Obligor, including
all those arising under any such indebtedness, lease, contract or agreement,
whether to pay or deposit money or perform some other act, whether due or not
due, absolute or contingent, liquidated or unliquidated, and whether Obligor may
be liable individually or jointly with others, and whether recovery upon the
Obligations may be or hereafter become barred by any statute of limitations or
be or hereafter become otherwise unenforceable.
The undersigned hereby waives: (a) demand, protest, notice of protest, notice of
Obligor's default, notice of nonpayment or on performance, notice of acceptance
hereof and default hereunder, (b) the right, if any, to the benefit of, or to
direct the application of any security hypothecated to METLIFE until all
Obligations, howsoever arising, shall have been paid or performed; (c) the right
to require METLIFE to proceed against Obligor, or any other guarantor, or any
security, or insurance, or to pursue any other remedy in METLIFE's power.
METLIFE may proceed against the undersigned directly and independently of
Obligor, any other guarantor(s), and any other persons. No termination,
modification, amendment, extension or renewal of, nor any waiver or excuse of
any default under any Obligation, nor the substitution, elimination or addition
of any collateral or other assets thereunder, nor the termination of any
Obligation with respect to any or all of the collateral or other assets
thereunder, nor the death, disability or incapacity of Obligor, or any other
guarantors, shall release the undersigned, the undersigned hereby consenting
thereto and waiving notice of any such transaction or event. The covenants
hereof shall survive the redelivery of any item of collateral or any assets, or
the acceptance thereof, and the termination of any such obligation.
METLIFE may, without affecting the liability of the undersigned hereunder: (a)
take and hold other security for the performance of any obligations or for the
payment of this guaranty; (b) exchange, enforce, waive or release any such
security; or (c) release or substitute any one or more endorsers or guarantors,
and METLIFE may, without notice to the undersigned, assign this guaranty
agreement in whole or in part.
This is a CONTINUING GUARANTY AGREEMENT and covers all Obligations until the
Guarantor shall have given METLIFE written notice of the withdrawal of this
guaranty agreement, but any such withdrawal shall not impair the liability of
the Guarantor on any such Obligations incurred or acquired before METLIFE
received such notice.
The undersigned agrees to pay reasonable attorneys' fees and all other costs and
expenses incurred by METLIFE in the enforcement of this guaranty agreement. This
guaranty agreement shall be constituted under and governed by the laws of the
State of Washington. The undersigned hereby submits to the jurisdiction of any
state or federal court in the State of Washington in any action or proceeding
brought to enforce this Guaranty, and hereby waives any objection to venue and
any claim that such court is an inconvenient forum.
HAMPSHIRE GROUP, LIMITED
a Delaware corporation
By: /s/ Charles W. Clayton
- -------------------------------------
Its: Vice President
<PAGE>
CERTIFICATE OF SECRETARY
I hereby certify that I am the duly elected, qualified and acting Secretary of
HAMPSHIRE GROUP, LIMITED (the "Corporation"), a Delaware corporation; that the
following is a true and correct copy of a Resolution adopted by the Board of
Directors of the corporation on the 6th day of April 1994 that said Resolution
was duly and regularly adopted in accordance with the provisions of the Articles
of Incorporation and the By-laws of the Corporation; and that said Resolution is
duly recorded and appears in the minute books of the Corporation and has not
been altered, amended or revoked; that the form of the guaranty referred to
therein is in the form annexed hereto:
RESOLVED that it is in the interest of this Corporation that it execute a
guaranty substantially in the form annexed to these minutes which guarantees to
METLIFE, on the terms and conditions therein stated, the performance of certain
obligations of Hampshire Designers, Inc., Co-Borrower and San Francisco
Knitworks, Inc., Co-Borrower to METLIFE and that the Vice President of this
Corporation are authorized to executed the guaranty in the form attached hereto,
with such modifications thereto as to them shall seem appropriate, on behalf of
the Corporation.
I further certify that the following persons now are the duly appointed,
qualified and acting officers of the Corporation, holding the offices referred
to in the foregoing Resolution, and that the signatures of said person appearing
opposite his name below, is his genuine signature:
Title: Vice President
Name: Charles W. Clayton
Signature: /s/ Charles W. Clayton
- -----------------------------------------
IN WITNESS WHEREOF, I have and above set my hand this 18th day of April, 1994
/s/ Charles W. Clayton
- ------------------------------
Secretary
ATTEST: /s/ Horace D. Padgett, Jr.
<PAGE>
CROSS DEFAULT AND CROSS COLLATERALIZATION AGREEMENT
This Cross Default and Cross Collateralization Agreement (hereinafter the
"Agreement") is entered into this day of April 18, 1994 by and between Hampshire
Hosiery, Inc. ("Borrower"), Hampshire Designers, Inc., Co-Borrower and San
Francisco Knitworks, Inc., Co-Borrower, ("Co-Borrower") and MetLife Capital
Corporation (or its assigns), ("Lender").
WITNESSETH:
WHEREAS, Hampshire Hosiery, Inc. as Borrower, and Lender, as secured party,
entered into a certain Loan and Security Agreement dated July 27, 1993, secured
by certain textile manufacturing equipment as per the attached Exhibit "A"
herein incorporated by this reference; and
WHEREAS, Co-Borrower now desires Lender to make a loan to be secured by new and
used textile manufacturing equipment; and
WHEREAS, Lender is willing to enter into such additional loan transactions only
upon Co-Borrower and Borrower's consent to and agreement with the following
cross-default and cross-collateralization provisions.
NOW THEREFORE, in consideration of the loan to be provided to Co-Borrower by
Lender the parties hereby agree as follows:
1. Definitions. The above described loan agreements are herein referred to
individually as a "Loan" and collectively as the "Loans".
2. Cross Default. The occurrence of any event of default with respect to any
obligation of Co-Borrower or Borrower to Lender under any Loan shall constitute
an event of default with respect to all Loans of Co-Borrower and Borrower with
Lender.
3. Cross Collateralization. Co-Borrower and Borrower hereby grants to Lender a
continuing security interest in all equipment or other collateral pledged,
mortgaged or otherwise hypothecated to Lender, until all obligations of
Co-Borrower and Borrower currently owing to Lender, or hereafter arising, are
paid in full. If an event of default shall have occurred under any Loan, all
equipment covered thereby, or by a security interest in any other collateral
granted by Co-Borrower or Borrower to Lender, may be sold and/or auctioned for
the purpose of satisfying such default, and any excess proceeds of same may be
applied to any obligation then outstanding under any Loan.
4. Rights Cumulative. All rights and remedies of Lender herein specified are
intended to be cumulative and not in substitution for any right or remedy
otherwise available. Nothing contained herein shall be construed as to limit the
rights and remedies of Lender to proceed against Co-Borrower or Borrower under
any Loan or as provided by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first hereinabove written.
METLIFE CAPITAL CORPORATION
By: /s/ David Flanary
Its: Vice President
SAN FRANCISCO KNITWORKS, INC. (CO-BORROWER)
By: /s/ Horace D. Padgett, Jr.
Its: Vice President
HAMPSHIRE HOSIERY, INC. (BORROWER)
By: /s/ Charles W. Clayton
Its: Vice President
HAMPSHIRE DESIGNERS, INC. (CO-BORROWER)
By: /s/ Charles W. Clayton
Its: Vice President
METLIFE CAPITAL
No. 5006594-002
$473,000.00
TERM PROMISSORY NOTE NO. TWO Dated: 10/12/94
FOR VALUE RECEIVED, the undersigned, HAMPSHIRE DESIGNERS, INC. CO-BORROWERS AND
SAN FRANCISCO KNITWORKS, INC., CO-BORROWER ("Maker"), promises to pay to the
order of MetLife Capital Corporation ("Payee"), at its office at 10900 N.E. 4th
St., Suite 500 Box C-97550, Bellevue, Washington 98009, the principal sum of
Four Hundred Seventy Three Thousand ($473,000,000.00) Dollars together with
interest on unpaid principal from the date of disbursement of such principal
amount until payment in full at a rate of Nine and three hundredths percent
(9.03%) per annum ("Rate") computed on the basis of a 360 day year of twelve
consecutive thirty day months. Interest hereunder shall be paid on the unpaid
principal, together with principal, in Sixty (60) installments of Nine Thousand
Eight Hundred Twenty Five Dollars and fifty nine cents ($9,825.59) commencing on
11/12/94 and monthly thereafter until 10/12/99 on which date the entire balance
of principal and interest unpaid shall be due and payable. It is agreed that
each installment, when paid, shall be applied by the holder hereof, first so
much as shall be required to the payment of interest accrued as specified
hereto, and the balance thereof to the repayment of the principal sum.
Except as may be otherwise expressly provided herein, this Note may not be
prepaid in whole or in part, except with the prior written consent of Payee.
Maker shall have the privilege of prepaying all (but no part) of the then
outstanding balance under this Note on 11/12/96 or on any installment due date
thereafter, subject to giving thirty (30) days prior written notice to Payee
specifying the date of prepayment and further subject to payment of a prepayment
premium equal to the amount, if any, required to offset the adverse impact to
Payee of any decline in interest rates. The prepayment premium is determined by
(i) calculating the decrease, express in basis points (but not less than zero)
in the current weekly average yield for Three (3) year U.S. Treasury Notes as
published in Federal Reserve Statistical Release H.15(519) (the "Index") from
the weekly average yield of 6.65% as of September 26, 1994 to the Friday (or, if
Friday is not a business day, the last business day) of the week immediately
preceding the prepayment date (ii) dividing the difference by 100, (iii)
multiplying the result by the applicable "Premium Factor" set forth below, and
(iv) multiplying the product by the principal to be prepaid. Any prepayment
shall be applied first to the prepayment premium, if any, next to accrued
interest and late charges (if any), and thereafter to the principal then
outstanding. The Premium Factor shall be the amount shown on the following chart
for the month in which prepayment occurs.
Number of Months Remaining (Years) Premium Factor
36-25 (3) .019
24-13 (2) .010
12- 1 (1) .005
In the event the Federal Reserve Board ceases to publish Statistical Release
H.15(519), then the decrease in Three (3) - Year U.S. Treasury Notes will be
determined from another source designated by Payee.
If Maker shall have given to Payee notice of Maker's intention to so prepay,
Maker shall not then be entitled to withdraw such notice, and the indebtedness
proposed to be prepaid in such notice together with the aforesaid prepayment
fee, if applicable, shall be due and payable upon the date specified for such
prepayment in such notice. Upon the occurrence of an Event of Default and
acceleration of payment of indebtedness evidenced hereby during a period open to
prepayment, Maker shall pay to Payee, in addition to any and all other sums due
and payable hereunder, as liquidated damages for the loss of Payee's investment
and not as a penalty, an amount equal to the prepayment fee which would have
been payable hereunder on such date of acceleration in the event of a voluntary
prepayment. Maker and Payee agree that the foregoing amounts do not constitute
penalties but rather constitute reasonable calculations of the investment loss
that would be sustained by Payee in the event of such prepayment.
<PAGE>
It is specifically understood and agreed by Maker that, in the event of a
default under this Note or under any instrument securing the Note, a tender of
payment of the unpaid principal and accrued interest then outstanding shall be
deemed a prepayment, and, accordingly, said tender must include the premium
herein above required, or if said tender is made prior to the time this
privilege is operative then said tender must include a premium equal to six (6)
months' interest at the Rate computed on the principal amount so tendered. It is
further understood and agreed by Maker that Payee shall not be obligated to
accept said tender, and said tender shall for all purposes be deemed ineffectual
and deficient, unless and tender shall include the premium herein above
required.
In the event that Payee does not receive any payment on the date due, Maker will
pay Payee a late charge of five percent (5%) of the payment outstanding together
with the payment and, provided said sum is received within ten (10) days of the
date due, Payee agrees not to demand immediate payment of the whole sum of
principal and interest as otherwise permitted herein.
If, from any circumstances whatsoever, payment of any obligation due under this
Note at the time such performance shall be due shall involve exceeding the
maximum amount currently prescribed by any applicable usury statue or any other
applicable law, then such obligation shall be reduced to such maximum amount, so
that in no event shall any payment be possible under this Note, or under any
other instrument evidencing or securing the indebtedness evidenced hereby, that
is in excess of such maximum amount.
In the event that an Event of Default shall occur under the Loan and Security
Agreement (as hereinafter defined) or any other instrument now or hereafter
securing repayment hereof, following any required notice and/or the expiration
of any applicable period of grace, the, and in such event, the principal
indebtedness evidenced hereby, and any other sums advanced hereunder, together
with all unpaid interest accrued thereon, shall, at the option of Payee, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. TIME IS OF THE ESSENCE WITH RESPECT TO THIS NOTE.
Interest shall accrue on the outstanding principal for so long as such default
continued, regardless of whether or not there has been an acceleration of the
indebtedness evidenced hereby as set forth herein, at the rate equal to the
lesser of fifteen percent (15%) per annum or the maximum rate allowable under
law. All such interest shall be paid at the time of an as a condition precedent
to the cureing of any such default should Payee, at its sole option, allow such
default to be cured. in the event this Note, or any part thereof, is collected
by or through an attorney-at-law. Maker agrees to pay all costs of collection
including, but not limited to, reasonable attorneys' fee, whether or not suit is
filed.
This Note is one of the notes referred to in and is secured by the Loan and
Security Agreement dated April 19, 1994 between Maker and Payee. The terms of
the Loan and Security Agreement are incorporated herein by reference.
Maker waives any right of exemption and waives presentment, protest and demand
and notice of protest, demand and of dishonor and nonpayment of this Note, and
consents that any holder hereof shall have the right, without notice to grant
any extension or extensions of time for payment of this Note or any part thereof
or any other indulgences or forbearances whatsoever, or may release any of the
security for this Note without any way affecting the liability of any other
party for the payment of this Note.
The due payment and performance of Maker's obligations hereunder shall be
without regard to any counterclaim, right of offset, or any other counterclaim
whatsoever which Maker may have against Payee and without regard to any other
obligations of any nature whatsoever which Payee may have to Maker, and no such
counterclaim or offset shall be asserted by Maker in any action, suite or
proceeding instituted by Payee for Payment of Maker's obligations hereunder.
This Note and the Loan and Security Agreement shall be governed by and construed
in accordance with the laws of the State of Washington.
Maker acknowledges that there is no presumption that the value of the property
securing this note is equal to the face amount of the Note, and that a
deficiency judgment many be necessary in proceedings taken for enforcement
hereof.
<PAGE>
No amendment to this Note shall be binding upon Payee unless it is in writing
and duly signed by Payee.
IN WITTINESS WHEREOF, the Maker has caused these presents to be duly signed and
the date first above written.
Borrower: Hampshire Designers, Inc. Borrower: San Francisco Knitworks, Inc.
- ----------------------------------- --------------------------------------
By: /s/ Charles W. Clayton By: /s/ Horace D. Padgett, Jr.
Witness: /s/ Lanna M. West Witness: Lanna M. West
(Print name): Charles W. Clayton (Print name): Horace D. Padgett, Jr.
Title: Vice President Title: Assistant Secretary
<PAGE>
METLIFE CAPITAL
SUPPLEMENTAL SECURITY AGREEMENT NO. TWO
This Supplemental Security Agreement is executed by HAMPSHIRE DESIGNERS, INC.,
CO-BORROWER AND SAN FRANCISCO KNITWORKS, INC., CO-BORROWER ("BORROWER") pursuant
to the terms of a Loan and Security Agreement dated April 19, 1994 between
Borrower and MetLife Capital Corporation ("Lender"). All capitalized terms used
herein that are not otherwise defined herein shall have the respective meanings
given to such terms in the Loan and Security Agreement.
In order to provide security for the payment and performance of Borrower's
obligations under the Loan Documents, Borrower has granted to Lender a first
priority security interest in the Collateral. In addition to said grant,
Borrower intends by this Supplemental Security Agreement to grant to Lender a
first priority security interest in the items of Equipment identified herein.
1. To further secure the payment and performance of all of Borrower's
obligations to lender under the Loan Documents, Borrower hereby grants to Lender
a first priority security interest in the items of Collateral described below,
including all present and future additions, attachments and accessories thereto,
all substitutions therefor and replacements thereof and all proceeds thereof,
including all proceeds of insurance:
Cost or
Qty. Model/Mfr. Description Serial No. Appraised Value
SIX (6) SHIMA SHIMATRONIC COMPUTERIZED S/N 50051, 50052,
ELECTRONIC FLAT 50860, 51071,
KNITTING MACHINES 51176 & 51278 $702,000.00
TWO (2) SHIMA SHIMATRONIC DESIGN SYSTEMS S/N 28362 & 28386 118,000.00
LESS TRADE ON 10 UNITS S/N 3378, 1076, 1015,
PREVIOUSLY FINANCED BY 235, 1016, 1215, 310,
METLIFE 1214, 1060, 571 (347,000.00)
-----------
TOTAL FINANCED $473,000.00
===========
2. Borrower hereby (a) affirms that the representations and warranties set
forth in Section 5 of the Loan and Security Agreement are true and correct as of
the date hereof; (b) represents and warrants that Lender has a first priority
security interest in the Collateral; and (c) represents and warrants that the
above described equipment will be maintained at the following locations(s):
375 ALABAMA STREET, SAN FRANCISCO, CA 94110
3. The Loan Amount for loans to be made pursuant to this Supplemental
Security Agreement is $473,000.00.
4. The Commitment Expiration Date for loans to be made pursuant to this
Supplemental Security Agreement is OCTOBER 31, 1994.
5. the amount of liability insurance required to be maintained by Borrower
pursuant to Section 6(d) of the Loan and Security Agreement is $1,000,000.00.
6. All of the terms and provisions of the Loan and Security Agreement are
hereby incorporated in and made a part of this Supplemental Security Agreement
to the same extent as if fully set forth herein.
In witness whereof, Borrower has executed and delivered this supplemental
Security Agreement this 11th day of October 1994.
Borrower: HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
- -------------------------------------------
(Print name): Charles W. Clayton
Title: Vice President
Borrower: SAN FRANCISCO KNITWORKS, INC.
By: /s/ Horace D. Padgett, Jr.
- --------------------------------------------
(Print name): Horace D. Padgett, Jr.
Title: Assist. Secretary
METLIFE CAPITAL
No. 5006594-003
$760,000.00
FOR VALUE RECEIVED, the undersigned, HAMPSHIRE DESIGNERS, INC. CO-BORROWERS, AND
SAN FRANCISCO KNITWORKS, INC., CO-BORROWER ("Maker"), promises to pay to the
order of MetLife Capital Corporation ("Payee"), at its office at 10900 N.E. 4th
St., Suite 500 Box C-97550, Bellevue, Washington 98009, the principal sum of
Seven Hundred Sixty Thousand ($760,000.00) Dollars together with interest on
unpaid principal from the date of disbursement of such principal amount until
payment in full at a rate of Seven and 85/100ths percent (7.85%) per annum
("Rate") computed on the basis of a 360 day year of twelve consecutive thirty
day months. Interest hereunder shall be paid on the unpaid principal, together
with principal, in Sixty (60) installments of Fifteen Thousand Three Hundred
Fifty-Five Dollars and 56/100ths ($15,355.56) commencing on _________ and
monthly thereafter until ______ on which date the entire balance of principal
and interest unpaid shall be due and payable. It is agreed that each
installment, when paid, shall be applied by the holder hereof, first so much as
shall be required to the payment of interest accrued as specified hereto, and
the balance thereof to the repayment of the principal sum.
Except as may be otherwise expressly provided herein, this Note may not be
prepaid in whole or in part, except with the prior written consent of Payee.
Maker shall have the privilege of prepaying all (but no part) of the then
outstanding balance under this Note on _____ or on any installment due date
thereafter, subject to giving thirty (30) days prior written notice to Payee
specifying the date of prepayment and further subject to payment of a prepayment
premium equal to the amount, if any, required to offset the adverse impact to
Payee of any decline in interest rates. The prepayment premium is determined by
(i) calculating the decrease, expressed in basis points (but not less than zero)
in the current weekly average yield for Three (3) year U.S. Treasury Notes as
published in Federal Reserve Statistical Release H.15(519) (the "Index") from
the weekly average yield of ____% as of _______ to the Friday (or, if Friday is
not a business day, the last business day) of the week immediately preceding the
prepayment date (ii) dividing the difference by 100, (iii) multiplying the
result by the applicable "Premium Factor" set forth below, and (iv) multiplying
the product by the principal to be prepaid. Any prepayment shall be applied
first to the prepayment premium, if any, next to accrued interest and late
charges (if any), and thereafter to the principal then outstanding. The Premium
Factor shall be the amount shown on the following chart for the month in which
prepayment occurs.
