UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 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, 1998.
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 29625
(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 19, 1999,
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
$13,315,000. 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 19, 1999, the Registrant had outstanding 4,208,246 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Definitive Proxy Statement, relative to its
1999 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
1998 ANNUAL REPORT
Table of Contents
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 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 15
Signature Page 18
Consolidated Financial Statements F-1
Financial Statement Schedules F-23
Quarterly Financial and Stock Data F-26
2
<PAGE>
PART I
ITEM 1 - BUSINESS
GENERAL
- -------
Hampshire Group, Limited ("Hampshire Group" or the "Company") operates two
business segments - Sweaters and Investments. Hampshire Designers, Inc. is the
largest manufacturer of sweaters in North America. 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 of this report.
Hampshire Group, through a predecessor firm, has been engaged in the manufacture
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. Secondly, the Company has developed
superior international sourcing abilities.
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 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 collaboration with the customers to ensure that the consumer
appeal desired by 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 the
finest quality yarns and each 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 applied by the Company's employees, and occasionally by the
customers' quality control personnel, to ensure that the quality demands of the
customers are being met. In international sourcing, the Company utilizes both
sourcing agents and inspection agencies to obtain the assurances that those
goods manufactured outside meet the same high quality standards applied to the
goods produced in the Company's manufacturing facilities.
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 providing just-in-time delivery of
merchandise 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.
- -------------------------------------------------------------------------------
"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.
3
<PAGE>
The Company is a leading supplier in the women's sweater moderate-price category
and 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 world-wide sweater sourcing capabilities.
The acquisition of San Francisco Knitworks, Inc. ("SFK") and Segue, Limited
("Segue") expanded the Company's business into the women's better sweater
market. Segue also has worldwide sourcing capabilities. The acquisition in 1995
of Winona Knitting Mills ("Winona") expanded the sweater business by providing a
strong customer base in the men's sweater market. The Company's men's sweater
business was extended further in 1998 by obtaining licenses to produce sweaters
under nationally known brands covering the entire range of men's sweaters sold
by department stores.
To diversify the asset base, the Company has established Hampshire Investments,
Limited to invest primarily in real properties and common stock of apparel
companies.
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, 1998 sales consisted of
approximately 50% women's and 50% men's sweaters; and approximately 50% self
manufactured and 50% outsourced. Further, the 1998 sales consisted of
approximately 50% branded and 50% private-label merchandise. This mix better
enables the Company to be the complete source for the sweater requirements of
its customers.
Designers Originals
- -------------------
Designers Originals sweaters are sold in the moderate-price women's market,
but possess manufacturing details usually found only on more expensive sweaters.
The 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
primarily in classic designs for which there is continuing customer demands.
The Company has historical relationships with many of its approximately 1,600
customers which include department stores such as JC Penney, Dillard's
Department Stores, May Company, Federated Department Stores and specialty
stores. The sweaters are sold by Company employees with senior management
participating in the presentations to the larger accounts.
The Company manufactures the majority of 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. Quality evaluation includes
three full inspections of all sweaters - after dying, after finishing, and
during folding and packaging. Our manufacturing facilities have been evaluated
and highly rated to the high quality standards of our customers, including JC
Penney, and Lands' End.
The Company utilizes Quick Response automatic reordering through EDI for many of
its customers. Because of the consistent demand for the 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 the
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 sales primarily in the women's
moderate-price market. These products, which are marketed under the brand names
Designers Originals Sport, Designers Originals Studio, and Moving Bleu, were
among the Company's fastest-growing lines in 1998. A variety of new patterns and
designs have been incorporated into the line for 1999.
4
<PAGE>
Men's Branded and Private-Label Line
- ------------------------------------
In 1995, the Company acquired Winona Knitting Mills, which has manufactured
branded and private-label men's sweaters since 1943. Approximately 55% of the
men's sweaters sold during 1998 were manufactured in the Company's facilities in
Winona, Minnesota and the remaining sweaters were produced by contractors
located primarily in the United States and Mexico.
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, Lake Harmony Rowing Club and
Landscape, are sold to retailers including Dillard's Department Stores,
Federated Department Stores and JC Penney.