Number of Months Remaining (Years) Premium Factor
36-25 (3) .014
24-13 (2) .010
12-1 (1) .005
In the event the Federal Reserve Board ceases to publish Statistical Release
H.15(519), then the decrease in Three (3) - Year U.S. Treasury Notes will be
determined from another source designated by Payee.
If Maker shall have given to Payee notice of Maker's intention to so prepay,
Maker shall not then be entitled to withdraw such notice, and the indebtedness
proposed to be prepaid in such notice together with the aforesaid prepayment
fee, if applicable, shall be due and payable upon the date specified for such
prepayment in such notice. Upon the occurrence of an Event of Default and
acceleration of payment of indebtedness evidenced hereby during a period open to
<PAGE>
prepayment, Maker shall pay to Payee, in addition to any and all other sums due
and payable hereunder, as liquidated damages for the loss of Payee's investment
and not as a penalty, an amount equal to the prepayment fee which would have
been payable hereunder on such date of acceleration in the event of a voluntary
prepayment. Maker and Payee agree that the foregoing amounts do not constitute
penalties but rather constitute reasonable calculations of the investment loss
that would be sustained by Payee in the event of such prepayment.
It is specifically understood and agreed by Maker that, in the event of a
default under this Note or under any instrument securing the Note, a tender of
payment of the unpaid principal and accrued interest then outstanding shall be
deemed a prepayment, and, accordingly, said tender must include the premium
herein above required, or if said tender is made prior to the time this
privilege is operative then said tender must include a premium equal to six (6)
months' interest at the Rate computed on the principal amount so tendered. It is
further understood and agreed by Maker that Payee shall not be obligated to
accept said tender, and said tender shall for all purposes be deemed ineffectual
and deficient, unless and tender shall include the premium herein above
required.
In the event that Payee does not receive any payment on the date due, Maker will
pay Payee a late charge of five percent (5%) of the payment outstanding together
with the payment and, provided said sum is received within ten (10) days of the
date due, Payee agrees not to demand immediate payment of the whole sum of
principal and interest as otherwise permitted herein.
If, from any circumstances whatsoever, payment of any obligation due under this
Note at the time such performance shall be due shall involve exceeding the
maximum amount currently prescribed by any applicable usury statute or any other
applicable law, then such obligation shall be reduced to such maximum amount, so
that in no event shall any payment be possible under this Note, or under any
other instrument evidencing or securing the indebtedness evidenced hereby, that
is in excess of such maximum amount.
In the event that an Event of Default shall occur under the Loan and Security
Agreement (as hereinafter defined) or any other instrument now or hereafter
securing repayment hereof, following any required notice and/or the expiration
of any applicable period of grace, the, and in such event, the principal
indebtedness evidenced hereby, and any other sums advanced hereunder, together
with all unpaid interest accrued thereon, shall, at the option of Payee, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. TIME IS OF THE ESSENCE WITH RESPECT TO THIS NOTE.
Interest shall accrue on the outstanding principal for so long as such default
continues, regardless of whether or not there has been an acceleration of the
indebtedness evidenced hereby as set forth herein, at the rate equal to the
lesser of fifteen percent (15%) per annum or the maximum rate allowable under
law. All such interest shall be paid at the time of an as a condition precedent
to the curing of any such default should Payee, at its sole option, allow such
default to be cured. in the event this Note, or any part thereof, is collected
by or through an attorney-at-law. Maker agrees to pay all costs of collection
including, but not limited to, reasonable attorneys' fees, whether or not suit
is filed.
This Note is one of the notes referred to in and is secured by the Loan and
Security Agreement dated April 19, 1994 between Maker and Payee. The terms of
the Loan and Security Agreement are incorporated herein by reference.
Maker waives any right of exemption and waives presentment, protest and demand
and notice of protest, demand and of dishonor and nonpayment of this Note, and
consents that any holder hereof shall have the right, without notice to grant
any extension or extensions of time for payment of this Note or any part thereof
or any other indulgences or forbearances whatsoever, or may release any of the
security for this Note without any way affecting the liability of any other
party for the payment of this Note.
The due payment and performance of Maker's obligations hereunder shall be
without regard to any counterclaim, right of offset, or any other counterclaim
whatsoever which Maker may have against Payee and without regard to any other
obligations of any nature whatsoever which Payee may have to Maker, and no such
<PAGE>
counterclaim or offset shall be asserted by Maker in any action, suit or
proceeding instituted by Payee for payment of Maker's obligations hereunder.
This Note and the Loan and Security Agreement shall be governed by and construed
in accordance with the laws of the State of Washington.
Maker acknowledges that there is no presumption that the value of the property
securing this Note is equal to the face amount of the Note, and that a
deficiency judgment many be necessary in proceedings taken for enforcement
hereof.
No amendment to this Note shall be binding upon Payee unless it is in writing
and duly signed by Payee.
IN WITTINESS WHEREOF, the Maker has caused these presents to be duly signed and
the date first above written.
Co Borrower: Hampshire Designers, Inc. Borrower:San Francisco Knitworks, Inc.
By:/s/ Charles W. Clayton By: /s/ Charles W. Clayton
Witness: /s/ H. Edward Hurley Witness: /s/ H. Edward Hurley
(Print name): Charles W. Clayton (Print name): Charles W. Clayton
Title: Vice President Title: Vice President
<PAGE>
METLIFE CAPITAL
SUPPLEMENTAL SECURITY AGREEMENT NO. THREE
LOAN # 5006594-003
This Supplemental Security Agreement is executed by HAMPSHIRE DESIGNERS, INC.,
CO- BORROWER AND SAN FRANCISCO KNITWORKS, INC., CO-BORROWER ("BORROWER")
pursuant to the terms of a Loan and Security Agreement dated April 19, 1994
between Borrower and MetLife Capital Corporation ("Lender"). All capitalized
terms used herein that are not otherwise defined herein shall have the
respective meanings given to such terms in the Loan and Security Agreement.
In order to provide security for the payment and performance of Borrower's
obligations under the Loan Documents, Borrower has granted to Lender a first
priority security interest in the Collateral. In addition to said grant,
Borrower intends by this Supplemental Security Agreement to grant to Lender a
first priority security interest in the items of Equipment identified herein.
1. To further secure the payment and performance of all of Borrower's
obligations to lender under the Loan Documents, Borrower hereby grants to Lender
a first priority security interest in the items of Collateral described below,
including all present and future additions, attachments and accessories thereto,
all substitutions therefor and replacements thereof and all proceeds thereof,
including all proceeds of insurance: Cost or Qty. Model/Mfr. Description Serial
No. Appraised Value
TWELVE (12) 1993 Shima SES Electronic Knitting more $760,000
completely described on the attached Exhibit $15,355.56/
"A" herein incorporated by this reference Month
60 months
2. Borrower hereby (a) affirms that the representations and warranties set forth
in Section 5 of the Loan and Security Agreement are true and correct as of the
date hereof; (b) represents and warrants that Lender has a first priority
security interest in the Collateral; and (c) represents and warrants that the
above described equipment will be maintained at the following locations(s):
375 ALABAMA STREET, SAN FRANCISCO, CA 94110
3. The Loan Amount for loans to be made pursuant to this Supplemental Security
Agreement is $760,000.00.
4. The Commitment Expiration Date for loans to be made pursuant to this
Supplemental Security Agreement is September 22, 1995.
5. The amount of liability insurance required to be maintained by Borrower
pursuant to Section 6(d) of the Loan and Security Agreement is $1,000,000.00.
6. All of the terms and provisions of the Loan and Security Agreement are hereby
incorporated in and made a part of this Supplemental Security Agreement to the
same extent as if fully set forth herein. 7.85%
In witness whereof, Borrower has executed and delivered this supplemental
Security Agreement this 22nd day of September, 1995.
Co-Borrower: HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
(Print name): Charles W. Clayton
Title: Vice President
Co-Borrower: SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
(Print name): Charles W. Clayton
Title: Vice President
<PAGE>
REQUEST FOR ADVANCE OF LOAN PROCEEDS
LOAN #5006594-003
NO. THREE
In accordance with the Loan and Security Agreement dated April 19, 1994, the
undersigned, as Borrower, hereby requests Lender to make a disbursement of the
Loan Amount in the amount of $760,000.00. To the extent that any item of
Equipment has been delivered to Borrower, Borrower represents and warrants that
it has inspected and accepted such item of Equipment and that such item has been
duly assembled and is in good working order.
__X__ The undersigned further authorizes and directs Lender to disburse the
proceeds of this Loan in payment of the following invoices, copies of which are
attached hereto:
AND
__X__ the undersigned has previously paid the following invoices and requests
MetLife to disburse the proceeds of this Loan to the undersigned. Copies of the
invoices and proof of such payment are attached hereto.
VENDOR Invoice No. Amount
Reimbursement to San Francisco 046258 $372,000.00
Knitworks, Inc. from Moss Knitting
Machines
Reimbursement to San Francisco 099 116,000.00
Knitworks, Inc. for Moss Knitting
Machines
Shima Seiki U.S.A. 2110 244,800.00
Reimbursement to San Francisco 2110 27,200.00
Knitworks, Inc. for Shima Seik invoice
Total $760,000.00
Date: 9/29/95
(Co-Borrower): Hampshire Designers, Inc.
By: /s/ Charles W. Clayton
(Print Name): Charles W. Clayton
Title: Vice President
Date: 9/29/95
(Co-Borrower): San Francisco Knitworks, Inc.
By: /s/ Charles W. Clayton
(Print Name): Charles W. Clayton
Title: Vice President
<PAGE>
#5006594-003
To: MetLife Capital Corporation
C-97550
Bellevue, Washington 98009
Gentlemen:
By way of this letter, we hereby certify that neither Hampshire Designers, Inc.,
Co-Borrower, or San Francisco Knitworks, Inc., Co-Borrower has not granted a
security interest to any creditor nor signed a UCC financing statement which
would give another creditor any interest in twelve (12) 1993 Shima SES
Electronic Knitting located at 375 Alabama Street, San Francisco, California
94110 which MetLife has agreed to finance.
Date: 9/22/95
Hampshire Designers, Inc., Co-Borrower
By: /s/ Charles W. Clayton
Its: Vice President
San Francisco Knitworks, Inc., Co-Borrower
By: /s/ Charles W. Clayton
Its: Vice President
CLOSING AGREEMENT
This Closing Agreement is made in quadruplicate under and pursuant to
Section 418 of the Puerto Rico Income Tax Act of 1954, as amended (hereinafter
the "ITA")
APPEAR
AS PARTY OF THE FIRST PART:
HONORABLE MANUEL DIAZ SALDANA, in his capacity of Secretary of the Treasury of
the Commonwealth of Puerto Rico (hereinafter referred to as the "Secretary");
AS PARTY OF THE SECOND PART:
HAMPSHIRE DESIGNERS, INC., a corporation organized under the laws of the State
of Delaware with principal offices in Anderson, South Carolina (hereinafter
referred to as "STOCKHOLDER") represented herein by its attorney-in-fact, Walter
F. Chow, who has been duly designated by STOCKHOLDER to act on its behalf and to
represent the same before the Puerto Rico Department of Treasury (the
"Department").
AS PARTY OF THE THIRD PART:
GLAMOURETTE FASHION MILLS, INC., a corporation organized under the laws of the
State of Delaware with principal offices in Quebradillas, Puerto Rico
(hereinafter referred to as "CORPORATION"), represented herein by its
attorney-in-fact, Walter F. Chow, who has been duly designated by CORPORATION to
act on its behalf and to represent the same before the Department.
WITNESSETH
The parties state that in accordance with the provisions of the ITA, they
have full legal capacity to enter into this agreement and they further state:
A. GENERAL REPRESENTATIONS
1. Stockholder represents to the Secretary that:
a. Its taxpayer identification number is 13-2949983.
b. It is the holder of all of the issued and outstanding common stock of
Corporation.
c. It is not authorized to do business in Puerto Rico and is not actually
engaged in trade or business in Puerto Rico.
d. Its taxable year is the calendar year.
2. Corporation represents to the Secretary that:
a. Its taxpayer identification number is 02-0333517.
b. It is duly registered to do business in Puerto Rico.
c. It computed its income on the basis of a 52-53 week period ending on the
Saturday nearest to the last day of April from 1977 to 1986, when it changed its
taxable year to a calendar year with the approval of the Department.
<PAGE>
d. It conducts exempt operations in Quebradillas, Puerto Rico under Case
No. 92-8-IT-2 (77-57-I-80) originally issued under the 1963 Industrial
Incentives Acts (the "1963 IIA") effective on July 30, 1977 and extended
pursuant to Section 3 (m) of the 1987 Tax Incentive Act (the "TIA") effective
July 30, 1992.
e. Corporation's extended grant under Section 3(m) of the TIA provides the
following tollgate tax reduction schedule based on the employment level:
Tollgate Tax Tollgate Tax
Average Annual Rate Without Rate with 25%
Employment Investment Investment
---------------- --------------- ----------------
784 to 833 5% 2%
834 to 883 4% 1%
884 to 933 3% 0%
934 to 983 2% 0%
984 to 1033 1% 0%
1034 or more 0% 0%
This tollgate tax reduction schedule is applicable to distributions of IDI
accumulated during the extension period.
f. Corporation has issued and outstanding preferred stock which is owned
by employees who are residents of Puerto Rico.
B. REPRESENTATIONS REGARDING PRIOR DISTRIBUTIONS
1. Corporation represents to the Secretary that all of its income for the period
from July 30, 1977 to December 31, 1992 was derived from its exempt
manufacturing operations and that its net industrial development income for said
period is as shown in Schedule I attached hereto.
2. Corporation represents to the Secretary that from July 30, 1977 to December
31, 1992 it made distributions from industrial development income, including
dividends to preferred stockholders, as shown in Schedule I attached hereto.
Said dividends were duly designated as made out of industrial development
income; however the years from which the distributions were made were not
specifically designated at the time of the dividend distributions, except to the
extent described in paragraph B(6) below.
3. Corporation wishes to designate, with the Secretary's approval, that the
distributions of IDI made from July 30, 1977 to December 31, 1992, except for
the $200,000 distribution described in paragraph B(6) below, were made on a
first-in, first-out ("FIFO") basis for the years shown in said Schedule I,
attached hereto, so that the remaining accumulated industrial development income
is as shown in said Schedule I.
4. Corporation further represents that it paid a 10% tollgate tax on all the
distributions made to Stockholder from July 30, 1977 to July 29, 1992.
5. Corporation represents that it did not pay any tollgate tax on distributions
made to preferred stockholders who are residents of Puerto Rico from July 30,
1977 to December 31, 1992 pursuant to Section 3(a)(1) of the 1963 IIA.
6. Corporation represents that on December 31, 1992 it paid a $200,000 dividend
to Stockholder. Said dividend was designated as made out of IDI earned after the
effective date of the Section 3(m) extension. Corporation further represents
that on January 15, 1993 it paid to the Secretary a tollgate tax of 1% on said
dividend pursuant to its extended grant under Section 3(m) and based on an
annual employment of 845 persons for 1992 and on the investments shown in
Schedules III and VII attached hereto.
<PAGE>
C. REPRESENTATIONS REGARDING DISTRIBUTIONS AT 7%
1. Corporation represents that it will make a $4,000,000 distribution to
Stockholder, $2,000,000 to be distributed on or before June 30, 1993 and
$2,000,000 to be distributed on or before January 31, 1994, of industrial
development income accumulated under the 1963 IIA (prior to the Section 3(m)
extension) as shown in Schedule V, attached hereto, for which it wishes the
Secretary to agree on the 7% tollgate tax rate applicable to the distribution of
IDI accumulated during taxable years ended December 31, 1987 and December 31,
1988. The total tollgate tax on the proposed distributions is $285,737 as shown
in said Schedule V.
2. Corporation represents that its investments in qualified assets under Section
231(a)(2)(D) of the ITA (the "Qualified Investments") are as indicated in
Schedule III attached hereto.
3. Corporation represents that it has increased its investment in assets
described in Section 231(a)(2)(C) of the ITA as shown in Schedule VI, attached
hereto.
4. Corporation further represents that it has never used the 3% investment
credit provided in Section 231(a)(2)(C) of the ITA. Corporation wishes to use
said 3% investment credit amounting to $60,060, as shown in Schedule VI attached
hereto, against the $285,737 withholding of tax on the distributions to be made
to Stockholder on or before June 30, 1993 and January 30, 1994.
5. Corporation will make the appropriate withholding of Tax on the distributions
described in paragraph C(1) above, file the appropriate forms and deposit
$225,677 ($285,737 tollgate tax less $60,060 investment tax credit) with the
Department on or before June 30, 1993.
6. Since the tollgate tax on the January, 1994 distribution will be paid on or
before June 30, 1993, Corporation will not withhold any tax upon the $2,000,000
distribution to be made on or before January 31, 1994.
D. AGREEMENTS
Based on the representations made by Stockholder and Corporation in the
preceding paragraphs, the Secretary hereby agrees that:
1. The distributions made by Corporation from July 30, 1977 to December 31,
1992, except for the $200,000 distribution to Stockholder made on December 31,
1992 and described in paragraph B(6) above, were made on a first-in first-out
("FIFO") basis from industrial development income for the years shown in
Schedule I attached hereto so that the remaining accumulated industrial
development income is as shown in said Schedule I.
2. Corporation may distribute as a dividend up to 75% of its IDI for the years
ended December 31, 1987 to the short year ended July 29, 1992 at a 7% tollgate
tax rate provided it complies with the investments requirements of Section 231
(a)(2)(D) of the ITA shown in Schedule II attached hereto.
3. Since all prior distributions to Stockholder, except for the $200,000
distribution to Stockholder made on December 31, 1992, have been made at the
regular 10% tollgate tax, all of the Qualified Investments made from July 30,
1977 to July 29, 1992 shown in Schedule III attached hereto are considered
excess investments for purposes of meeting the investment requirement of Section
231(a)(2)(D).
4. The excess investments shown in Schedule III, attached hereto shall be
available to Corporation to qualify dividend distributions from IDI earned in
fiscal years ended December 31, 1987 to the short year ended July 29, 1992, as
determined in Schedule IV attached hereto. The more than eight year investment
period shall be counted from the first day of the taxable year for which the IDI
is being qualified for the 7% tollgate tax rate, as shown in Schedule II
attached hereto.
<PAGE>
5. On or after the termination date of the more than eight (8) year investment
period Corporation will be authorized to distribute to Stockholder the balance
of the undistributed IDI subject to a withholding tax of 7% without any further
investment requirements.
6. Corporation may distribute $4,000,000 to Stockholder, $2,000,000 on or before
June 30, 1993 and $2,000,000 on or before January 31, 1994, provided the total
tollgate shown in Schedule V, attached hereto, is deposited with the Secretary
on or before June 30, 1993.
7. Corporation is entitled to use the 3% investment credit provided by Section
231(a)(2)(C) of the ITA in the amount of $60,060 as shown in Schedule VI,
attached hereto, against the total tollgate tax shown in Schedule V, attached
hereto, to be paid on or before June 30, 1993 on distributions to be made on or
before June 30, 1993 and on or before January 30, 1994.
8. The $200,000 distribution made to Stockholder on December 31, 1992 qualifies
for the 1% tollgate tax rate provided the qualified investments shown in
Schedules III and VII are maintained until July 31, 1997.
9. This Agreement shall not be construed to limit in any way Corporation's right
to distribute tax-free upon liquidation all of its undistributed IDI accumulated
under the 1963 IIA.
10. Notwithstanding the provisions of Section 148 of the ITA, of Article
231-3(c) of the Regulations issued by the Secretary on December 1, 1977 and/or
the Master Closing Agreement, Corporation shall be deemed, by the execution of
this Agreement, to have complied with its notice and/or reporting obligation to
its Shareholder and/or to the Secretary with respect to: (1) the amount and
source of the dividend distributions to be made in accordance with this
Agreement, and (2) the investments made to comply with the investment
requirement of the dividends to be paid pursuant to this Agreement.
E. GENERAL PROVISIONS
1. As long as Stockholder is not engaged in the conduct of a trade or business
in Puerto Rico, dividends paid by it to its shareholders will not be subject to
tax nor withholding at source under Article 144-1(b) or the regulations under
the ITA. If Stockholder is engaged or in the future becomes engaged in the
conduct of business in Puerto Rico, dividends paid by it to its shareholders
will be subject to tax and withholding at source only to the extent such
dividends are Puerto Rico source income under Section 119 of the ITA.
2. The parties hereto further agree that should at any time after the date of
this closing Agreement, any portion of the earnings and profits of Corporation
be reallocated, assigned or adjusted pursuant to a firm and final order or
agreement with Stockholder or any related affiliate thereof under the provisions
of the United States Internal Revenue Code, including, but not limited to,
Sections 482, 61, 162, 351, 861, 862, 863, 864 and/or 936 or any successor
provision, the Corporation and/or Stockholder shall have the benefits of Article
41 of the Regulations under ITA Section 41 (in effect as of the date of this
Closing Agreement) as if said provisions were incorporated herein.
3. In no event will any technical adjustment or reallocation pursuant to the
preceding paragraph result in Corporation and/or Stockholder having to pay or
withhold a rate of tax on the earnings and profits distribution for the year
being adjusted, or any subsequent year affected by the adjustment, higher than
the one imposed on the dividend distributions being made hereunder. Nothing
contained herein shall prevent the Secretary from imposing any applicable
withholding tax on any fixed or determinable annual or periodical income from
Puerto Rico sources which is to be paid by Corporation to Stockholder as a
result of any such technical adjustment or reallocation.
<PAGE>
4. If Corporation is merged with or completely liquidated into Stockholder or
any affiliate of stockholder prior to its complete satisfaction of the
investment requirements of Section 231(a)(2)(D) of the ITA that are applicable
to its dividend distributions, those investment requirements will be deemed to
be satisfied if Stockholder or any affiliate thereof maintains Qualified
Investments for the remainder of such periods and in such amounts as would
satisfy those investments requirements if maintained by Corporation.
5. The percentage requirements, limitations, investments and distributions
required by Section 231(a)(2)(D) of the ITA shall be measured solely by
reference to Corporation's IDI as it appears in Corporation's annual tax
returns, including any schedules therein or attachments or exhibits thereto
filed by corporation in Puerto Rico, and prior to adjustment, if any, by the
Puerto Rico Income Tax Bureau. Notwithstanding the foregoing sentence, such
requirements shall be modified as required by the applicable provisions of
paragraph E(2) hereof.
6. Notwithstanding the provisions hereof, Corporation and Stockholder shall have
the option of availing themselves of any benefits which may in the future become
generally available under the ITA, 1963 IIA or the TIA as these statues may be
amended from time to time, or under public rulings, regulations or
administrative determinations which may be approved pursuant to said statutes.
7. The parties hereto mutually agree that the matters determined in this Closing
Agreement shall be final and conclusive, subject, however, to reopening in the
event of fraud, malfeasance or misrepresentation of fact, in accordance with
Section 418 of the ITA.
IN WITNESS WHEREOF, the parties hereto subscribe and execute this Closing
Agreement at San Juan, Puerto Rico this 30th day of June 1993.
/s/ Raul Mallande
SECRETARY OF THE TREASURY
OF THE COMMONWEALTH
OF PUERTO RICO
HAMPSHIRE DESIGNERS, INC.
By: /s/ Walter Chow
GLAMOURETTE FASHION MILLS, INC.
By: /s/ Walter Chow
<PAGE>
Schedule I
Glamourette Fashion Mills
Dividends Paid 1977-1992
Fiscal Manufact. Fiscal Year Fiscal Year Fiscal Year Fiscal Year FiscalYear
Year IDI 1978 Divid. 1979 Divid. 1980 Divid. 1981 Divid. 1982 Divid.
- ------ -------- ----------- ----------- ----------- ----------- -----------
04/29/78 $1,175,156 $20,0000 $50,000 $30,000 $505,000 $570,158
04/28/79 1,585,192 1,320,842
05/03/80 1,343,473
05/02/81 847,459
05/01/82 1,974,575
04/30/83 1,152,338
04/28/84 1,216,498
04/27/85 1,383,302
05/03/86 2,855,722
12/31/86 2,183,261
12/31/87 2,701,327
12/31/88 3,354,146
12/31/89 1,666,720
12/31/90 1,670,738
12/31/91 1,777,008
07/29/92 1,620,747
12/31/92 225,994
- ------ -------- ----------- ----------- ----------- ----------- -----------
Total $20,000 $50,000 $30,000 $505,000 $1,891,000
- ------ -------- ----------- ----------- ----------- ----------- -----------
Fiscal Manufact.Fiscal Year Fiscal Year
Year IDI 1983 Divid. 1984 Divid.
- ------- -------- ----------- -----------
04/29/78 $1,175,156
04/28/79 1,585,192 $264,350
05/03/80 1,343,473 727,650 $615,823
05/02/81 847,459 382,677
05/01/82 1,974,575
04/30/83 1,152,338
04/28/84 1,216,498
04/27/85 1,383,302
05/03/86 2,855,722
12/31/86 2,183,261
12/31/87 2,701,327
12/31/88 3,354,146
12/31/89 1,666,720
12/31/90 1,670,738
12/31/91 1,777,008
07/29/92 1,620,747
12/31/92 225,994
- ------ -------- ----------- -----------
Total $992,000 $998,500
- ------ -------- ----------- -----------
<PAGE>
Fiscal Fiscal Year May 1986 Dec. 1986 Calendar Yr Calendar Yr Calendar Yr
Year 1985 Divid. Divid. Dividend 1987 Divid. 1988 Divid. 1989 Divid
- ------ ----------- --------- ---------- ----------- ----------- -----------
04/29/78 $1,175,156
04/28/79 1,585,192
05/03/80 1,343,473
05/02/81 847,459 $464,782
05/01/82 1,974,575 597,878 $965,080 $411,817
04/30/83 1,152,338 67,883 $962,625 $121,831
04/28/84 1,216,498 884,019
04/27/85 1,383,302
05/03/86 2,855,722
12/31/86 2,183,261
12/31/87 2,701,327
12/31/88 3,354,146
12/31/89 1,666,720
12/31/90 1,670,738
12/31/91 1,777,008
07/29/92 1,620,747
12/31/92 225,994
- ------ ----------- --------- ---------- ----------- ----------- -----------
Total $1,062,480 $965,080 $479,700 $962,625 $965,650
- ------ ----------- --------- ---------- ----------- ----------- -----------
Period Ended Period Ended
Fiscal Fiscal Yr Calendar Yr July 1992 December 1992 Accumulated
Year 1990 Divid. 1991 Divid. Dividend Dividend IDI
- ------- ------------ ------------- ------------- -------------- ------------
04/29/78 $1,175,156
04/28/79 1,585,192
05/03/80 1,343,473
05/02/81 847,459
05/01/82 1,974,575
04/30/83 1,152,338
04/28/84 1,216,498
04/27/85 1,383,302
05/03/86 2,855,722 $421,401
12/31/86 2,183,261 1,959,099 $22,217 $ 10,750 $ 191,195
12/31/87 2,701,327 2,701,327
12/31/88 3,354,146 3,354,146
12/31/89 1,666,720 1,668,720
12/31/90 1,670,738 1,870,739
12/31/91 1,777,008 1,777,006
07/29/92 1,620,747 1,620,747
12/31/92 225,994 200,000 25,994
- ------- ------------ ------------- ------------- -------------- ------------
Total $2,380,500 $22,217 $210,750 $13,209,874
- ------- ------------ ------------- ------------- -------------- ------------
<PAGE>
Schedule II
Glamourette Fashion Mills
Accumulated Industrial Development Income
Prior to Section 3(m) Extension
Amount Available Date of Termination
Manufact. Investment for Immediate Qualified Date Investment
Fiscal Yr IDI Requirement Distribution Investments Period
- --------- --------- ----------- ---------------- ------------ ---------------
12/31/87 $2,701,327 $675,332 $2,025,995 1/1/87 1/1/95
12/31/88 3,354,146 838,537 2,515,609 1/1/88 1/1/96
12/31/89 1,668,720 417,180 1,251,540 1/1/89 1/1/97
12/31/90 1,870,739 467,685 1,403,054 1/1/90 1/1/98
12/31/91 1,777,006 444,252 1,332,754 1/1/91 1/1/99
07/29/92 1,620,747 405,187 1,215,560 1/1/92 1/1/00
- --------- ---------- ----------- ---------------- ------------ ---------------
$12,992,685 $3,248,173 $9,744,512
---------- ----------- ----------------
Schedule III
Glamourette Fashion Mills
Amounts Invested in Qualified Assets
Machinery, Equipment Total Amount
Fiscal Year and Fixtures at Cost * Invested
- ----------- ------------------------- ---------------
07/30/77 $ 224,316 $ 224,316
04/29/78 2,148,640 2,148,640
04/28/79 1,375,905 1,375,905
05/03/80 1,513,270 1,513,270
05/02/81 1,560,699 1,560,699
05/01/82 1,612,953 1,612,953
04/30/83 1,655,319 1,655,319
04/28/84 2,667,143 2,677,143
04/27/85 2,935,242 2,935,242
05/03/86 3,415,637 3,415,637
12/31/86 4,021,407 4,021,407
12/31/87 5,281,856 5,281,856
12/31/88 5,469,594 5,469,594
12/31/89 6,610,159 6,610,159
12/31/90 6,815,110 6,815,110
12/31/91 6,913,684 6,913,684
07/29/92 7,051,329 7,051,329
12/31/92 8,420,686 8,420,686
*includes Leasehold Improvements
<PAGE>
Schedule IV
Glamourette Fashion Mills
Investment Requirements
And Qualified Assets Retained
Investment Total Amount Excess
Fiscal Year Requirement* Invested** Investments
- ------------ ---------------- ---------------- --------------
12/31/87 $675,332 $5,281,856 $4,606,524
12/31/88 838,537 5,469,594 3,955,725
12/31/89 417,180 6,610,159 4,679,110
12/31/90 467,685 6,815,100 4,416,376
12/31/91 444,252 6,913,684 4,070,698
07/29/92 405,187 7,051,329 3,803,156
*Amount Detailed in Schedule II
** Amount Detailed in Schedule III
Schedule V
Fiscal Year Amount of Distribution Rate of Tax Tax
- ----------- -------------------------- --------------- ------------
12/31/86 $ 191,195 10% $ 19,120
12/31/87 2,025,995 7% 141,820
12/31/88 1,782,810 7% 124,797
----------- -----------
Total $4,000,000 $285,737
----------- -----------
Schedule VI
Glamourette Fashion Mills
3% Investment Credit
Balance Sheet Leasehold Construction in Total Investment
Date Improvements Progress at Cost
- ------------- -------------- ---------------- -----------------
07/30/77 $ 35,667 $ 0 $ 35,667
04/29/78 365,509 14,944 380,453
04/28/79 431,000 7,830 438,830
05/03/80 519,360 3,742 523,102
05/02/81 531,019 2,306 533,325
05/01/82 532,413 54,896 587,309
04/30/83 532,413 599,913 1,132,326
04/28/84 1,255,508 70,796 1,326,304
04/27/85 1,346,887 18,844 1,365,731
05/03/86 1,374,569 37,422 1,361,123
12/31/86 1,269,700 91,423 1,287,477
12/31/87 1,269,700 17,777 1,287,477
12/31/88 1,278,867 31,554 1,310,421
12/31/89 1,437,070 0 1,437,070
12/31/90 1,450,747 15,534 1,466,281
12/31/91 1,473,927 195,925 1,669,852
12/31/92 1,849,552 152,432 2,001,984
------------- ---------------- -----------------
3% Investment Tax Credit $ 60,060
-----------------
<PAGE>
Schedule VII
Glamourette Fashion Mills
Amounts Invested for Distributions at 1%
December 31, 1992
Period July 30, 1992 - December 31, 1992
Net IDI $225,994
Investment Requirement $56,499
Total Amount Invested in Qualified Assets* $8,420,686
Excess Investments** $5,116,014
Date of Investment July 30, 1992
Termination Date July 31, 1997
* Amount Detailed in Schedule III
** Amount determined after deducting Investment requirements
shown in Schedule IV and this schedule.
INSTALLMENT NOTE
$1,580,717.73
BIRMINGHAM, ALABAMA
MAY 1, 1994
For value received, the under signed (whether one or more, hereafter called the
"Obligors") promise(s) to pay to the order of SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION (hereinafter called the "Bank" or, together with any other
holder of this note, the "Holder"), at any office of the Bank in BIRMINGHAM,
ALABAMA, or at such other place as the Holder may designate, the principal sum
of ONE MILLION FIVE HUNDRED EIGHTY THOUSAND SEVEN HUNDRED SEVENTEEN, AND 73/100
Dollars, together with interest thereon at the rate provided below from the date
of this note (or other interest accrual date shown below) until maturity
(whether as originally scheduled or upon acceleration following default), and
with interest on the unpaid balance of the principal sum (plus accrued but
unpaid interest at maturity, to the extent permitted by law) at the rate which
is 2 percent per annum in excess of the rate provided below or the maximum rate
allowed by law, whichever is less, from maturity until said indebtedness is paid
in full, Interest will continue to accrue daily on the entire unpaid balance of
the principal sum of this note until each payment under this note is received by
the Holder at the address provided above. Interest will accrue beginning on the
date of this note unless another date is shown here: APRIL 29, 1994.
INTEREST RATE -----Variable Rate Interest will accrue on the above-stated
principal sum as follows (mark applicable provision): Interest will accrue on
the above-stated principal sum at the rate per annum which is __________
percentage points in excess of the Index Rate. Unless another rate is made
applicable below, the "Index Rate" is the rate of interest designated by the
Bank periodically as its Base Rate. The Base Rate is not necessarily the lowest
rate charged by the Bank. The Base Rate on the date of this note is _____
percent. _____ (check box if applicable) The "Index Rate" is the weekly auction
average yield of ____ -week U.S. Treasury Bills at the most recent auction prior
to the date of the interest rate payable under this note is calculated. The
Index Rate on the date of this note is ______ percent. The rate of interest
payable under this note will change to reflect any change in the Index Rate:
_____ on any day the Index Rate changes. ___ on the _________ day of each month
hereafter. _____ on the day each payment of interest is due as provided below.
_________________________ Obligors may prepay this note in full at any time
without penalty.
_____ Fixed Rate Interest will accrue on the above-stated principal sum at the
rate of 7.70 percent per annum.
Interest on the principal sum will be calculated at the rate set forth above on
the basis of a 360-day year and the actual number of days elapsed by multiplying
the principal sum by the per annum rate set forth above, multiplying the product
thereof by the actual number of days elapsed, and dividing the product so
obtained by 360.
PAYMENT SCHEDULE _______ Installments of Principal, Interest Paid Separately The
above-stated principal sum and interest thereon shall be paid as follows (mark
applicable provision): The Obligors promise to pay the above-stated principal
sum in ________ consecutive _____ monthly installments _____ quarterly
installments _________ installments in the amount of $ _________ each, beginning
_______, 19 ____ and continuing on the same day of each month, quarter, or other
period (as applicable) thereafter until _________, 19___ at which time a final
installment in the amount of the unpaid balance of the principal sum and all
accrued but unpaid interest thereon shall be due and payable.
<PAGE>
The Obligors promise to pay accrued interest on the principal sum: _____ monthly
____ quarterly __________________________ beginning ____________ 19,____ and
continuing on the same day of each month, quarter, or other period (as
applicable) thereafter until final maturity of the principal sum.
_X_ Installments of Principal and Interest The Obligors promise to pay the
above-stated principal sum and interest thereon in 59 consecutive _X_ monthly
installments ___ quarterly installments ______ installments in the amount of
$31,824.79 each, beginning June 1, 1994 and continuing on the same day of each
month, quarter, or other period (as applicable ) thereafter until May 1, 1999 at
which time a final installment in the amount of the unpaid balance of the
principal sum and all accrued but unpaid interest thereon shall be due and
payable.
All payments under this note shall be made in U.S. dollars and in immediately
available funds at the place where payment is due.
LOAN FEE (This provision applicable only if completed):
A loan fee in the amount of $ -0- has been included in the amount of this note
and paid to the Bank from the loan proceeds ____ paid to the Bank by cash or
check at closing. The loan fee is earned by the Bank when paid and is not
subject to refund except to the extent required by law.
LATE CHARGE If any scheduled payment is in default 10 days or more, Obligors
agree to pay a late charge equal to 5% of the amount of the payment which is in
default, but not less than $.50 or more than the maximum amount allowed by
applicable law. The preceding sentence does not apply if the original principal
amount of this Note is less than $2,000.
COLLATERAL This note is secured by every security agreement, pledge, assignment,
stock power, mortgage, deed of trust, security deed and/or other instrument
covering personal or real property (all of which are hereinafter included in the
term "Separate Agreements") which secures an obligation so defined as to include
this note, including without limitation all such Separate Agreements which are
of even date herewith and/or described in the space below. In addition, as
security for the payment of any and all liabilities and obligations of the
Obligors to the Holder (including this note and the indebtedness evidenced by
this note and all extensions, renewals and modifications thereof, and all
writings delivered in substitution therefor) and all claims of every nature of
the Holder against the Obligors, whether present or future, and whether joint or
several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, direct or indirect (all of the foregoing are hereinafter included
in the term "Obligations"), the Obligor hereby assign to the Holder and grant to
the Holder a security interest in and security title to the property (the
"Collateral") described below: (Describe Separate Agreements and Collateral.)
VARIOUS EQUIPMENT MORE PARTICULARLY DESCRIBED ON SECURITY AGREEMENT DATED MAY 1,
1994 AND MADE PART THEREOF BY THIS REFERENCE.
The Obligors are jointly and severally liable for the payment of this note and
have subscribed their names hereto without condition that anyone else should
sign or become bound hereon and without any other condition whatever being made.
The provisions printed on the back of this page are a part of this note. The
provisions of this note are binding on the heirs, executors, administrators,
successors and assigns of each and every Obligor and shall inure to the behalf
of the Holder, its successors and assigns. This note is executed under the seal
of each of the Obligors and of the indorsers, if any, with the intention that it
be an instrument under seal.
CAUTION; IT IS IMPORTANT THAT YOU THOROUGHLY READ THE CONTRACT BEFORE YOU SIGN
IT.
Address of Obligor: 215 COMMERCE BLVD.
ANDERSON, SOUTH CAROLINA 29622
No. 5160099/15583
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton, Vice President
<PAGE>
If the Obligors fail to pay any installment of principal or interest or any
other sum under this note exactly when it is due or fail to perform any other
covenant under this Note when due (time being of the essence of every term of
this note); or if any of the Obligors shall fail to pay any other debt or
obligation to the Holder exactly when due; or if any of the Obligors or any
guarantor or indorser of this note shall die (if an individual) or dissolve or
cease to do business (if a partnership or corporation); or (if any of the
Obligors or any guarantor or indorser of this note become insolvent, or makes a
general assignment for the benefit of creditors, or files or has filed against
him, her, or if a petition under any chapter of the United States Bankruptcy
Code, or files, or has filed against him, her, or if an application in any court
for the appointment of a receive or trustee for any substantial part of his,
hers, or its property or assets; or if a judgment or arbitration award is
entered against any of the Obligors or any such guarantor or indorser or a levy,
writ of execution, attachment, garnishment, seizure or similar writ or judicial
process is issued against any of the Obligers or any such guarantor or indorser
or any of his, hers, or its property or assets; or if any Obligor, indorser or
guarantor of this note transfers all or any valuable part of his, her or its
assets outside the ordinary course of business, or wastes, losses, or dissipates
or permits waste, loss or dissipation of any valuable part of such person's
assets; of if any Obligor, indorser or guarantor of this note is a partnership,
and any general partner of such partnership withdraws or is removed; or if any
obligor, indorser or guarantor of this note is a corporation and ownership or
power to vote more than 50 percent of the voting stock of such corporation is
transferred, directly or indirectly (including through any voting trust,
irrevocable proxy, or the like), during any 12 month period; or if any default
or breach occurs under any of the Separate Agreements; or if any of the Obligors
or any indorser or guarantor breaches any subordination agreement or enter
creditor agreement made with or for the benefit of the holder; or if at any time
in the opinion of the Holder the prospect of payment or performance by any
Obligor or any guarantor or indorser of this note becomes impaired, then , if
any of the foregoing shall occur, the entire unpaid principal sum of this note
and all accrued but unpaid interest thereon shall, at the option of the Holder
and without requirement of notice or demand, become due and payable immediately,
notwithstanding any time or credit allowed under this note or under any other
agreement made by the Holder with Obligors.