Men's Designer Branded Lines
- ----------------------------
Effective January 1, 1998, the Company acquired the following licenses to
produce and market men's sweaters: Jantzen, 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 Company
believes that Jantzen is one of the most important men's sweater brand in the
United States. The branded sweaters are designed by the Company and produced
internationally by contractors to the specifications of the Company.
The sweaters are sold to large department and specialty stores across the United
States. Major customers include Federated Department Stores, May Company, JC
Penney, Mercantile Stores, Belks and Sears. The sweaters are sold by two
employees and five independent representatives.
Competition
- -----------
Competition in the sweater industry primarily is based on product design, 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 and
quicker turn around time, providing a better quality product to meet customers'
requirements. The Company is developing manufacturing capabilities in areas
where costs are competitive, including Southeast Asia and in Mexico.
INVESTMENT OPERATIONS
- ---------------------
Hampshire Investments, Limited ("Hampshire Investments") was established by the
Company in 1997 to diversify the asset base of the Company and to increase
stockholder value in the long term. In 1997 Hampshire Investments invested
approximately $5 million in real property and in a mutual fund holding common
stock of natural resource companies in Russia. In 1998 the subsidiary recorded a
reserve of $2.5 million charge for assets impairment primarily due to the effect
of the devaluation of the Russian ruble.
The balance of the investments were made primarily in real property and publicly
traded apparel and textile stocks. Investments' holdings include real property
for development and rental income. At the end of 1998, the value of investments
was approximately $15.5 million, of which approximately 60% was real estate and
40% was common stock.
The Company intends to utilize not in excess of one-half of its annual net
income for Hampshire Investments. The investment emphasis will be on undervalued
assets.
Ludwig Kuttner, 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, primarily makes the investment decisions of
Hampshire Investments.
Seasonality
- -----------
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.
Backlog
- -------
The sales order backlog for the sweater segment was approximately $34.7 million
as of March 5, 1999, compared with approximately $38.5 as of March 6, 1998. 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.
Trademarks
- ----------
The Company considers its trademarks to have value in the marketing of its
products; therefore, all significant trademarks of the Company are registered.
5
<PAGE>
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 15% and 19% of consolidated sales for
1998 and 1997, respectively. The Company's five largest customers accounted for
approximately 48% of the Company's consolidated sales in 1998, compared with 41%
in 1997.
Credit and Collection
- ---------------------
The Company manages its credit and collection functions on a consolidated basis
by evaluating, approving and monitoring the credit lines of its customers.
Credit 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 5, 1999, the Company had approximately 2,125 full-time employees and
25 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 92
employees under an agreement expiring in May 2001.
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 World Trade Organization was established in 1995 as the governing body for
international trade between the United States and 140 foreign countries. This
Agreement, over a ten year period, 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.
6
<PAGE>
<TABLE>
ITEM 2 - PROPERTIES
The Company leases its Anderson, South Carolina corporate office and its New
York sales office and showroom. All of the operating subsidiaries of the Company
lease manufacturing plants and distribution centers, except Hampshire Brands
which owns its distribution center.
<CAPTION>
- ------------------------------------------------------------------------------
Square Lease
Properties Footage Expiration(1)
- --------------------------------------------------- ------- ------------
<S> <C> <C>
Corporate Offices - Anderson, South Carolina 10,500 04/30/06
Sales Office and Showroom - New York, New York 24,000 08/31/11
Hampshire Designers:
Distribution Center - Anderson, South Carolina 57,000 04/30/06
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 Center - Winona, Minnesota 36,000 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 - LaCrescent, Minnesota 15,600 10/31/09
Hampshire Hosiery (discontinued operations):
Knitting and Sewing Plant - Spruce Pine,
North Carolina 37,000 Owned
Finishing Plant and Distribution Facility -
Spruce Pine, North Carolina 132,700 Owned
- -------------------------------------------------------------------------------
<FN>
(1) Assuming the exercise of all options to renew.
</FN>
</TABLE>
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, results of operations or cash flows.