Each Obligor and each guarantor and indorser agrees (a) in the event such
Obligor, guarantor or indorser is other than an individual, to furnish the
Holder at least annually, within 120 days after the end of each calendar year or
other fiscal year of such entity, a current financial statements, including a
balance sheet and statements of income, cash flows and changes in capital for
such year, setting forth in each case in comparative form the corresponding
figures for the previous year, together with accompanying schedules and
footnotes along with the accountant's letter accompanying the financial
statement (if the financial statements were complied or certified by a public
accountant, such financial statements to be certified by the chief executive
officer, chief financial officer, managing partner or comparable financial
officer of such Obligor, guarantor or indorser to be true and complete to the
best of his or her knowledge and information and to have been prepared in
accordance with generally accepted accounting principles or, if not so prepared,
setting forth the manner in which such financial statement departs form
generally accepted accounting principles; (b) in the event such Obligor,
guarantor or indorser is an individual, to furnish the Holder at least annually,
within 90 days after each anniversary date of this note, a personal financial
statements in form satisfactory to the Holder, certified by such person to be
true and complete to the best of his or her knowledge and belief, and to furnish
the Holder, within 30 days after the Holder's request therefore, a copy of the
federal income tax return most recently filed by such person; and (c) that this
paragraph applies in addition to and not in lieu of any other agreement with the
Holder which requires the furnishing of financial information.
As additional Collateral for the payment of all Obligations, the Obligors
jointly and severally transfer, assign, pledge, whether in trust for any Obligor
or for custody, pledge, collection or otherwise, is now or hereafter in the
actual or constructive possession of, or in transit to, the Holder in any
capacity, its correspondents or agents, and also continuing lien upon and right
of set-off against deposits and credits of each Obligor with, and all claims of
each Obligor against the Holder now or at any time or times and without prior
notice to apply such property, deposits, credits and claims, in whole or in part
and in such order as the Holder may elect, to the payment of, or as a reserve
against, one or more of the Obligations, whether other Collateral therefor is
deemed adequate or not. All such property, deposits, credits and claims of the
Obligors are included in the term Collateral, and the Holder shall have (unless
prohibited by law) the same rights with respect to such collateral as it has
with respect to other Collateral.
<PAGE>
Without the necessity for any further notice to or consent of any Obligor, the
Holder may exercise any rights of any of the Obligors with respect to any
Collateral, including without limitation thereto the following rights: (1) to
record or register in, or otherwise transfer into, the name of the Holder or its
nominees any part of the Collateral, without disclosing that the Holder's
interest is that of a secured part; (2) to pledge or otherwise transfer any or
all of the Obligations and/or Collateral, whereupon any pledgee or transferee
shall have all the rights of the Holder hereunder, and the Holder shall
thereafter be fully discharged and relieved from all responsibility and
liability for the Collateral so transferred but shall retain all rights and
powers thereunder as to all Collateral not so transferred; (3) to take
possession of any Collateral and to receive any proceeds of and dividends and
income on any Collateral, including money, and to hold the same as Collateral or
apply the same to any of the Obligations, the manner, order and extent of such
application to be in the sole discretion of the Holder; (4) to exercise any and
all rights of voting, conversion, exchange, subscription and other rights or
options pertaining to any Collateral; and (5) to liquidate, demand, due for,
collect, compromise, receive and give receipt for the cash or surrender value of
any Collateral. If for any reason whatsoever the collateral shall cease to be
satisfactory to the Holder, the Obligors shall upon demand deposit with the
Holder additional Collateral satisfactory to the Holder. Surrender of this note,
upon payment or otherwise, shall not affect the right of the Holder to retain
the Collateral as security for other Obligations. Upon default, the Obligors
agree to assemble the Collateral and make it available to Holder at such place
or places as the Holder shall designate.
The Holder shall be deemed to have exercised reasonable care in the custody and
preservation of any of the Collateral which is in its possession if it takes
such reasonable actions for that purpose as the pledgor of such collateral shall
request in writing, but the Holder shall have the sole discretion to determine
whether such actions are reasonable. Any omissions to do any act not requested
by the pledgor shall not be deemed a failure to exercise reasonable care. The
Obligors shall be responsible for the preservation of the Collateral and shall
take all steps to preserve rights against prior parties. The holder shall not be
liable for, and no Obligor, indorser, or guarantor shall be discharged to any
extent on account of, any failure to realize upon, or to exercise any right or
power with respect to, any of the Obligations or Collateral, or for any delay in
so doing.
The Holder, without making any demand whatsoever, shall have the right to sell
all or any part of the collateral, although the Obligations may be contingent or
unmatured, whenever the Holder considers such sale necessary for its protection.
Sale of the Collateral may be made, at any time and from time to time, at any
public or private sale, at the option of the Holder, without advertisement or
notice to any Obligor, except such notice as is required by law and cannot be
waived. The Holder may purchase the Collateral at any such sale (unless
prohibited by law) free from any equity of redemption and from all other claims.
After deducting all expenses including legal expenses and attorney's fees as
provided below, for maintaining or selling the Collateral and collecting the
proceeds of sale, the Holder shall have the right to apply the remainder of said
proceeds in payment of, or as a reserve against, any of the Obligations, the
manner, order and extent of such application to be in the sole discretion of the
Holder. To the extent notice of any sale or other disposition of the Collateral
is required by law to be given to any Obligor and cannot be waived, the
requirement of reasonable notice shall be met by sending such notice, as
provided below, at least ten (10) calendar days before the time of sale or
disposition. The Obligor shall remain liable to the Holder for the payment of
any deficiency with interest at the rate provided hereinabove. However, the
Holder shall not be obligated to resort to any Collateral but, at its election,
may proceed to enforce any of the obligations in default against any or all of
the Obligors.
With respect to any and all Obligations, to the extent permitted by applicable
law, the Obligors and any endorsers of this note jointly and severally waive the
following: (1) all rights of exemption of property from levy or sale under
execution or other process for the collection of debts under the constitution
and laws of the United Sates or of any state thereof; (2) demand, presentment,
protest, notice of dishonor, suit against any party and all other requirements
necessary to charge or hold any Obligor or indorser liable on any Obligation:
(3) any further receipt for or acknowledgment of the Collateral now or hereafter
deposited and any statement of indebtedness; (4) all statutory provisions and
requirement for the benefit of any Obligor or indorser, now or hereafter in
force (to the extent that same may be waived); (5) the right to interpose any
set-off or counterclaim of any nature or description in any litigation in which
<PAGE>
the Holder and any Obligor or endorser shall be adverse parties; and (6) notice
of any intended public or private sale or sales or other intended disposition by
the Holder or the Collateral or any part thereof. The Obligors and indorsers
agree that any obligations of any Obligor or indorser may, from time to time, in
whole or in part, be renewed, extended, modified, accelerated, compromises,
discharged or released by the Holder, and any Collateral, security interest,
lien and/or right of set-off securing any Obligation may from time to time, in
whole or in part, be exchanged, sold, released, or otherwise impaired, all
without notice to or further reservations of rights against any Obligor or any
other person and all without in any way affecting or discharging the liability
of any Obligor or indorser.
The Obligors jointly and severally agree to pay all filing fees and taxes in
connection with this note or the Collateral and all costs of collecting or
securing or attempting to collect or secure any of the Obligations, including an
attorney's fee in the amount which is 15% of the unpaid balance of this note if
an attorney who is not a salaried employee of the Holder is consulted with
reference to suit, bankruptcy proceedings, or otherwise following any default
hereunder by the Obligors.
The Holder shall not by any act, delay, omission or otherwise be deemed to have
waived any of its rights or remedies. No officer or agent of the Holder has the
authority to amend or waive any of the terms of this note orally, and no
amendment or waiver of any kind shall be valid unless in writing and signed by
the Holder. All rights and remedies of the Holder under the terms of this note
under the Separate Agreements, and under statutes or rules of law are cumulative
and may be exercised successively or concurrently. The Obligors jointly and
severally agree that the Holder shall be entitled to all rights of a holder in
due course of a negotiable instrument. This note shall be governed by and
construed in accordance with the substantive laws of the United States and the
state where the office of the Bank set forth above in the first paragraph of
this note is located, without regard to the rules of such state governing
conflicts of law. Any provision of this note which may be unenforceable or
invalid under applicable law shall be ineffective to the extent of such
unenforceablity or invalidity without affecting the enforceability or validity
of any other provision hereof. Any notice required to be given to any person
shall be deemed sufficient if delivered to such person or if mailed, postage
prepaid, to such person's address as it appears on this note or, if none
appears, to any address of such person in the Holder's files. the Holder shall
have the right to correct patent errors in this note. A photocopy of this note
may be filed as a financing statement in any public office.
The Obligors understand that the Bank may enter into participation agreements
with participating banks whereby the Bank will sell undivided interests in this
note to such other banks. The Obligors consent that the Bank may furnish
information regarding the Obligors, including financial information, to such
banks from time to time and also to prospective participating banks in order
that such banks may make an informed decision whether to purchase a
participation in this note. The Obligors hereby grant to each such participating
bank, to the extent of its participation in this note, the right to apply
deposit accounts maintained by the Obligors, or any of them with such bank,
against unpaid sums owed under this note. Upon written request from the Holder,
the Obligors agree to make each payment under this note directly to each such
participating bank in proportion to the participant's interest in this note as
set forth in such request from the Holder.
If, at any time, the rate or amount of interest, late charge, attorney's fee or
any other charge payable under this note shall exceed the maximum rate or amount
permitted by applicable law, then, for such time or amount would be excessive,
its application shall be suspended and there shall be charged instead the
maximum rate or amount permitted under such law, and any excess interest or
other charge paid by the Obligors or collected by the Holder shall be refunded
to the Obligors or credited against the principal sum of this note, at the
election of the Holder or as required by applicable law. Obligors agree that the
late charge provided in this note is a reasonable estimate of probable
additional unanticipated internal costs to the Holder of reporting, accounting
for, and collecting the late payment, that such costs are difficult or
impossible to estimate accurately, and that the agreement to pay a late charge
is reasonable liquidated damages provision.
The provisions of this paragraph shall control, when applicable, notwithstanding
any provision of this note to the contrary; if the Obligors are one or more
natural person and the loan is used for personal, family, or household use other
than for the purchase of real property, the following provisions are applicable:
(a) the waivers of exemption of property from levy or sale under execution or
other process for the collection of debts as hereinabove provided applies only
with respect to the Collateral, if any for this note; (b) to the extent that any
Separate Agreement covers property which is "household goods", as that term is
defined in 12C.F.R. Section 227.12(d), an to the extent the proceeds of the loan
evidenced by this note were not used to purchase such property, such "household
goods" do not constitute any part of Collateral for the Obligations, and (c)
whether or not the loan is used to purchase real property, no consumer
protection provision of applicable law and no limitation on the remedy of
<PAGE>
garnishment provided under federal or state law is waived hereby. If the
proceeds of the loan evidenced by this note are used primarily for personal,
family, household or agricultural purposes, and if Alabama law governs this
note, the agreement hereinabove made to pay an attorney's fee to collection
following default applies only if the original principal balance of the loan
exceed $300, and the attorney's fee shall be a reasonable fee not exceeding 15%
of the unpaid balance of this note after default and referral of this note to an
attorney, not a salaried employee of the Holder, for collection. If the proceeds
of the loan evidenced by this note are used primarily for personal, family, or
household use, and if any of the Separate Agreements grants the Holder a lien on
or title to the principal dwelling of any of the Obligors, the Holder waives the
benefit of such Obligor's principal dwelling as security for the Obligations,
unless such Separate Agreement is specifically described on the reverse side of
this note.
EACH INDORSER OF THIS NOTE AGREES TO BE BOUND BY THE PROVISIONS PRINTED OR
OTHERWISE APPEARING ABOVE AN DON THE FACE OF THIS NOTE, INCLUDING THE PROVISION
FOR PAYMENT OF ATTORNEYS' FEES FOR COLLECTION.
SEE SEPARATE GUARANTEE DATED MAY 1, 1994.
CAUTION - IT IS IMPORTANT THAT YOU THOROUGHLY READ THE CONTACT BEFORE YOU SIGN
IT.
Signature _________________________________
<PAGE>
ADDENDUM 1 TO INSTALLMENT NOTE
EARLY TERMINATION
THIS ADDENDUM I IS HEREBY ATTACHED TO AND MADE A PART OF THAT CERTAIN
"INSTALLMENT NOTE" DATED MAY 1, 1994 BETWEEN HAMPSHIRE DESIGNERS, INC.
("BORROWER" OR "OBLIGOR"), HAMPSHIRE GROUP, LIMITED ("GUARANTOR") AND SOUTHTRUST
BANK OF ALABAMA, N.A. ("SECURED PARTY").
The interest rate on this note is a fixed rate. Obligor may not prepay this note
in whole or in part during the first eighteen months after the date of this
note. Thereafter, prepayment, either in whole or in part, will be permitted on
any scheduled payment date. for a partial payoff, the payoff amount will be
based on the percentage of original cost (new equipment) or appraised value
(used equipment) at loan inception for the equipment to be paid off. (Appraised
values for the used equipment are shown on Seclude "A"0. At the time of payoff
obligor will pay that percentage of the then principal balance plus accrued
interest.
<PAGE>
SECURITY AGREEMENT
EQUIPMENT, FARM EQUIPMENT OR CONSUMER GOODS
Debtor(s):
HAMPSHIRE DESIGNERS, INC.
215 COMMERCE BLVD.
ANDERSON, SC 29621
Secured Party:
SOUTHTRUST BANK OF ALABAMA, N.A.
PO BOX 2554
BIRMINGHAM, ALABAMA 35290
MAY 1, 1994
1. In consideration of the loan or other extension of credit this day made to
the undersigned or any of them by the Secured Party named above (hereinafter
called "Secured Party"), and of any loans or other extensions of credit
presently outstanding and any loans or other extension of credit hereafter made
to the undersigned or any of them by the Secured Party, and of the renewal or
extension of any such loan or other extension of credit, and of any loan or
other extension of credit to any other person or entity the payment of which is
guaranteed by any of the undersigned, and in consideration of $10 and other
valuable consideration to Debtor, receipt of which is hereby acknowledged, and
for the purpose of securing the payment as and when due of all such loans and
extensions of credit and the interest and other lawful charges thereon and any
and all other indebtedness or liability of the undersigned or any of them to the
Secured Party, the undersigned (whether one or more, hereinafter called
"Debtor") hereby assigns, transfers and conveys to Secured Party, and grants to
Secured Party a security interest in, the property described below, all
substitutions therefore, and all additions, accessions, accessories and option
equipment now or hereafter affixed thereto or used in connection therewith
(sometimes hereinafter collectively referred to as "the Collator"); (Describe
Collateral)
MORE PARTICULARLY DESCRIBED ON SCHEDULE A ATTACHED HERETO AND MADE A PART HEREOF
BY THIS REFERENCE, INCLUDING ALL PARTS ACCESSORIES AND ATTACHMENTS NOW OR
HEREAFTER AFFIXED THERETO. PROCEEDS OF THE COLLATERAL INCLUDING PROCEEDS OF ALL
INSURANCE ON THE COLLATERAL ARE ALSO SECURITY FOR THIS LOAN. "PURCHASE MONEY
SECURITY INTEREST."
Including the following motor vehicles which are a part of the Collateral:
New or Used
Year Model
Number of Cylinders
Make
Body, Type, if Truck Ton Capacity
Model or Series
Manufacturer's Serial Number
Motor Number
Proceeds and products of the above described property are also covered by the
security interest created by this agreement. coverage of proceeds and product
shall not be construed as giving Debtor any additional rights with respect to
the Collateral, and Debtor is not authorized to sell, lease, otherwise transfer,
furnish under contract of service manufacture process or assemble the Collateral
except in accordance with Secured Party's written consent obtained in advance.
2. A security interest in, and title to, the Collateral shall be and remain in
Secured Party until all sums secured by this agreement have been paid in full
and Secured Party is duly executed and delivered a written termination of its
interest hereunder. The security interest of Secured Party hereunder secures the
performance of the covenants and agreements herein set forth, the payment of all
indebtedness and other obligations described in paragraph 1 hereof and the
interest thereon, all costs and expenses incurred by Secured Party in the
collection of said indebtedness, the enforcement of Secured Party's rights
hereunder, including the payment of legal expenses and attorney's fees as herein
provided, and the payment of any and all liabilities and obligations of Debtor
to Secure Party and claims of every nature and description of Secured Party
against Debtor, whether present or future, contracted directly with Secured
Party or acquired by Secured Party from another, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, direct or
indirect. (All of the foregoing in this paragraph are hereinafter included in
the term "the Obligations").
<PAGE>
3. Debtor hereby warrants, represents and agrees that:
(a) Except for the security interest created by this agreement, Debtor is the
absolute owner of the Collateral free from any adverse claim, lien, security
interest or encumbrance, and the same shall be true of Collateral acquired
hereafter when acquired; no financial statement or other record of lien,
security interest or encumbrance has been filed which relates to the Collateral
or which through general language or inclusion of proceeds could relate thereto;
and Debtor at Debtor's cost and expense will protect and defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein.
(b) The Collateral has been acquire and is used, or will be acquired and will be
used, by Debtor primarily for the purpose checked below. (Check 1,2 or 3).
_X_1. In business
___ 2. For Personal, Family or Household Purposes
___ 3. In Framing Operations
(c) ___ If this block is checked, this agreement creates a purchase money
security interest, and the consideration given for this agreement and for the
promissory note(s) executed in connection herewith shall be used to purchase the
Collateral, and Secured Party is authorized to disburse such consideration
directly to the seller of the Collateral.
(d) The Collateral is kept and will be kept at (attach additional sheets if
necessary) Rouse Industrial Park, Chilhowie, Smyth County, Virginia 24319, or if
left blank, at the address shown at the beginning of this agreement.
(e) If the collateral has been acquired or is used primarily for personal,
family or household purposes or for farming operations, Debtor's residence is
the address shown at the beginning of this agreement and if the address so shown
is in a different state from the address shown in (d) above, then Debtor has no
residence in the state where the Collateral is kept.
(f) If the Collateral includes equipment which is normally used in more than one
state (such as motor vehicles, rolling stock, airplanes, road building
equipment, commercial harvesting equipment, and construction machinery) and
Debtor has a place of business in more than one state, Debtor's chief place of
business is:
Street Address
City
County
State/Zip
of if left blank, is the address shown at the beginning of this agreement. If
certificates of title are issued or outstanding with respect to any of the
Collateral, Debtor will cause the interest of Secured Party to be properly noted
thereon.
(g) The Collateral is not and shall not be affixed to real estate so as to be or
become a fixture or fixtures, unless such is indicated below in this agreement
or unless such is subsequently consented to in writing by Secured Party.
___ If this block is checked, the Collateral is or will be affixed to the real
estate describe don an exhibit attached hereto and made a part hereof name of
the record owner of the real estate is ______________ If the Collateral is
affixed to real estate prior to the perfection of the security interest created
by this agreement, Debtor will, on demand of Secured Party, further Secured
Party with a disclaimer or disclaimers, signed by all persons having an interest
in the real estate, of any interest in the Collateral which is prior Secured
Party's interest.
4. Debtor agrees not to use the Collateral in violation of any law nor give a
security interest in, assign, sell, transfer, mortgage or in any way encumbrance
any of the Collateral without the written consent of Secured Party. Debtor
agrees not to conceal nor abandon the Collateral nor remove the Collateral
address other than the address specified in this agreement as the place where
the Collateral will be kept without giving written notice to Secured Party such
removal within five (5) days thereof. Debtor agrees not to rent or lend any
motor vehicle or other Collateral to any person or persons or permit the to be
used as a taxi for hire. Debtor agrees to pay when due all rents, taxes,
assessments and charges levied against the Collateral and other claims that are
or may become liens against the collateral or any part thereof and all charges
for the use, storage, maintenance and repair of the Collateral, Debtor a to
perform or comply with the terms of any lease covering the premises wherein the
<PAGE>
Collateral is located and any orders, ordinances, and laws of any government
body or agency concerning such premises or the conduct of business therein.
5. Debtor agrees to keep the collateral in good condition and repair, normal
wear and tear alone expected, without any cost or liability to Secured Party
Debtor agrees not to permit anything to be done that may impair the value of the
Collateral or the security intended to be afforded by this agreement in the
event of loss or damage to the Collateral, Debtor will immediately send Secured
Party written notice thereof and of the extent thereof. The loss, injury or
destruction of the Collateral shall not release or any of the Debtor's
Obligations to Secured Party, if for any reason whatever the Collateral shall
cease to be satisfactory to Secured Party, Debtor agrees to give Secured Party
such additional Collateral or other security for the payment of the Obligations
as Secured Party may demand.
6. Secured Party may, in its discretion and before or after default (a) inspect
the Collateral and inspect and copy all records relating to the Collateral and
the Obligations; (b) terminate, on notice to Debtor, Debtor's authority to sell,
lease, otherwise transfer, manufacture, process, assemble, or furnish under
contracts of service any Collateral as to which any such permission has been
given; (c) require Debtor to give possession or control of the collateral to
Secured Party; (d) take possession or control of all proceeds of the Collateral,
including cash and insurance proceeds payable in the event of any damage to or
loss of the Collateral, and apply such proceeds in payment of, or as a reserve
against any of the Obligations, the manner, order and extent of such application
to be in the sole discretion of Secured Party: (e) take any action Debtor is
required to take or which is necessary to obtain, preserve or enforce the
security interest created by this agreement, or to maintain and preserve the
collateral, without notice to Debtor, and add the costs of same to the
Obligations (but Secured Party is under no duty to take any such action); (f)
release nay Collateral in Secured party's possession to Debtor, temporarily or
otherwise, without waiving any rights to retake or repossess such Collateral;
and (g) reject as unsatisfactory any property hereafter offered by Debtor as
Collateral.
7. Debtor agrees at all times to maintain insurance against loss of or damage to
the collateral against risks of fire (including so-called extended coverage),
theft, collision and such other risks as Secured Party may require, and as are
allowed by law, in an amount not less than the fair market value of the
collateral or the unpaid balance of the Obligations, whichever is less, and
written by such insurance companies as shall be satisfactory to Secured party,
Debtor may provide such insurance through an existing policy or pa policy
independently obtained and paid for by Debtor. Debtor hereby assigns to Secured
Party all of Debtor's right, title and interest in and to any and all insurance
policies covering the collateral now or hereafter obtained, including all losses
payable thereunder, if any, and agrees to deliver said policies or, at Secured
Party's election, certificates thereof, to Secured party. Secured Parties shall
be named as loss payee in all such policies of insurance and all such policies
shall provided a minimum 10 days written notice to Secured Party before
cancellation. Debtor authorized Secured Party to procure such insurance and/or
to pay t he premiums therefore, if Debtor shall fail to procure such insurance
and/or to pay the premiums therefor, and to add the amounts so paid to the
Obligations hereby secured; however, Secured Party is under no duty either to
procure such insurance and/or to pay the premiums herefor. Secured Party is
hereby appointed attorney-in-fact for Debtor with power to compromise, settle or
release any claims pertaining to or arising out of said policies and to take
possession of and indorse in the name of Debtor any checks or other instruments
for the payment of money representing losses payable, return or unearned
premiums, and all rights under said policies. Every power herein conferred upon
Secured Party is coupled with an interest and is irrevocable by the death or
dissolution of Debtor or otherwise. All moneys received by Secured Party on
account of losses payable, return or unearned premiums, and all other rights
under said policies may, at Secured Party's option, be used to purchase other
insurance or to repair, restore, or replace the collateral or may be applied in
payment of, or as a reserve against, any of the Obligations, the manner, order
and extent of such use or application to be in the sole discretion of Secured
Party.
8. Debtor agrees to notify Secured Party in writing within five (5) days after
any change in (a) Debtor's name, identity or form or organization; (b) Debtor's
mailing address: (c) Debtor's corporate structure; (d) Debtor's chief executive
office, principal place of business and/or residence, or (e) any change of use
or location of any part of the Collateral in any jurisdiction.
<PAGE>
9. Debtor promises to pay all fees, taxes and other costs connected with filing
any financing or continuation statements and notation of liens on certificates
of title which Secured Party deems necessary or desirable with respect to the
security interest created by this agreement. Secured Party is hereby appointed
the Debtor's attorney-in-fact to do, at Secured Party's option and at Debtor's
expense, al acts and things which Secured Party may deem necessary to perfect
and continue perfected the security interest created by this agreement and to
protect the collateral, including, without limitation, the completion of this
agreement and/or any financing statement consistent with the parties agreement
and the signing and filing of financing statements and/or any applications for
certificates of title or notation of liens thereon for Debtor at an time with
respect to the Collateral. Debtor agrees that a carbon or photostatic copy of
this agreement may be filed as a financing statements in an public office.
10. As additional Collateral for the payment of the Obligations, Debtor hereby
grants to Secured Party a continuing lien upon and security interest in any and
all property of Debtor that for any purpose, whether in trust for Debtor or for
custody, pledge, collection or otherwise, is now or hereafter in the actual or
constructive possession of, or in transit to, Secured Party in any capacity, or
its correspondent or agents, and also a continuing lien upon and right of
set-off against all deposits and credits of Debtor with, and all claims of
Debtor against, Secured Party at any time existing. Secured Party is hereby
authorized at any time or times and without prior notice, to apply such
property, deposits, credits and claims, in whole or in part and in such order as
Secured Party may elect, to the payment of, or as a reserve against, one or more
of the Obligations, whether other Collateral therefore is deemed adequate or
not.
11. If default occurs in the payment as and when due of the Obligations hereby
secured or any part thereof; or if Debtor breaches or fails to keep any of the
covenants or warranties herein contained, or if for any reason whatever the
Collateral shall cease to be satisfactory to Secured Party, or if Debtor
abandons the Collateral, or if any representation made by Debtor herein or in
any statement given to Secured Party shall be materially untrue when made, or if
at any time, in the sole option of Secured Party, the financial responsibility
of Debtor shall become material impaired; or if any of the following events
should occur with respect to Debtor; death (if an individual) or dissolution (if
a partnership or corporation); insolvency; assignment for the benefit of
creditors; calling of a meeting of any creditors; appointment of a committee of
any creditors or liquidating agent; offering to or receiving from any creditors
a composition or extension of any of Debtor's indebtedness; making, or sending
notice of an intended, bulk transfer; the whole or partial of payment; the whole
or partial suspension or liquidation of Debtor's usual business; Debtor's
failing, after demand, to furnish Secured Party any financial information or to
permit Secured Party to inspect Debtor's books or records of account;
commencement of any proceeding, suit, or action (at law or in equity, or under
any provisions of the Bankruptcy Code or amendments thereto) for entry of an
order for relief, reorganization, composition, arrangement, wage earner's plan,
receivership, appointment of a trustee liquidation or dissolution, whether filed
by or against Debtor; entry of a judgment or issuance of a writ of attachment or
garnishment against, or against any of the property of, Debtor; issuance of an
execution against property of Debtor or commencement against Debtor of any
proceeding for enforcement of a money judgment, then, upon the happening of any
of the foregoing in this paragraph, the Obligations hereby secured , although
not yet due, shall at the option of the Secured Party and with or without notice
or demand, become immediately due and payable, notwithstanding any time or
credit allowed under any of the Obligations or under any instrument evidencing
the same.
12. Upon the happening of any default or event set forth in the preceding
paragraph, Secured Party will have the right to take possession of the
Collateral without taking possession thereof, to sell or otherwise dispose of
the Collateral. Upon demand by Secured Party, Debtor will assemble the
Collateral and make it available to Secured Party at a place designated by
Secured Party. Sale or other disposition of the Collateral may be made, at any
time and from time to time, at one or more public or private sales, at the
option of Secured Party, without advertisement or notice to Debtor, except such
notice as is required by law and cannot be waived. To the extent notice of any
sale or other disposition of the Collateral is required by law to be given to
Debtor and cannot be waived, the requirement of reasonable notice shall be met
by giving such notice as provided below, at least ten (10) calendar days before
the time of sale or disposition. Secured Party may purchase the collateral at
any such sale unless prohibited by law) free from any equity of redemption and
from all other claims. After deducting all expenses, including legal expenses
and attorney's fees in the amount of 15% of the unpaid Obligations in default,
for retaking, maintaining and selling the Collateral and for collecting the
proceeds of sale. Secured Party shall have the right to apply the remainder of
said proceeds in payment of, or as a reserve against, any of the Obligations,
<PAGE>
the manner, order and extent of such application to be in the sole discretion of
Secured Party. Debtor shall remain liable to Secured Party for the payment of
any deficiency. Secured Party shall not be obligated to resort to any
collateral, but at its election, may proceed to enforce any of the Obligations
in default against Debtor.
13. Secured Party and its agents may come upon any premises where the collateral
is located from time to time to inspect the Collateral and if any event
described in paragraph 11 above, shall have occurred, to repossess the
Collateral. Debtor agrees that any entry upon such premises for these purposes
will not be a trespass on the premises and that Secured Party's repossession of
the Collateral after default will not be a trespass to or a conversion of the
Collateral. Upon the occurrence of any event set forth in paragraph 11 above,
Debtor agrees to remove any non-collateral personal property from the
Collateral. If Secured Party should repossess the Collateral or any part of it
when Debtor is not in default, or should Secured Party take possession of any
non-collateral personal property in connection with any repossession of the
Collateral. Debtor agrees that Secured Party's liability will be limited solely
to the fair rental value of any such property during the period after Debtor
makes formal demand on Secured Party for the return of such property wrongfully
taken, which demand must describe specifically the property requested to be
returned and the time Secured Party returns possession of such property to
Debtor.
14. All rights and powers of Secured Party under this agreement and all right,
title and interest of Secured Party in and to the Collateral herein described
shall inure to the benefit of Secured Party and is successors and assigns. All
covenants, representations, warranties, and agreements of Debtor contained in
this agreement are joint and several if there is more than one Debtor, and shall
bind each such Debtor's personal representatives, heirs, successors, and
assigns. Secured Party will not by any act, delay, omission or otherwise be
deemed to have waived any of its rights or remedies hereunder or under any
applicable law, and no waiver or amendment of any kind shall be valid unless in
writing and signed by Secured Party. All rights and remedies of Secured Party
under this agreement and under any statute or rule of law shall be cumulative
and may be exercised successively or concurrently. This agreement shall not be
terminated, but instead shall continue in force and effect, and shall secure all
Obligations of Debtor to Secured Party incurred or arising prior to the
execution and delivery of a written termination of this agreement by Secured
Party, even though from time to time there may be no outstanding Obligations.
Any provision of this agreement which may be unenforceable or invalid under
applicable law shall be ineffective to the extent of such unenforceability or
invalidity without affecting the enforceability or validity of any other
provision hereof. Debtor hereby waives with respect to the Obligations all
rights of exemption of the Collateral from levy or sale under execution or other
process for collection of debts under the constitution and laws of the United
States or of any state thereof. This agreement shall be governed by and
construed according to the substantive laws, other than rules governing
conflicts of law, of the state where the address of Secured Party set forth
above is located. Any notice required to be given to any person shall be deemed
given when delivered or mailed, postage prepaid, to such person's address as it
appears on this agreement or the address such person shall have furnished to the
other party hereto in writing for such purpose after the date of this agreement.
Secured Party has the right to correct patent errors herein.
15. Notwithstanding any provision of this agreement to the contrary, if the
Debtor is one or more natural persons and the Obligations are used for personal,
family, or household use other than the purchase of real property, the following
provisions are applicable: (a) the waivers of exemption of property from levy or
sale under execution nor their process for the collection of debts, as
hereinabove provided, applies only with respect to the Collateral; (b) to the
extent that the Collateral includes property which is "household goods", as that
term is defined in 12 C.F.R. Section 227.12(d), and to the extent the
Obligations were not used to purchase such property, such "household goods" do
not constitute any part of the Collateral for such non-purchase money
Obligations, and (c) no consumer protection provision of applicable law and no
limitation on the remedy of garnishment provided under federal or state law is
waived hereby. Notwithstanding any provision of this agreement to the contrary,
if the Obligations were used primarily for personal, family, household or
agricultural purposes, the agreement hereinabove made to pay an attorney's fee
following default applies only if the original balance of the Obligations
exceeds $300, and the attorney's fee shall be a reasonable fee not exceeding 15%
of the unpaid balance of the Obligations after default and referral of the
Obligations or this agreement to an attorney, not a salaried employee of Secured
<PAGE>
Party, for collection or foreclosure, and Debtor acknowledges Secured Party's
banker's lien and right of set off by operation of law, but does not grant a
lien or security interest under paragraph 10 hereof unless such security
interest is properly disclosed on the disclosure statement provided to Debtor.
16. Loan covenants attached hereto and made a part hereof as Addendum 1 to
Security Agreement.
IN WITNESS WHEREOF, the undersigned has executed this agreement, consisting of
both sides of this page, and any attachments hereto, on the date first set forth
above, with the intention that it constitute a contract under seal.
DEBTOR(S)
/s/ Charles W. Clayton
Vice President
HAMPSHIRE DESIGNERS, INC.
<PAGE>
ADDENDUM 1 TO SECURITY AGREEMENT
LOAN COVENANTS
THIS ADDENDUM I IS HEREBY ATTACHED TO AND MADE A PART OF THAT CERTAIN "SECURITY
AGREEMENT" DATED MAY 1, 1994 BETWEEN HAMPSHIRE DESIGNERS, INC. ("BORROWER"),
HAMPSHIRE GROUP, LIMITED ("GUARANTOR") AND SOUTHTRUST BANK OF ALABAMA, N.A.
("SECURED PARTY").
1) HGL will provide a Consolidating fiscal year end statement within 120 days of
the fiscal year end.
2) There shall be no payments or dividends (excluding operating expenses and
management fees) paid to HGL, on a fiscal year basis, by any subsidiary which
exceeds that subsidiary's Net Income for such fiscal year.
3) Tangible Net Worth to be less than $12 million for HGL, $8.2 million for
Hampshire Designers, Inc. and $3.8 million for Hampshire Hosiery, Inc.
("Tangible Net Worth", for the subsidiaries, includes amounts owed to HGL, which
have been subordinated to the National Westminster Bank and/or BHF Bank.)
4) Any default in the Loan Agreement and any default in the Senior Debt
Agreement, will result in a default under this agreement.
Central
Fidelity
Commercial Note
Borrower's Name Hampshire Designers, Inc. Officer Charles H. Brown / 412
Three Hundred Twenty Thousand and 00/100 Dollars ($320,000.00)
Loan Amount
Date: 02/08/95 _X__ New ___ Renewal Account No. 132949983 Note No. ___
For Value Received, the undersigned (hereinafter individually and collectively
called the "Borrower") unconditionally (and jointly and severally, if more than
one) promises to pay to the order of CENTRAL FIDELITY NATIONAL BANK (said bank
and any other holder hereof, the "Bank"), without offset or deduction, at any of
the Bank's offices or at such other place as the holder of this note may
designate, in U.S. Dollars, the loan amount shown above, together with interest
on the unpaid balance of such loan amount from the date hereof at the rate and
on the terms set forth in this note (this "Note").
Interest: Interest on the unpaid balance of this note shall accrue at:
_X___ a fixed rate of 10.4000% per year until 02/10/98, then at
_X___ a variable rate (the "Variable Rate") equal to the rate set forth in the
index described below (the "Index") plus 3.2500%
The index on which the Variable Rate is based is:
____ the Bank's prime rate, which is the rate of interest announced from tim
to time by the Bank as its prime rate, but which may not be the lowest rate of
interest charged by the Bank: or
_X___ the weekly average yield on U.S. treasury securities adjusted to a
constant maturity of 3 years; or
____ other: ________________________________
The Variable Rate shall change:
____ on the same day the Index changes: or
_X___ other; on 02/10/98
Interest shall be charged and calculated on the basis of a 360-day year and
shall be paid for the actual number of days elapsed. If this is a Variable Rate
loan, the below described payments are subject to change and when the Variable
Rate changes.
Repayment: The indebtedness evidenced by this Note shall be paid by the Borrower
to the Bank as follows: ____ DEMAND On demand, with interest payable on the
____day of each ___________, beginning __________,19___ ____ TIME By one
principal payment due and payable on _______ , 19____, with interest payable
____ monthly, ____ quarterly, ____ at maturity or ____ other:
__________________________________________, beginning ____________ 19_______
TERM LEVEL PAYMENT In 71 equal installments of principal and interest in the
amount of $6,019.11*, each payable on the 10th day of each Month, beginning
03/10/95, and continuing until 02/10/01 when the entire principal balance and
all accrued, unpaid interest thereon, if any, shall be due and payable.
____ TERM-VARIABLE PAYMENT In ___ equal installments of principal in the amount
of $______, each payable on the _____ day of each _______ , ________, beginning
__________,19___ together with interest, payable on the _______ day of each
__________, beginning ________ , 19__ and continuing until _______ , 19__, when
the entire principal balance and all accrued, unpaid interest thereon, if any,
shall be due and payable.
<PAGE>
____ MASTER BORROWING NOTE This is: ____ a closed-end transaction. The Borrower
may borrow up to the loan amount shown above but may not reborrow amounts that
have been repaid. ____ an open-end revolving line of credit. Subject to the
terms of an agreement between the Borrower and the Bank, the Borrower may from
time to time borrow and repay and reborrow up to the loan amount shown above.
Principal payable _____ on demand or _____ by one payment due and payable on
_____, 19__ plus interest payable on the _______ day of each _________ ,
beginning ______, 19__, but the Borrower shall be liable for only so much of the
loan amount shown above as shall be advanced by the Bank from time to time, less
all payments made by or for the Borrower and applied by the Bank to principal,
all as shown on the Bank's books and records, which shall be presumptive
evidence of the amount owed hereunder.
_X___ OTHER REPAYMENT *On 02/10/98 the equal payments of principal and interest
shall be adjusted to an amount sufficient to amortize the loan, based on the
then current rate, by 02/10/01.
Prepayment Penalty: The Borrower may prepay this Note in whole or in part at any
time and from time to time, but the Borrower ____ must __X__ must not pay to the
Bank a non-refundable prepayment penalty calculated as follows:
___________________________
Collateral: This Note is secured by Modular Waste Water Pretreatment Plant
located at the Natalie Knitting Mills plant in Chilhowie, Va. and all proceeds
thereof (collectively, the "Collateral").
IMPORTANT NOTICE: THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION
WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND
ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
Confession of Judgment: The Borrower and the endorsers hereof hereby each
appoint Mark L. Esposito and Charles H. Brown as its (their) attorneys-in-fact,
each of whom shall have the power to confess judgment against the Borrower
and/or any of the endorsers hereof in favor of the Bank in the Clerk's Office of
the Circuit Court of Abingdon, Virginia or in any other court of proper
jurisdiction for the unpaid balance of the Note, plus costs, expenses and
attorney's fees as specified herein, upon the occurrence of an Event of Default
(as defined on Page 2 hereof).
Other Provisions: A non-refundable service charge of $1,700.00 is due and
payable at closing.
Borrower accepts and agrees to be bound by all the terms and conditions of this
Note, including those set forth on Page 2 hereof.