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 1998.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter on the NASDAQ National
Market System ("NASDAQ") under the symbol "HAMP". The quarterly high and low bid
quotations on NASDAQ for 1996, 1997 and 1998 are presented on Page F-25 of this
Annual Report on Form 10-K. These quotations reflect the inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
The approximate number of stockholders of record on March 19, 1999 was 1,300.
The Company has not declared any dividends with respect to its Common Stock,
subsequent to the effective date of its 1992 initial public offering. 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 closed in June
1998, contains covenants placing limitations on "restricted payments", which
includes payment of cash dividends. See Note 9 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, 1998 1997 1996 1995(3) 1994
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA (1)
<S> <C> <C> <C> <C> <C>
Net sales $168,688 $140,807 $117,575 $84,924 $55,984
Cost of goods sold 133,769 107,726 88,395 62,161 39,063
-----------------------------------------------
Gross profit 34,919 33,081 29,180 22,763 16,921
Other revenue 507 43 942 1,357 -
-----------------------------------------------
35,426 33,124 30,122 24,120 16,921
Selling, general and admin.
expenses 24,971 21,156 19,494 16,861 9,394
Asset impairment charge 2,500 - 667 - -
-----------------------------------------------
Income from continuing operations 7,955 11,968 9,961 7,259 7,527
Other income (expense):
Interest expense (1,696) (824) (716) (488) (188)
Interest income 243 363 195 297 31
Other 502 (139) (90) 262 254
-----------------------------------------------
Income before income taxes 7,004 11,368 9,350 7,330 7,624
Income tax (provision) benefit:
Current (1,471) (2,649) (1,780) (998) (1,137)
Deferred 194 200 3,900(2) 278 109
-----------------------------------------------
Net income from continuing
operations $5,727 $8,919 $11,470 $6,610 $6,596
===============================================
Net income per share from
continuing operations: Basic $1.39 $2.27 $2.99 $1.82 $1.84
-----------------------------------------------
Diluted $1.29 $2.00 $2.62 $1.66 $1.76
-----------------------------------------------
- -------------------------------------------------------------------------------
December 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
BALANCE SHEET DATA
Cash and cash equivalents $ 13,886 $12,003 $20,385 $10,034 $10,712
Working capital 51,283 36,303 37,220 29,675 22,349
Total assets 100,848 80,585 71,930 66,438 42,966
- -------------------------------------------------------------------------------
Long-term debt (less current portion)
and redeemable preferred stock 22,505 7,166 10,869 13,817 7,270
Total debt (4) 24,287 10,577 14,364 18,569 8,860
Common stockholders' equity (5) 63,403 57,710 47,275 34,755 25,863
- -------------------------------------------------------------------------------
Book value per share $15.03 $13.96 $12.17 $9.21 $7.47
- -------------------------------------------------------------------------------
<FN>
(1) The Statement of Operations has been restated to eliminate the revenues and
expenses of discontinued operations.
(2) Net income for 1996 includes a $3.9 million adjustment to the Company's
deferred tax account, and earnings per share include $0.89 relative to the
adjustment.
(3) Includes the results of operations of Winona Knitting Mills
from October 11, 1995.
(4) Includes long-term debt, current portion thereof, borrowings under lines
of credit, related party debt and redeemable preferred stock.
(5) 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
RESULTS OF OPERATIONS OF COMPANY SEGMENTS
The following table sets forth information with respect to the segments of the
Company's business.
<CAPTION>
Year Ended December 31, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales Sweaters $168,688 $140,807 $117,575
- ------------------------------------------------------------------------------
Gross profit Sweaters 34,919 33,081 29,180
20.7% 23.5% 24.8%
- -------------------------------------------------------------------------------
Other revenue Sweaters - - 942
Investments 507 43 -
- -------------------------------------------------------------------------------
Selling, general and Sweaters 21,966 18,350 17,040
administrative expenses Corporate 2,523 2,706 2,454
Investments 482 100 -
------------------------------------
24,971 21,156 19,494
14.8% 15.0% 16.6%
Asset impairment charge Investments 2,500 - 667
------------------------------------
27,471 21,156 20,161
- -------------------------------------------------------------------------------
Operating profit Sweaters 12,953 14,731 12,415
Corporate (2,523) (2,706) (2,454)
Investments (2,475) (57) -
------------------------------------
Income from operations 7,955 11,968 9,961
4.7% 8.5% 8.5%
Interest expense (1,696) (824) (716)
Interest income 243 363 195
Other income (expense) 502 (139) (90)
------------------------------------
Income before income taxes $ 7,004 $11,368 $ 9,350
- -------------------------------------------------------------------------------
Revenue by United States $169,086 $140,850 $118,517
geographic area Russia 99 - -
Europe 10 - -
-----------------------------------
$169,195 $140,850 $118,517
- -------------------------------------------------------------------------------
<FN>
Additional segment data is provided in Note 18 of the consolidated financial
statements included in this Annual Report.