WITNESS the following Borrower's signature(s) and seal(s).
Hampshire Designers, Inc.
_________________________ (Seal)
Individual Borrower Name:
__________________________
(Non-Individual Borrower)
__________________________ (Seal)
Individual Borrower Name:
By: /s/ Charles W. Clayton (Seal)
___________________________
Name and Title: Charles W. Clayton, Vice President
For value received, the endorsers signing below agree unconditionally to be
bound, jointly and severally, by all terms and conditions of this Note,
including those set forth on Page 2 hereof
WITNESS the following Endorser's signature(s) and seal(s).
Hampshire Group, LTD
By: /s/ Charles W. Clayton
______________________(Seal)
Name: Charles W. Clayton, Chief Financial Officer
<PAGE>
Covenants:
Until this Note is paid in full, the Borrower, each maker, endorser and
guarantor of this Note (individually, a "Party"; collectively, the "Parties")
agree to be bound, jointly and severally, as follows:
1. The Parties shall pay all amounts due under this Note in accordance with its
terms without offset or deduction. A late charge of 5% of any payment due and
not received within 7 days of its due date shall be payable on demand.
2. Payment or prepayments on this Note shall be applied first to late charges
due hereunder, then to reimburse the Bank for any costs and expenses incurred by
the Bank hereunder or under any document related to the loan evidenced hereby,
then to any applicable prepayment premium or penalty, then to accrued interest
and the remainder to reduce the principal balance hereof.
3. This Note may be renewed, extended or modified from time to time, whether
before, at or after maturity, without notice to or consent by any Party.
4. The Parties shall pay all costs and expenses incurred by the Bank in
collecting this Note, with or without litigation, or in preserving, perfecting
or disposing of any of the Collateral, including attorney's fees in the amount
of 25% of the amount due hereunder if the Bank retains or uses the services of
an attorney in connection therewith.
5. The liability of any Party may from time to time be compromised, discharged
or released without notice to or consent by any other Party.
6. The Parties shall provide the Bank with such financial information and data
as the Bank may from time to time request.
7. The liability of any Party shall not be affected by any failure, neglect or
omission of the Bank to exercise any right or remedy that it may have or any
determination that any of the Collateral, lien or security interest taken by the
Bank as security is either invalid, unperfected, damaged or destroyed.
8. The Bank shall not be required to take action against any Party or resort to
any of the Collateral, and the Bank may without notice to or consent by any
Party permit the substitution, exchange or release of any of the Collateral.
9. If provided for in this Note, the Bank may adjust the Variable Rate on this
Note or any renewals or extensions hereof without prior notice to or consent by
any Party.
10. The Parties waive presentment, demand, protest, notice of dishonor and all
defenses based on suretyship or impairment of collateral.
11. The Parties waive the benefit of all homestead and other exemptions to the
fullest extent permitted by law.
12. The Parties shall maintain their existence in good standing as maybe from
time to time required by applicable law.
Collateral:
1. The Collateral secures the performance by the Parties of each and all of the
covenants contained in this Note as well as in any document related to the loan
evidenced hereby.
<PAGE>
2. The Collateral secures all advances made under this Note and any renewals,
extensions or modifications hereof.
3. The Parties shall comply with, or shall cause the owner(s) of the Collateral
to comply with, any document relating to the Collateral.
4. The Bank shall have the right to apply the proceeds from the disposition of
any of the Collateral in such manner as it shall from time to time determine.
5. Except as prohibited or limited by law, the Collateral and the proceeds
thereof shall also secure any other present or future indebtedness of any Party
to the Bank and any collateral securing other indebtedness of any Party to the
Bank shall also be deemed to be a part of the Collateral.
Events of Default: Any one of the following events shall constitute an "Event of
Default" under this Note:
1. If any payment on this Note, or if any payment on any other present or future
debt or obligation of any Party to the Bank, is not paid when due.
2. If any Party breaches any covenant, condition or provision of this Note or of
any other instrument or agreement delivered to the Bank in connection with this
or any other transaction with the Bank, or if any Party makes a materially false
or misleading statement to the Bank.
3. If any of the Collateral is lost, abandoned, destroyed, severely damaged,
involved in a legal proceeding, sold or transferred except as permitted by prior
agreement with the Bank.
4. If any Party dies or becomes incompetent, dissolves, merges, consolidates,
changes a general partner or there is a change in the ownership of more than 20%
of any Party's stock or partnership interests or membership interests or any
Party ceases to be a going concern.
5. If a petition or complaint under any bankruptcy, insolvency or other law
seeking reorganization, liquidation, dissolution or other relief is filed by or
against any Party, or if any Party becomes insolvent or unable or admits an
inability to pay its debts as they become due.
6. If any property of any Party is seized, attached or levied on, or if a
receiver or custodian is appointed for any Party.
7. If the Bank believes in good faith that (a) the prospect of payment or
performance hereunder is impaired, (b) any of the Collateral is impaired or (c)
a material, adverse change has occurred in any Party's financial condition.
8. If any guaranty or endorsement obtained in connection with this Note is
terminated, or if any guarantor or endorser denies liability thereunder.
9. If any instrument, agreement or collateral document entered into or furnished
in connection with this transaction is rendered unenforceable, or if any Party
denies liability hereunder or thereunder or in connection herewith or therewith.
Remedies:
Upon the occurrence of an Event of Default, the Bank shall have the right to
accelerate and declare this Note due and payable in full without demand or
notice. The Bank shall have all of the rights and remedies of a secured party
under the Uniform Commercial Code, as well as all of the rights and remedies
granted by other applicable law or under any document related to the loan
<PAGE>
evidenced by this Note or to any of the Collateral. Without limiting the
generality of the foregoing, the Bank shall have the right, immediately and
without further action or notice, to set off against this Note all money,
accounts, credits, securities or other property owed by the Bank in any capacity
to any Party or held by the Bank, whether or not due, and to set off against all
other liabilities of any Party to the Bank all money owed by the Bank in any
capacity to each or any Party whether or not due. All rights and remedies of the
Bank under this Note, under any document given to the Bank in connection with
this Note and under applicable law shall be cumulative and not exclusive and may
be exercised successively or concurrently. The Bank shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies and
no waiver of any kind shall be deemed to have occurred unless in writing and
signed by an authorized officer of the Bank. Following the occurrence of an
Event of Default this Note shall continue to bear interest at the rate provided
for herein until paid.
Miscellaneous Provisions:
1. This Note shall be governed by and construed in accordance with the laws of
the Commonwealth of Virginia.
2. If any provision of this Note shall be prohibited or held invalid by
applicable law, that provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating either the remainder of such
provision or the remainder of this Note.
3. Any notice to any Party shall be deemed to have been given if mailed, postage
prepaid, to the address of the Party as such address then appears on the Bank's
files.
4. The Bank shall have the right to correct patent errors or omissions in this
Note without affecting the validity of this Note or the liability of any Party.
5. This Note shall be binding upon the Parties, their heirs, personal
representatives, successors and assigns and shall inure to the benefit of the
Bank and its successors and assigns and any future holders hereof. Each Party
agrees not to assert against any future holder of this Note any claim or defense
it may have against the Bank.
6. With respect to the Collateral, this Note is a security agreement and the
Party(ies) owning the Collateral hereby grants to the Bank a security interest
in the Collateral and the proceeds thereof to secure this Note.
INITIALS: Borrower: CWC
Endorsers: CWC
<PAGE>
Central Fidelity
Security Agreement - Commercial
Abingdon, Virginia 02/08/95
Hampshire Designers, Inc. a Delaware corporation (the "Pledgor"), with its
principal place of business located in Anderson, SC, and with an address of 215
Commerce Boulevard, Anderson, SC 29622, for value received, hereby assigns,
conveys, transfers and grants a continuing security interest to CENTRAL FIDELITY
NATIONAL BANK with an address of 102 Wall Street, Abingdon, VA 24210, Virginia
(the "Bank"), in the Collateral as defined, checked and filled in below:
COLLATERAL (check appropriate boxes):
____ ACCOUNTS. Each and every account, receivable, contract right, chattel paper
and instrument, as those terms are defined in the Uniform Commercial Code as
adopted in Virginia (the "UCC"), and all other rights of the Pledgor to the
payment of money of every nature, type and description, whether now owing to the
Pledgor or hereafter arising, and all monies and other proceeds (cash or
non-cash), including, without limitation, the following: all accounts, accounts
receivable, book debts, securities, instruments and chattel paper, books of
account and records of the Pledgor, deposit account balances, notes, drafts,
acceptances, rents, payments under leases or sales of Equipment or Inventory (as
defined below) and other forms of obligations now or hereafter received by or
belonging or owing to the Pledgor for goods sold or leased and/or services
rendered by it, and all of the Pledgor's rights in, to and under all purchase
orders, instruments and other documents now or hereafter received by it
evidencing obligations for and representing payment for goods sold or leased
and/or services rendered, and all monies due or to become due to the Pledgor
under all contracts on the sale or lease of goods and/or the performance of
services by it, now in existence or hereafter arising, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts; all contracts, leases, instruments, undertakings, documents or other
agreements in or under which the Pledgor may now or hereafter have any right,
title or interest; all customer lists, tax refunds due the Pledgor from any
governmental agency; and any and all proceeds of any of the above; and
____ INVENTORY. Any "inventory", as such term is defined in the UCC, now owned
or hereafter acquired by the Pledgor, of every nature, type and description,
wherever located, including, without limitation, all of the Pledgor's goods or
personal property held for lease or sale or being processed for lease or sale,
all raw materials, work in progress, finished goods, packaging materials, and
all other materials or supplies used or consumed or to be used or consumed in
the Pledgor's business or in the processing, packaging or shipping of the same;
and any and all proceeds and products of any of the above; and
____ EQUIPMENT. Any "equipment", as such term is defined in the UCC, now owned
or hereafter acquired by the Pledgor, including, without limitation, any
equipment described on a schedule attached hereto, all tools and items of
machinery and equipment of any kind, nature and description whether affixed to
real property or not, as well as trucks and vehicles of every description,
trailers, handling and delivery equipment, furnishings, fixtures and office
furniture and all other tangible personal property of the Pledgor of every
nature, type and description, and any and all additions to, substitutions for
and replacements of or accessions to and property similar to any of the
foregoing, wherever located, together with all attachments, components, parts
(including spare parts), equipment and accessories installed thereon or affixed
thereto and all fuel for any thereof; and any and all proceeds of any thereof;
and
____ GENERAL INTANGIBLES. Any "general intangibles", as such term is defined in
the UCC, now owned or hereafter acquired by the Pledgor or in which the Pledgor
now has or hereafter acquires any right, title or interest, including, without
limitation, (a) all of the Pledgor's chooses in action, things in action, suits,
actions, causes of action and claims of every kind and nature, whether at law or
in equity, (b) all condemnation awards and insurance proceeds, (c) tax refunds,
rights and claims thereto and other payments from any local, state or federal
<PAGE>
government authority or agency, (d) all contract rights, licenses, permits,
zoning approvals, rights, agreements and all other private or governmental
documents of every kind or character whatsoever and (e) all customer lists,
servicing rights, patents and patent rights (whether or not registered),
licenses, permits, uncertified securities, trade marks, service marks, trade
names, logos, copyrights, computer programs and software, goodwill; and any and
all proceeds of any of the above; and
____ OTHER. Modular Waste Water Pretreatment Plant and any and all proceeds
thereof, all collectively referred to hereinafter as "Other Collateral".
(The Accounts, Inventory, Equipment, General Intangibles and Other Collateral,
or such as are checked above, including all instruments, documents, securities,
cash and property of any of the foregoing, owned by the Pledgor or in which the
Pledgor has an interest, which now or hereafter are at any time in the
possession or control of the Bank or in transit by mall or carrier to or from
the Bank or in the possession of any third party acting on behalf of the Bank,
without regard to whether the Bank received the same in pledge, for safekeeping,
as agent for collection or transmission or otherwise or whether the Bank had
conditionally released the same, and any deposit accounts of the Pledgor with
the Bank against which the Bank may exercise its right of setoff, are
hereinafter collectively referred to as the "Collateral"). Proceeds of the
Collateral shall include any proceeds of insurance thereon against fire or
physical damage whether or not such policy shall contain an endorsement in favor
of the Bank. All other terms used herein which are defined in the UCC shall have
the meanings therein stated.
The security interest hereby granted is to secure the payment to the Bank and
the performance of each and all of the duties, obligations, debts and
liabilities of every kind and description owing or to become owed by Hampshire
Designers, Inc. (the "Obligor") to the Bank, now existing or hereafter incurred,
whether matured or unmatured, direct or indirect, secured or unsecured,
original, extended or renewed, absolute or contingent, whether originally
contracted with or acquired by the Bank, whether contracted alone or jointly
and/or severally with others, whether or not evidenced by negotiable instruments
or other writings and any renewals, extensions or substitutions thereof and
including lines of credit and obligations with respect to letters of credit or
any draft presented in connection therewith; all future advances made by the
Bank; interest charges thereon at the rates herein or therein specified, or if
no interest is provided for, interest at the judgment rate; all costs, expenses
and attorney's fees incurred by the Bank in connection with the collection of
any of the foregoing or in the protection or enforcement of the Bank's rights or
remedies hereunder or under any instrument or document given in connection with
any of the foregoing; all sums advanced by the Bank to or for the benefit of the
Pledgor or the Obligor pursuant to the provisions of this Agreement; and the
payment and performance of all of the covenants contained in this Agreement.
All of the foregoing duties, undertakings, debts, obligations and liabilities of
the Obligor are hereinafter referred to collectively as the "Obligations". The
term "Obligations" is used in its broadest sense to include, but is not limited
to, extensions of credit, interest, charges, costs, duties of performance and
obligations to repay indebtedness of any kind owed by the Obligor to the Bank.
1. Representations.
(a) The Pledgor now owns, or will use the proceeds of the loan advances secured
hereby to become the Owner of, the Collateral and has the right to grant to the
Bank a security interest therein.
(b) The records relating to the Collateral will be located at the address set
forth in the first paragraph of this Agreement unless a different address is
hereby specified:
<PAGE>
(c) The Collateral will be located at the address set forth in the first
paragraph of this Agreement unless a different address is hereby specified:
Natalie Knitting Mills, 1200 Rouse Park, Chilhowie, VA 24319.
Except in connection with the delivery of Inventory to purchasers in the
ordinary course of business, the Pledgor will not change the location of the
Collateral or cause such Collateral to be moved, maintained or stored in any
other location without giving the Bank at least thirty (30) days prior written
notice, and the Pledgor will not move the Collateral from the state without
prior written consent of the Bank.
d) All or a part of the Collateral is or will be attached to real estate
described as _____________ and its record owner is _______________ (if more than
one record owner, all must be shown). Notwithstanding the above, and regardless
of the manner of the affixation, the Collateral shall remain personal property
and will not become part of the real estate. The Pledgor will, on demand, obtain
a waiver or disclaimer in favor of the Bank in a form satisfactory to the Bank.
signed by all persons having an interest in real estate which is superior to the
Banks security interest.
(e) The Pledgor has not previously assigned or encumbered any Collateral, and no
financing statement covering the Collateral or any proceeds thereof is on file
in any public office except those in favor of the Bank. The Pledgor has full
authority from its directors and/or shareholders or partners (if any) to grant a
security interest in the Collateral to the Bank.
(f) The Accounts hereby assigned are bona fide and correct in amount, and there
are no set-offs, counterclaims or defenses of any kind thereto, except as may
have been disclosed to the Bank in writing.
(g) The Collateral is not and shall not be used for personal, family, household
or farming use.
(h) The Pledgor has delivered to the Bank all documents of title evidencing
Inventory, including, but not limited to, bills of lading, dock warrants, dock
receipts and warehouse receipts. The Pledgor has also delivered to the Bank all
Collateral of which the Bank is required to take possession in order to perfect
its security interest, consisting of the following:______________
2. Covenants. Until the Obligations are paid and/or performed in full, the
Pledgor agrees:
(a) To promptly pay, without offset or deduction, any amount due hereunder or
under any other Obligation, whether principal, interest, late charges or
otherwise, even if the Collateral is lost, damaged, or destroyed, so long as the
Pledgor is the Obligor.
(b) To pay when due all taxes, licenses, repair bills and other assessments and
public or private charges and to forward to the Bank upon request evidence of
such payments.
(c) To maintain hazard insurance with extended coverage and any other insurance
on the Collateral as the Bank may require, in form and amount and with an
insurer satisfactory to the Bank, showing the Bank as loss payee, and to furnish
the Bank with satisfactory evidence of such insurance. If the Pledgor fails to
obtain or maintain insurance, the Bank, without waiving its right to declare the
Pledgor in default, may obtain such insurance at the Pledgor's expense. The
Pledgor hereby grants the Bank a security interest in any tax or insurance
escrow account and the proceeds of any insurance, whether paid by reason of
loss, injury, return premium or otherwise, and such proceeds are hereby assigned
to the Bank and shall be applied to the payment and performance of the
Obligations or, to the extent necessary, to the cost of repair or restoration of
the damaged Collateral, if the Bank so directs. In the latter case, the Bank may
retain any part of the insurance proceeds until the Collateral has been repaired
<PAGE>
or restored to the satisfaction of the Bank. The Pledgor hereby irrevocably
appoints the Bank, through any officer designated by the Bank, as its true and
lawful attorney-in-fact for the Pledgor, with power to act in the Pledgor's name
with respect to any insurance checks, drafts, releases or proceeds. This
appointment shall be deemed a power coupled with an interest and shall not be
terminable by the Pledgor so long as the Obligations are unpaid.
(d) To keep and maintain, at the Pledgor's own expense, satisfactory, complete
and current records of the Collateral, including, but not limited to, a record
of all shipments received, deliveries made, payments received, credits granted
thereon and other dealings therewith; and to furnish such reports to the Bank as
the Bank may request from time to time.
(e) To keep the Collateral in good order and repair, at the Pledgor's expense.
The Pledgor will not violate any federal, state or local law or regulation,
including, without limitation, environmental laws and regulations, in the use,
operation, manufacture or storage of the Collateral.
(f) To execute and deliver on demand such further assurances and to take such
steps as may be necessary to perfect and maintain the Bank's security interest
in the Collateral (including, but not limited to, obtaining certificates of
title showing the Bank's lien and executing assignments and financing and
continuation statements) and to preserve the priority of the Bank's security
interest and lien on the Collateral. The Pledgor will reimburse the Bank for all
expenses incurred in the filing and obtaining of such documents.
(g) To pay promptly upon demand the Bank's costs and expenses, including
attorney's fees, in connection with any litigation, claim, action or proceeding
that may arise in connection with the collection, enforcement or protection of
the Obligations, their terms or the Collateral.
(h) Not to sell, rent, lend, encumber or transfer any of the Collateral or any
portion thereof without prior written consent of the Bank [except for the
processing and sale of Inventory in the ordinary course of business as long as
no "Event of Default" (as defined below) has occurred]. The Pledgor will not
permit any liens or security interests to attach to any of the Collateral except
those created by this Agreement, will not permit any of the Collateral to be
levied upon or seized under any legal process and will not permit anything to be
done that may impair the security intended to be afforded by this Agreement.
(i) To furnish the Bank from time to time, upon request, with the Pledgor's then
current financial statement in form and detail satisfactory to the Bank, as well
as such other financial information as the Bank may request from time to time.
(j) To maintain its existence in good standing as may be from time to time
required by applicable law. The Pledgor will not merge, consolidate or change a
general partner or a shareholder owning more than 20% of the Pledgor's stock,
without prior written approval of the Bank. The Pledgor 'will not change its
name without giving the Bank at least thirty (30) days prior written notice and
delivering to the Bank financing statements in the new name, duly filed in each
jurisdiction where financing statements must be filed to perfect a security
interest in the Collateral. At the request of the Bank, the Pledgor will qualify
to do business and obtain all requisite licenses and permits in each state in
which such qualification may be necessary in order to maintain any action to
collect any Account.
(k) To permit the Bank to enter upon the Pledgor's premises and inspect the
Collateral and the books and records pertaining thereto; and for the further
security of the Bank, it is agreed that the Bank has a special property interest
in all books and records of the Pledgor pertaining to Accounts. The Pledgor
shall, at its own expense and cost, deliver any such books, account ledgers and
records to the Bank or any designated agent of the Bank at any time upon
request.
<PAGE>
(1) To notify the Bank immediately in the event that any Inventory purchased by
or to be delivered to the Pledgor shall be evidenced by a bill of lading, dock
warrant, dock receipt, warehouse receipt or other document of title, and to
deliver such document to the Bank upon request. The Pledgor also agrees to
deliver to the Bank all Collateral of which the Bank is required to take
possession in order to perfect its security interest therein, promptly upon the
acquisition by the Pledgor of any interest in such Collateral after the date
hereof.
(m) Not to compromise, modify or discount any Account, except for ordinary trade
discounts or allowances for prompt payment, without the prior written consent of
the Bank.
(n) If any of the Accounts are or should become evidenced by promissory notes,
trade acceptances or other instruments, to immediately notify the Bank and upon
request by the Bank to deliver the same to the Bank appropriately endorsed or
assigned with recourse to the Bank's order, and regardless of the form of such
endorsement or assignment, the Pledgor hereby waives presentment, demand, notice
of dishonor, protest and notice of protest and all other notices with respect
thereto.
(o) The Bank hereby authorizes the Pledgor to collect the Accounts, but the Bank
may, without cause or notice, curtail or terminate this authority at any time.
Upon notice by the Bank to the Pledgor, the Pledgor shall forthwith, upon
receipt of all checks, drafts, cash and other remittances in payment of or on
account of the Accounts, deposit the same in one or more special accounts
maintained with the Bank, over which the Bank alone shall have the power of
withdrawal. The remittance of the proceeds of such Accounts shall not, however,
constitute payment or liquidation of such Accounts until the Bank shall receive
good funds for such proceeds. Funds placed in such special accounts shall be
held by the Bank as security for all indebtedness secured hereunder. These
proceeds shall be deposited in precisely the form received, except for the
endorsement of the Pledgor where necessary to permit collection of items, which
endorsement the Pledgor agrees to make, and which endorsement the Bank is also
hereby authorized to make on behalf of the Pledgor. In the event the Bank has
notified the Pledgor to make deposits to a special account, pending such
deposit, the Pledgor agrees that it will not commingle any such checks, drafts,
cash or other remittances with any funds or other property of the Pledgor but
will hold them separate and apart therefrom, and upon an express trust for the
Bank until deposit thereof is made in the special account. The Bank will from
time to time apply the whole or any part of collateral funds on deposit in this
special account against such Obligations secured hereby as the Bank may in its
discretion elect. At the sole election of the Bank, any portion of said funds on
deposit in the special account which the Bank shall elect not to apply to such
Obligations, shall be paid over by the Bank to the Pledgor. The Bank, or its
agents, shall have the right at any time, whether or not an Event of Default
shall have occurred (i) to notify any and all account Pledgors to make payment
directly to the Bank and otherwise to notify the account Pledgors of this
assignment, (ii) to ask for, demand, collect, institute and maintain suits for,
receive, compound, compromise and give acquittances for any and all sums owing,
which are now or may hereafter be come due upon said Accounts, and to enforce
payment thereof either in its own name or in the Pledgor's name, (iii) to
endorse the name of the Pledgor on checks, drafts or other items tendered or
received in payment of said Accounts and (iv) to enter upon the premises of the
Pledgor at any time for the purpose of reducing to possession the Collateral
(including chattel paper) and all cash or non-cash proceeds thereof or for the
purpose of inspecting the Collateral and/or auditing the books, records and
procedures of the Pledgor.
(p) To the extent that they are applicable to its operations, the Pledgor is in
compliance with and will comply with all consumer protection laws, rules and
regulations, including, but not limited to, the Federal Truth-in-Lending Act, 15
U.S.C. Sections 1601-1655, and all regulations issued thereunder, and upon
request, the Pledgor will provide the Bank with such evidence of compliance as
the Bank may reasonably request.
(q) The Bank shall have the right at any time to apply the net proceeds of the
Accounts whether or not an Event of Default shall have occurred under this
Agreement, and the net proceeds of the sale or other disposition of the
Inventory, Equipment, or General Intangibles upon the occurrence of an Event of
Default under this Agreement, and any other proceeds arising under this
Agreement, first, to any Obligation owed the Bank under this Agreement and the
then balance, if any, to other indebtedness of the Pledgor owed to the Bank.
<PAGE>
3. Events of Default. Any one of the following events will constitute an "Event
of Default" under this Agreement:
(a) If any payment on an Obligation or hereunder, or on any other present or
future debt or obligation of the Pledgor, the Obligor or any endorser or
guarantor of an Obligation (generally, a "Party") to the Bank is not paid when
due.
(b) If any Party defaults under or breaches any covenant or provision of an
Obligation or defaults under or breaches any covenant or provision of this
Agreement or any other instrument or agreement delivered to the Bank in
connection with this or any other transaction; or if any Party makes a
materially false or misleading statement to the Bank.
(c) If any collateral securing an Obligation is lost, abandoned, destroyed,
severely damaged, involved in a legal proceeding, sold or transferred except as
permitted by prior agreement with the Bank.
(d) If any Party dies, dissolves, merges, consolidates, changes a general
partner or a shareholder owning more 20% of any Party's stock, or ceases to be a
going concern.
(e) If a petition or complaint in bankruptcy, for arrangement or reorganization
or for relief under any insolvency law is filed by or against any Party, or if
any Party admits an inability to pay such Party's debts as they mature.
(f) If any property of any Party is seized, attached or levied on, or if a
receiver or custodian is appointed for any Party.
(g) If the Bank in good faith believes that (i) the prospect of payment or
performance is impaired, (ii) any collateral for an Obligation is insecure or
(iii) a material adverse change has occurred in any Party's financial condition.
(h) If any guaranty obtained in connection with an Obligation is terminated.
(i) If there shall occur a default under any lien or security interest affecting
the Collateral, either superior or inferior to the security interests created by
this Agreement.
4. Remedies. If an Event of Default occurs, then without prior notice (unless
otherwise provided below), and in addition to any other rights or remedies
provided by law or by contract or accorded to a secured party under the UCC, the
Bank may in its sole discretion exercise any of the following rights or
remedies:
(a) The Bank may declare all sums due under any of the Obligations immediately
due and payable without demand.
(b) The Bank may exercise its rights hereunder without giving the Pledgor any
opportunity for hearing to be held before the Bank through judicial process or
otherwise takes possession of the Collateral upon the occurrence of any Event of
Default, and the Pledgor expressly waives the right, if any, to such prior
hearing. The Bank may require and the Pledgor agrees upon demand to assemble the
Collateral and make it available to the Bank at a place to be designated by the
Bank that is reasonably convenient to both parties, and/or the Bank may enter
any premises and take possession of the Collateral or any part thereof. Unless
the Collateral is perishable or threatens to decline speedily in value or is of
type customarily sold on a recognized market, the Bank will give the Pledgor
reasonable notice of time and place of any public sale thereof or the time after
which any private sale or any other intended disposition thereof is to be made.
The requirement of reasonable notice shall be met if notice is mailed, postage
prepaid to the Pledgor at its above mentioned address, at least ten (10) days
before the time of sale or disposition of the Collateral. The Bank may apply
cash proceeds from a sale or disposition first to the expenses of such sale or
disposition or other enforcement measures, including attorneys fees and legal
expenses, and then to the Obligations in such order as to principal or interest
as the Bank may desire. The Pledgor will remain liable for and will pay to the
Bank any deficiency remaining after such application of proceeds.
<PAGE>
(c) The Bank may appropriate, set off and apply for the payment of any or all of
the Obligations, any and all balances, sums, property, claims, credits,
deposits, accounts, reserves, collections, drafts, notes or other items or
proceeds of the Collateral in or coming into the possession of the Bank or its
agents and belonging or owing to the Pledgor, without notice to the Pledgor and
in such manner as the Bank may in its discretion determine.
(d) All payments received by the Pledgor under or in connection with any of the
Collateral shall be segregated from other funds of the Pledgor, held in trust
for the Bank and promptly upon receipt turned over to the Bank, duly endorsed to
the Bank, if required. The Bank shall hold such payments as collateral security
and apply them to the Obligations in such order as the Bank may elect. Any
balance of such payments remaining after payment in full of the Obligations
shall be paid to the Pledgor or to whomever is lawfully entitled to receive such
payments.
(e) The Pledgor shall pay to the Bank, on demand, any and all costs and
expenses, including all reasonable attorney's fees, incurred or paid by the Bank
in protecting or enforcing its rights, powers and remedies hereunder or under
any other agreement with any Party or any Obligation secured hereby or thereby
or in any way connected with any proceeding or action by whom- soever initiated
concerning the protection of enforcement thereof
(f) All rights and remedies of the Bank under any law, under this Agreement or
under any agreement given in connection with this Agreement shall be cumulative
and not exclusive and may be exercised successively or concurrently.
5. Miscellaneous.
(a) No lawful act of commission or omission upon the part of the Bank, or any
delay in exercising its rights hereunder, shall in any way or at any time
affect, impair or waive the rights of the Bank to enforce any right, power or
benefit hereunder. The provisions of this Agreement may be amended only by the
written agreement of the Bank and the Pledgor.
(b) The Pledgor hereby waives presentment, notice of dishonor and protest of all
instruments relating to the Obligations or the Collateral and any notices and
demands (except as expressly provided herein) whether or not relating to such
instruments. The Pledgor further waives any right to trial by jury and any
defenses, rights of setoff and rights to interpose counterclaims of any nature.
(c) Any notice or demand given hereunder shall be deemed to have been
sufficiently given or served for all purposes by being sent by certified mail,
return receipt requested, postage prepaid, to the Pledgor and/or the Bank at the
addresses for each as mentioned above, but nothing herein shall be construed to
invalidate any other form of communication actually received by the party to
whom the same is directed.
(d) Upon the payment m full of all Obligations, the Bank shall have no duty to
release the Collateral nor to release the Pledgor from any duty or obligation
hereunder unless a period of 95 days, beginning with the date of the last
payment made by any Party who shall be so obligated or shall elect to pay, as
the case may be, shall elapse during which period no petition in bankruptcy
shall be filed by or against any Party. In the event any Obligation secured
hereby is paid by the Pledgor, the Obligor, or any maker, endorser or guarantor
of the Obligations and because of bankruptcy or other law relating to creditor's
rights, such payment is deemed to constitute a preference, the Pledgor agrees to
remain liable hereunder if the Bank is compelled to repay any such Obligation or
any part thereof to any trustee, receiver, custodian or otherwise.
(e) All rights of the Bank hereunder shall inure to the benefit of its
successors and assigns and all obligations of the Pledgor hereunder shall bind
his, her, or its heirs, personal representatives, successors and assigns, but
nothing herein shall authorize the Pledgor to assign this Agreement or its
rights in and to the Collateral.
<PAGE>
(f) The Pledgor shall protect, indemnify and save harmless the Bank from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, attorney's fees and
expenses) imposed upon, incurred by, or asserted against, the Bank on account of
(i) any failure or alleged failure of the Pledgor to comply with any of the
terms or representations in this Agreement, (ii) any claim or loss or damage to
the Collateral or any injury or claim of injury to, or death of, any person or
property that may be occasioned by any cause whatsoever pertaining to the
Collateral or the use, occupancy or operation thereof or (iii) any failure or
alleged failure of the Pledgor to comply with any law, rule or regulation
regarding the use, occupancy or operation of the Collateral, provided that such
indemnity shall be effective only to the extent of any loss, cost or damage that
may be sustained by the Bank in excess of any net proceeds of the insurance
received by it from any insurance (other than self-insurance) carried with
respect to such loss. Nothing contained herein shall require the Pledgor to
indemnify the Bank for any claim or liability resulting from its gross
negligence or its willful and wrongful acts. The covenants in this Section shall
survive payment of the Obligations. The indemnity provided for herein shall
extend to the officers, directors, employees and duly authorized agents of the
Bank.
(g) Nothing in this Agreement shall be construed to impose any obligation upon
the Bank to expend funds or to extend or continue any credit whatsoever to the
Pledgor or Obligor or to take any other discretionary act herein permitted,
except to the extent that the Bank may from time to time obligate itself to do
so in writing, and the Bank shall have no liability or obligation for any delay
or failure to take any discretionary act.
(h) If the Obligor is other than the Pledgor, the Pledgor represents to the Bank
that the Bank will have no duty or obligation to investigate the Obligor's
financial affairs for the benefit of the Pledgor or to advise the Pledgor of any
fact respecting, or of any change in, the Obligor's financial condition or
affairs which might come to the Bank's attention.
(i) This Agreement shall be governed by the laws of the Commonwealth of
Virginia.
Hampshire Designers, Inc.
(Name of the Pledgor)
By /s/ Charles W. Clayton
Name and Title: Charles W. Clayton, Vice President
By
Name and Title
<PAGE>
PRINT OR TYPE ALL INFORMATION
THE SECURED PARTY DESIRES THIS FINANCING STATEMENT TO BE INDEXED AGAINST THE
RECORD OWNER OF THE REAL ESTATE NO ____ YES ____ NAME OF RECORD OWNER
__________________________
SECRETARY OF STATE
P.O. BOX 1135, COLUMBIA, SC 29211
Clerk, _____________ Court
The Commission stamps the File Number on the Original Financing Statement. The
secured party must place this same number on all subsequent statements.
Index numbers of subsequent statements (For office use only)
Name & mailing address of all debtors, trade styles, etc. No other name will be
indexed.
Hampshire Designers, Inc.
215 Commerce Boulevard
Anderson, SC 29622
Check the box indicating the kind of statement. Check only one box.
____ ORIGINAL FINANCING STATEMENT
____ CONTINUATION-ORIGINAL STILL EFFECTIVE
____ AMENDMENT
____ ASSIGNMENT
____ PARTIAL RELEASE OF COLLATERAL
____ TERMINATION
Name & address of Secured Party
Central Fidelity National Bank
102 Wall Street, P.O. Box 1417
Abingdon, VA 24210
Name & address of Assignee
____ Check if proceeds of collateral are covered
Description of collateral covered by original financing statement
Modular Waste Water Pretreatment Plant located at the Natalie Knitting Mills
plant in Chilhowie, Virginia.
Space to record an amendment, assignment, release of collateral or a statement
to cover collateral brought into Virginia from another jurisdiction.
Describe Real Estate if applicable:
Hampshire Designers, Inc.
By: /s/ Charles W. Clayton, Vice President
Signature of Secured Party if applicable (Date)
Central Fidelity National Bank
By:
Signature of Secured Party if applicable (Date)
<PAGE>
CENTRAL
FIDELITY
UCC Financing Statement
The Secured Party Desires This Financing Statement To Be indexed Against The
Record Owner Of The Real Estate No. No ____ Yes ____ Name Of Record Owner
___________________
State Corporation Commission
(Uniform Commercial Code Division, Box 1197, Richmond, Virginia 23209)
Form For Original Financing Statement And Subsequent Statements
The Commission stamps the File Number on the Original Financing Statement. The
Secured Party must place this same number on all subsequent statements.
Index numbers of subsequent statements (For office use only)
Name & mailing address of all debtors, trade styles, etc. No other name will be
indexed.
Hampshire Designers, Inc.
1200 Rouse Park
Chilhowie, Va 24319
Check the box indicating the kind of statement. Check only one box.
_X__ ORIGINAL FINANCING STATEMENT
____ CONTINUATION-ORIGINAL STILL EFFECTIVE
____ AMENDMENT
____ ASSIGNMENT
____ PARTIAL RELEASE OF COLLATERAL
____ TERMINATION
Name & address of Secured Party
Central Fidelity National Bank
P.O. Box 1417
Abingdon, VA 24210
Name & address of Assignee
Date of maturity if less than five years
__X__ Check if proceeds of collateral are covered
Description of collateral covered by original financing statement
Modular Waste Water Pretreatment Plant located at the Natalie Knitting Mills
plant in Chilhowie, Virginia.
Space to record an amendment, assignment, release of collateral or a statement
to cover collateral brought into Virginia from another jurisdiction.
Describe Real Estate if applicable:
Hampshire Designers, Inc.
By: /s/ Charles W. Clayton, Vice President
Signature of Secured Party if applicable (Date)
Central Fidelity National Bank
By:
Signature of Secured Party if applicable (Date)
NationsBank Commercial
Note-Time
Officer: Terry Wyatt
Officer Number: Y12
New
Anderson, SC June 27, 1995, $280,000.00
For Value Received, the undersigned (hereafter, including collectively all
signatories hereto, "Borrower"), jointly and severally if more than one,
promises to pay to the order of NationsBank of South Carolina, N.A. (hereafter,
together with any subsequent holder or assignee hereof, "Bank") at the above
office of Bank, in lawful money of the United States of America, the sum of two
hundred eighty thousand and 00/100 dollars ($280,000.00) with interest at the
following rate until paid or, at the option of Bank, until default and
thereafter at the Default Rate (as hereafter defined):
__X__ the fixed rate of seven and 91/100 percent (7.91%) per annum, or ______
the bank's prime rate, as such rate may be announced and changed from time to
time by Bank (the "Prime Rate"); or ______ the rate of _______ percent (____%)
per annum above the Bank's Prime Rate; or ______ ________ to be paid as follows:
______ Demand Principal shall be paid in a single payment on Demand or; if
demand is not sooner made, on __________ : interest thereon shall be paid ____
monthly, or ____ quarterly, or _____ commencing on ______ 19 __ ,and continuing
on the same day of each successive month/quarter or other period (as applicable
thereafter, with a final payment of all unpaid interest at the time of payment
of principal.
______ Single Payment Principal shall be paid in a single payment on _______,
19__: interest _____, 19___, and continuing on the same day of each successive
month/quarter, or other period thereafter, with a final payment of all unpaid
interest at the stated maturity of the note.
__X__ Term-Level Principal Payments Principal shall be paid in Fifty-nine (59)
equal monthly, installments of $4,666.67 each, commencing on July 27, 1995,
together with accrued interest thereon at the Rate set forth above, and
continuing on the same day of each successive month/quarter, or other period (as
applicable) thereafter, with a final payment of all unpaid principal and
interest thereon on July 5, 2000.
______ Term Amortized Principal and interest shall be paid in ______ (___)
equal: __ Monthly, __ quarterly; or __ installments of $____ each, commencing on
____, 19__; and continuing on the same day of each successive month/quarter or
other period (as applicable) thereafter, with a final payment of all unpaid
principal and interest thereon on ___, 19___; provided that, if accrued interest
on any payment date exceeds the installment amount set forth above, Borrower
will pay on such payment date an additional amount equal to such excess
interest.
_____ Other ______________________________(hereinafter together with all
extensions, modifications and renewals thereof and all other promises and
agreements contained herein, the "Loan"); and, if the same is not paid when due,
whether by acceleration or otherwise, interest at the Rate specified above or,
at Bank's option, the Default Rate, until paid in full, regardless of whether or
not a judgment has been obtained hereon. In addition, Borrower promises to pay
any late charges imposed by Bank and all reasonable attorney's or collection
<PAGE>
fees, deemed to be 15% of the unpaid debt at maturity, whether by acceleration
or otherwise, plus all other costs and expenses incurred in the collection of
the Loan if the same is turned over to an attorney or other third party for
collection. Interest at the rate set forth above will be calculated on the basis
of the 365/360 method, which computes a daily amount of interest for a
hypothetical year of 360 days and then multiplies such amount by the actual
number of days elapsed in an interest calculation. All changes in the Prime Rate
shall be effective as of the date of such change unless otherwise specified. The
Prime Rate may not be the lowest rate charged by Bank.
Prepayment Premium. Unless otherwise noted in the space provided below, the Loan
may be prepaid in whole or in part at any time and from time to time provided
that if the interest rate set forth hereinabove is a fixed rate, Borrower shall
pay a prepayment premium equal to the following product: (a) The amount of the
Loan principal prepaid; (b) multiplied by an amount (but not less than 0) equal
to the Wall Street Journal Prime (as hereafter defined) on the date of this
Note, minus the Wall Street Journal Prime (as hereafter defined) on the date of
prepayment; (c) multiplied by the quotient of the number of calendar days left
to the maturity of the Loan divided by 360. The "Wall Street Journal Prime" is
the prime rate of interest compiled and reported through publication in the Wall
Street Journal under "Money Rates." If the Wall Street Journal is not published
on either the date of this Note or the date of prepayment, then the nearest
preceding publication of the Wall Street Journal shall be used. If (b) above is
0 or less, there will be no prepayment premium unless otherwise provided below.