</FN>
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
1998 Compared With 1997
- -----------------------
The consolidated net income of the Company from continuing operations for the
year ended December 31, 1998 was $5,727,000, or $1.29 per share on a diluted
basis. This represents a decrease of $3,192,000 when compared with net income
from continuing operations of $8,919,000, or $2.00 per share on a diluted basis,
for the preceding year. The income from continuing operations for 1998 included
$2,500,000 for asset impairment principally to reflect the devaluation of the
ruble on certain Russian investments, which amounted to a reduction of $0.56 per
share on a diluted basis.
Consolidated nets sales of the Company of continuing operations increased 19.8%
to $168,688,000 for the year 1998 from $140,807,000 in the prior year. The
increase in sales can be attributed primarily to the success achieved by Segue
in developing strong sales and worldwide sourcing relationships and the
establishment of the branded men's lines. Of the overall 19.8% increase, growth
in unit volume accounted for 25.8% increase, offset by a 6.0% decrease resulting
from change in product mix and average price of units sold. This decrease is
principally the result of price reductions from intense competition in the
sweater market.
Gross profit from the Company's continuing operations increased $1,838,000, or
5.6%; however, as a percent of net sales the gross margin decreased 2.8% to
20.7%. The decrease can be attributed primarily to intense competition which
resulted in lower prices and lower margins. A second factor that had a
significant impact on the cost of goods produced was the introduction of a new
fiber component in the manufacturing process of one of the sweater manufacturing
plants of the Company. In introducing the new fiber, inefficiencies occurred
consisting of higher than average irregulars and lower than usual production. A
third factor adversely affecting the margin was the unseasonably warm weather
experienced during the peak retail season for sweaters. This resulted in higher
than normal mark-down allowances for customers. These factors were partially
offset by the success achieved by our branded men's lines and reduced costs
resulting from international sourcing.
Hampshire Investments, Limited, the investment segment of the Company
established in 1997, had net loss of $2,545,000 for the year. The loss included
the $2,500,000 write-down resulting principally from the devaluation of the
Russian ruble.
Selling, general and administrative expenses ("SG&A") for the continuing
operations of the Company was $24,971,000 for the year 1998 compared with
$21,156,000 for the preceding year. The increase occurred primarily because of
increased commission and shipping costs directly associated with the higher
sales generated by Hampshire Brands. As a percent of sales, SG&A was 14.8% of
net sales, a 0.2% reduction from the previous year.
Income from continuing operations was $10,455,000 for the year 1998, excluding
the $2,500,000 asset impairment of the Investments segment, compared with
$11,968,000 for the previous year. The decrease resulted principally from the
reduction in gross margin.
The net income tax provision decreased to $1,277,000 in 1998 compared with
$2,449,000 in 1997. The 3.3% decrease in the effective tax rate from 21.5% in
1997 to 18.2% for 1998 is primarily the result of a smaller percentage of
taxable income being generated in the United States and increased deferred state
tax credit.
The effective tax rate is lower than the statutory rate due to (i) the
utilization of certain net operating loss carry-forwards available to the
Company to offset taxable income and (ii) substantially all of the income of the
Company's Puerto Rican subsidiary is exempt from federal regular income taxes
pursuant to an election under Section 936 of the Internal Revenue Code. Section
936 has been repealed and its provisions will be phased-out by the year 2005.
During the fourth quarter of 1998, the Company decided to dispose of the hosiery
business and reported results of the segment as discontinued operations. For the
year ended December 31, 1998, the Hosiery segment generated net sales of
$24,118,000 and an after-tax loss of $214,000. The Hosiery segment has been
treated as a discontinued operation in the consolidated financial statements and
an after-tax accrual of $500,000 has been charged against the 1998 income for
estimated loss on disposal of the assets.
1997 Compared With 1996
- -----------------------
The consolidated net income from continuing operation of the Company was
$8,919,000 or $2.00 per share on a diluted basis. This represents an increase of
$1,349,000 or 17.8% when compared with the $7,570,000 or $1.73 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 sweater segment increased 19.8% to $140,807,000,
as compared with $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%.
11
<PAGE>
Consolidated gross profit of the Company increased $3,901,000 or 13.4%, but as a
percentage of net sales, the gross margin decreased by 1.3% to 23.5%. The
decrease resulted from lower gross profit percentage of the imported products.
The Sweater segment gross profit as a percentage of sales decreased by 1.3%,
resulting from several factors. First, a decrease in sales of Designers Original
sweaters resulted in smaller 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.
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales decreased by 1.6% for 1997 compared with 1996, excluding the write-off in
1996 of impaired goodwill of $667,000 with respect to San Francisco Knitworks.
The Sweater segment was the leading contributor to the decrease with a 1.5%
decrease in 1997, principally due to the increase in volume spreading the fixed
cost over a larger base of sales.
Income from continuing operations increased $2,007,000 to $11,968,000. The 20.1%
increase resulted primarily from the increased volume with the operating profit
percentage remaining constant at 8.5%.
The net income tax provision increased to $2,449,000 in 1997 compared with
$1,780,000 in 1996, excluding the $3,900,000 adjustment to the Company's
deferred tax asset account. The 2.5% increase in effective tax rate from 19.0%
in 1996 to 21.5% for 1997 is primarily the result of a larger percentage of
taxable income being generated in the United States. The Company's tax structure
and effective income tax rate are more fully described in Note 10 to the
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The liquidity and capital requirements of the Company relate to funding working
capital for current operations (principally 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 long-term notes.
The Company has a principal credit facility which is subject to renegotiation on
or before May 26, 1999. The credit facility consists of $42 million combined
line of credit and letter of credit facility 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 $12 million during the period from March 1 to
October 31.
Advances 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
collateralized pari passu with the Senior Notes by the trade accounts receivable
of Hampshire Designers and the common stock of all the subsidiaries of the
Company. Letters of credit issued under the facility are collateralized by the
inventory shipped pursuant to the letters of credit.
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 advances outstanding under
all lines of credit during 1998 was $36,595,000 and the average amount
outstanding during the borrowing period was approximately $15,980,000. At
December 31, 1998 there were no advances outstanding.
During 1998, the Company sold $15 million of 7.05% long-term notes to two
insurance companies (the "Senior Notes") with repayment terms of seven equal
annual installments commencing January 2002. Interest is payable semi-annually
and the loan is collateralized pari passu with the Company's bank revolving
credit facility as more fully explained in Note 9 to the consolidated financial
statements.
The Company ended 1998 with cash and cash equivalents totaling $13,886,000, an
increase of $1,883,000 over the previous year. Net cash was impacted by a
$6,383,000 increase in inventory and a $7,960,000 increase in accounts
receivable from continuing operations as compared with 1997. Both elements
resulted primarily from the startup of Hampshire Brands.
Net cash used to fund capital expenditures was $3,094,000. 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 1998 the Company increased the investments of
Hampshire Investments by $9,126,000. The investments primarily consist of
publicly traded apparel common stocks and real property for development and
rental income. The Company intends to invest not in excess of one-half of the
annual income in the Investment segment.
12
<PAGE>
The Board of Directors of the Company had authorized management to purchase
from time-to-time in the open market up to 140,000 shares of its common stock.
During 1998, the Company purchased 44,200 shares of common stock for $745,545.
Such purchases approximated the number of shares required for funding the
Company's Common Stock Purchase Plan.
Management believes that cash flow from operations, available borrowings under
the credit facilities and other long-term borrowing will provide adequate
resources to meet the