If this paragraph is applicable, it shall apply to both voluntary and
involuntary prepayments.
_______ If the Loan or any portion thereof is prepaid prior to maturity, whether
voluntarily or involuntarily, a prepayment premium will be imposed as follows:
Check if Applicable
______ This Note (which term includes all renewals, extensions, supplements, and
modifications of this instrument and all other promises and agreements with Bank
in connection with the Loan) is secured by mortgage(s) from __________ dated
___________ and from _______ dated _______ covering the real property described
below.
__X___ This Note is secured by security agreement(s) from Hampshire Designers,
Inc. dated June 27, 1995 and from ____ dated __ covering the personal property
described below.
______ This Note is secured by security document(s) entitled __________ dated
_________ and _______ dated covering the property described below.
_______ This Note is subject to loan agreement(s) dated ______ and ____________.
Each mortgage, security agreement, loan agreement, or other security document
referred to above contains terms, conditions, provisions, representations,
warranties, covenants, and agreements, reference to which is hereby made and
which are incorporated herein by reference.
Description of Collateral SEE ATTACHED EXHIBIT A.
______ This Note is a renewal of and in effect only an extension of repayment
terms of a certain note dated _____ 19__ from Borrower to Bank secured by
mortgage(s) recorded in the Office of the R.M.C. or Clerk of Court of
___________ County in Mortgage Book _________ at Page _______ and in the Office
of the R.M.C. or Clerk of Court of ____________ County in Mortgage Book ______
at Page _________ and/or by a loan agreement, security agreement, or other
security document dated _______ . Execution of this renewal Note shall in no
manner effect the validity or priority of such mortgage(s) and/or security
document(s).
<PAGE>
_______ This Note represents a future advance under that certain mortgage from
____________ to Bank dated _______________ recorded in the Office of the R.M.C.
or Clerk of Court of County in the Mortgage Book _________ at Page ________.
Line of Credit/Commitment
Borrower shall have the option to receive all or any portion of the stated
principal amount from time to time during the term of this Note, provided:
_______ Cumulative Line: the cumulative total of principal sums advanced
pursuant to this Note shall not exceed the stated principal amount of this loan.
_______ Revolving Line: The total principal balance outstanding at any time
shall not exceed the stated principal amount of this Note.
Borrower and Bank agree that principal may be advanced pursuant to this Note
into Borrower's account with Bank by telephone request from Borrower; provided
that Bank's records of the amounts and dates of disbursements shall be
conclusive proof thereof; otherwise, Borrower agrees to execute and deliver to
Bank a written receipt for each advance made pursuant to this Note. Delivery of
such receipt shall be a condition precedent to each advance, and such receipt
shall contain, among other things, the data and amount of such advance.
The additional terms and conditions set forth on the reverse side of this Note
are a part of this Note.
Borrower hereby represents to Bank that the Loan is primarily for business,
commercial, or agricultural purposes.
Borrower hereby acknowledges receipt of a true executed copy of this Note,
including both sides hereof, which copy was completed and all choices designated
appropriately prior to execution by Borrower.
In, Witness Whereof, this Note has been duly executed and delivered by Borrower,
or a duly authorized officer of Borrower (as may be appropriate), on the date
first written above.
Hampshire Designers, Inc.
Borrower: /s/ Charles W. Clayton
- -----------------------------------
By: Vice President
Address: P.O. Box 2667, Anderson, SC 29622
__X___ Borrower is a business entity: Tax I.D. Number 06-967107
____ Borrower is an individual(s): Social Security Number _____
Disbursement Draft Number _____ DDA Number _____ Customer Number _____
<PAGE>
NationsBank
Guaranty By Corporation
Whereas, Hampshire Designers, Inc. (hereinafter referred to as the Borrower),
desires or may desire at some time and/or from time to time to obtain financial
accommodation from NationsBank of South Carolina, N.A. (hereinafter, with its
successors and assigns, referred to as the Bank); and
Whereas, the undersigned corporation, organized under the laws of The State of
Delaware, represents that the within Guaranty is in furtherance of its corporate
purposes and that it expects to derive advantage from each and every such
accommodation;
1. Now, therefore, for valuable consideration, the receipt whereof by the
undersigned is hereby acknowledged, and to induce the Bank, at its option, at
any time or from time to time, to extend financial accommodation, with or
without security, to or for account of Borrower, or in respect of which the
Borrower may be liable in any capacity (the term financial accommodation
includes, but is not limited to, the granting of loans, notes, checks, drafts,
bills of exchange, advances, credit, letters of credit in accommodation,
agreements or commitments to grant loans, notes, checks, drafts, bills of
exchange, advances, letters of credit, credit or accommodation, or discount
purchase of, or loans on, accounts, leases, instruments, securities, documents,
chattel paper and other security arrangements, or other property, or entering
into exchange contracts, each such financial accommodation hereinafter referred
to as "Credit Arrangement"), the undersigned hereby absolutely and
unconditionally guarantees to the Bank, irrespective of the validity, regularity
or enforceability of any instrument, writing or arrangement relating to or the
subject of any such financial accommodation or of the obligations thereunder and
irrespective of any present or future law or order of any government (whether of
right or in fact) or of any agency thereof purporting to reduce, amend or
otherwise affect any obligation of the Borrower or other obligor or to vary the
terms of payment, the prompt payment of any and all obligations under any and
all Credit Arrangements when due from the Borrower to the Bank now or hereafter,
up to the amount plus interest and costs of collection as set out in paragraph
two (2), whether at maturity or earlier by reason of acceleration or otherwise,
or, if now due, when payment thereof shall be demanded by the Bank, and, in case
of one or more extensions of time or renewals, in whole or in part, of any
Credit Arrangement, that the same will be promptly paid when due, according to
each such extension or renewal, whether at maturity or earlier by reason of
acceleration or otherwise. It is specifically understood and agreed that the
within Guaranty is a Guaranty of payment and not of collection. It is further
specifically understood and agreed that this Guaranty is a continuing Guaranty
that contemplates the possibility of one or more Credit Arrangements between the
Borrower and the Bank now or in the future, payments all of which are guaranteed
by the undersigned by this Guaranty.
2. Notwithstanding the aggregate sums which may be or become payable by the
Borrower to the Bank under one or more Credit Arrangements at any time or from
time to time, the liability of the undersigned hereunder shall not exceed Two
hundred eighty thousand and 00/100 Dollars ($280,000.00), plus such interest as
may accrue thereon and, in addition, the undersigned agrees to pay the costs of
collection, including legal expenses and attorney's fees, paid or incurred by
the Bank in collecting and/or enforcing the amount of the obligations of the
Borrower guaranteed hereunder. It is expressly understood that the obligations
of the Borrower under Credit Arrangements with the Bank may at any time or from
time to time be in an amount less than (including payment in full by the
Borrower of obligations under Credit Arrangements with the Bank) or greater than
the amount guaranteed hereunder without affecting the validity of the continuing
Guaranty. It is specifically understood and agreed, moreover, that if and to the
extent the Borrower's obligations as aforesaid at any time or from time to time
exceed the amount guaranteed hereunder, any payments made upon any of these
obligations by the Borrower shall be first considered payments upon that amount
of the Borrower's indebtedness to the Bank which exceeds the amount guaranteed
and shall affect neither the liability of the undersigned to the Bank for the
amount guaranteed hereunder, nor the validity of this Guaranty.
<PAGE>
The undersigned hereby covenants to deliver to the Bank, at any time and from
time to time promptly upon request from the Bank, a replacement guaranty to be
used in lieu of this Guaranty. Such replacement guaranty shall be identical to
this Guaranty in all material respects. The undersigned agrees that whenever at
any time or from time to time the undersigned shall make any payment to the Bank
hereunder on account of the amount guaranteed hereunder, the undersigned will
notify the Bank in writing that such payment is made under this Guaranty for
such purpose. No payment by the undersigned pursuant to any provisions hereof
shall entitle the undersigned by subrogation or otherwise to the rights of the
Bank to any payment by the Borrower or out of the property of the Borrower,
except after payment in full of the amount of the obligations of the Borrower
guaranteed hereunder plus the costs of collection as aforesaid. Any and all
payments made by the undersigned may he applied by the Bank upon such
obligations of the Borrower as the Bank may determine.
The additional terms and conditions set forth on the reverse side of this
Guaranty are a part of this Guaranty.
The undersigned guarantor hereby acknowledges receipt of an executed copy of
this Guaranty, which copy was fully completed prior to execution by the
guarantor.
In witness whereof, the undersigned has caused this instrument to be duly
executed and delivered by its proper officers this 27th day of June 1995.
Attest:
Hampshire Group, Limited
By: /s/ Charles W. Clayton
is Vice President
- -------------------------------------
Secretary
Corporate Resolution
I Horace D. Padgett, Jr. as Secretary of Hampshire Group, Limited, a corporation
duly organized and existing under the laws of the State of South Carolina,
hereby certify that a meeting of the Board of Directors of said Corporation was
duly called and held the 7th day of June, 1995 and that at said meeting, at
which a quorum was present and voting throughout, the following preambles and
resolution, upon motion duly made and seconded, were duly and unanimously
adopted:
Whereas, Hampshire Designers, Inc. (hereinafter referred to as the "Borrower")
desires or may desire at some time and/or from time to time to obtain loans or
other financial accommodation from or conduct business transactions with
NationsBank of South Carolina, N.A. (hereinafter referred to as the "Bank"); and
Whereas, a Guaranty of the obligations between the Bank and Borrower is in
furtherance of the corporate purposes of this Corporation; and Whereas, the
Corporation is financially interested in the affairs of the Borrower and expects
to derive advantage from each and every such loan, accommodation and/or
transaction.
Now, therefore, be it
Resolved, that this Corporation guarantees the liabilities and obligations of
the Borrower to the Bank in the manner set forth in the agreement of guaranty
presented to this meeting, which said agreement of guaranty and all of the terms
and provisions thereof are in all respects approved and adopted, and that any of
<PAGE>
the officers of this Corporation be and hereby are, and each of them hereby is,
authorized and directed to execute in the name and on behalf of this Corporation
and to deliver to the Bank an agreement of guaranty in said form with such
changes, if any, as the officer or officers of this Corporation executing the
same may approve, and to do such other acts and things as may be necessary or
advisable in order to carry out and perform on the part of this Corporation the
covenants, conditions and agreements on its part to be carried out and performed
as provided in said agreement of guaranty and in order to carry out and effect
the full intent and purposes of this resolution.
As said secretary, I further certify that the foregoing preambles and resolution
have not been repealed, annulled, altered or amended in any respect but remain
in full force and effect and that the annexed instrument is the form of the
agreement of guaranty presented to said meeting and referred to in and approved
by the aforesaid resolution.
In witness whereof, I have hereunto set my hand and affixed the seal of the said
Corporation this 27th day of June, 1995.
<PAGE>
NationsBank
Security Agreement
(Equipment)
This Security Agreement ("Agreement") by and between Hampshire Designers, Inc.
having its principal place of business at P.O. Box 2667, Anderson, SC 29622
NationsBank of South Carolina, N.A., having an address at P.O. Box 319,
Anderson, SC 29622 (hereinafter called "Secured Party").
Witnesseth That:
1. Debtor is borrowing from Secured Party the sum of $280,000.00, as evidenced
by Debtor's Note (collectively with all renewals, extensions, and modifications
thereto, the "Note") dated this date, all terms of which are incorporated herein
and made a part hereof by specific reference. In order to secure the payment of
the indebtedness and timely performance of all obligations arising under the
Note, and of other amounts as set forth in paragraph 3 hereof (collectively, the
"Indebtedness"), Debtor hereby pledges and grants to Secured Party a continuing
security interest in all machinery, equipment, furniture, and fixtures now owned
and hereafter acquired by Debtor for use in Debtor's business, including without
limitation, the items (if any) described on Schedule "A" hereof, together with
all replacements thereof and all attachments, accessories and equipment now or
hereafter installed therein or affixed thereto, including all Items purchased
with the proceeds of the Indebtedness, and all proceeds or products resulting
therefrom (all of the aforesaid hereinafter called "Collateral"). Debtor
warrants that the Collateral is used or will be used by Debtor primarily for
business purposes. If certificates of title are issued or outstanding with
respect to any of the Collateral, Debtor will cause the interest of Secured
Party to be properly noted thereon and deliver such certificates of title to
Secured Party.
2. Debtor warrants that Debtor's only place(s) of business is (are) as follows:
_____________
Debtor warrants and promises that the Collateral is now or will be located only
at such place(s) of business or, if the Collateral includes motor vehicles, that
they will be regularly garaged only at such place(s) of business. Debtor will
notify Secured Party in writing, at least thirty (30) days in advance, of any
relocation of any of the Collateral, of any change in the location of any place
of business, and of the acquisition of any new place(s).
At the request of Secured Party, Debtor will furnish to Secured Party, at
Debtor's expense, a disclaimer, a subordination of interest, a security
agreement, a Financing Statement, and a continuation statement regarding all
interests in the Collateral, all executed by all persons having an interest in
the Collateral. All or part of the Collateral may be kept on or attached to real
estate owned by a third party. In such event, Debtor will furnish to Secured
Party, at Secured Party's request and at Debtor's expense, a landlord's lien
waiver relating to the Collateral executed by all persons having an interest in
such real estate. All such documents shall be subject to Secured Party's
approval.
3. In addition to the Indebtedness, the security interest arising hereunder
shall secure reimbursement of Secured Party for (a) all costs and expenses
incurred in the collection of all amounts due to Secured Party; (b) all future
advances made by Secured Party for taxes, levies, insurance, rent, repairs to or
maintenance or storage of the Collateral; (c) all other expenses incurred
heretofore or hereafter by Secured Party for the account of Debtor; and (d) all
other present or future, direct or contingent liabilities of Debtor to Secured
Party, together with interest on all of the foregoing.
4. Debtor will not change the Debtor's name except pursuant to documents and
procedures which preserve and protect the interest of the Secured Party and
without giving at least thirty (30) days prior written notice to Secured Party.
Debtor agrees that Debtor will not sell, transfer or assign Debtor's interest in
the Collateral, nor will Debtor permit anyone to acquire or purport to acquire a
security interest therein, without the prior written consent of Secured Party.
<PAGE>
5. Debtor will maintain the Collateral in good condition and repair, reasonable
wear and tear excepted, and will pay and discharge timely all taxes, levies, and
other impositions levied thereon, all the costs of repairs to or maintenance of
the same, and all rent due on premises where the Collateral is or may be kept or
garaged. Debtor will maintain Insurance on all Collateral owned by Debtor
against loss or damage by fire or lightning and other such hazards as Secured
Party may require, and in such amounts and with such insurers as Secured Party
may required. The policies of such insurance will contain the equivalent of New
York Standard Lender's Loss Payable Clauses in favor of Secured Party. All such
proceeds shall be applied to reduce the Indebtedness unless Secured Party, at
its option, delivers all or a part thereof to the Debtor for repair or
replacement of the Collateral damaged or destroyed by the event giving rise to
the loss. All policies of insurance shall provide for thirty days' written
minimum cancellation notice to Secured Party. If Debtor fails to perform any act
required under this section 5 of this Agreement, Secured Party may, but is not
obligated to, do so. Any such act by Secured Party shall not constitute a cure
of the default arising thereby.
6. Debtor will comply with all laws, regulations, and ordinances relating to the
possession, operation, maintenance and control of the Collateral, the
noncompliance with which would materially and adversely affect the use or value
of the Collateral and/or Debtor's business prospects. Debtor will conduct its
operations and operate the premises so as to be in conformity and compliance
with all environmental, ecological, land use, and hazardous or toxic substances
laws, ordinances, rules, and regulations applicable thereto, and all other legal
requirements which, if violated, would have a material adverse effect on its
business, properties, or condition (financial or otherwise).
The Additional Terms and Conditions Printed on the Reverse Side Are incorporated
into This Security Agreement.
And, Further, Debtor does hereby agree to each and every term and condition
herein, and does hereby acknowledge receipt of a copy of this Agreement on the
date first written above.
NationsBank of South Carolina, N.A.
By: /s/ Terry M. Wyatt
- ----------------------------------------------
Hampshire Designers, Inc.
(Name of Debtor)
By: /s/ Charles W. Clayton
- ---------------------------------------------
Its: Vice President
<PAGE>
EXHIBIT A.
All of debtor's equipment located at 215 Commerce Boulevard, Anderson, SC 29621,
now owned or hereafter acquired, together with all substitutes and replacements
thereof, all accessions and attachments thereto, and all tools, parts,
lubricants, and equipment now or hereafter added to our used in connection with
such equipment.
All of debtor's fixtures now existing or hereafter acquired, together with all
substitutes and replacements thereof, all accessions and attachments thereto,
and all tools, parts and equipment now or hereafter added to or used in
connection with the fixtures on the following described real estate in Anderson
County, South Carolina, owned by Hampshire Designers, Inc., to wit: 215 Commerce
Boulevard, Anderson, SC 29621.
<TABLE>
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>
1997 1996 1995
---- ---- ----
Weighted average number of common
shares outstanding - basic 3,856 3,778 3,560
Income from operations $9,006 $11,896 $6,718
Less - Preferred stock dividend requirements (167) (184) (141)
--------------------------------
Net income applicable to common stock $8,839 $11,712 $6,577
================================
Income per common share - basic $2.29 $3.10 $1.85
================================
- -------------------------------------------------------------------------------
Weighted average number of common
shares outstanding - diluted:
Weighted average number of common
Shares outstanding, per above 3,856 3,778 3,560
Assumed conversion of preferred stock 254 321 207
Additional shares assumed to be outstanding
resulting From the exercise of options
and warrants 355 280 225
-------------------------------
Total common shares - diluted 4,465 4,379 3,992
===============================
Income applicable to common stock, per above $8,839 $11,712 $6,577
Dividend on preferred stock 167 184 141
--------------------------------
Net income $9,006 $11,896 $6,718
===============================
Income per common share - diluted $2.02 $2.72 $1.68
===============================
<FN>
Note: Data for prior years has been restated for Statement of Financial
Accounting Standards No. 128.
</FN>
</TABLE>
HAMPSHIRE GROUP, LIMITED
SCHEDULE OF SUBSIDIARIES
DECEMBER 31, 1997
Percentage of Voting
State/Country Securities Owned by
Name of Subsidiary of Incorporation Immediate Parent
Hampshire Designers, Inc. Delaware 100
Glamourette Fashion Mills, Inc. Delaware 100
San Francisco Knitworks, Inc. Delaware 100
Segue (America) Limited Delaware 100
Keynote Services, Ltd. Hong Kong 100
Hampshire Investments, Limited Delaware 100
Hampshire Investments London, LimIted England 100
Hampshire Prague, Limited Czech Republic 70
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 27, 1998 appearing on page F-2 of this Annual Report on
Form 10-K.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Atlanta, Georgia
February 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED
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>
<CIK> 0000887150
<NAME> CHARLES W. CLAYTON
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 12,003
<SECURITIES> 914
<RECEIVABLES> 19,522
<ALLOWANCES> (3,295)
<INVENTORY> 18,728
<CURRENT-ASSETS> 52,012
<PP&E> 38,120
<DEPRECIATION> (23,027)
<TOTAL-ASSETS> 80,585
<CURRENT-LIABILITIES> 15,709
<BONDS> 7,166
0
0
<COMMON> 419
<OTHER-SE> 57,291
<TOTAL-LIABILITY-AND-EQUITY> 80,585
<SALES> 164,428
<TOTAL-REVENUES> 164,428
<CGS> 127,631
<TOTAL-COSTS> 127,631
<OTHER-EXPENSES> 23,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,343
<INCOME-PRETAX> 11,506
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 9,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,006
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.02
</TABLE>
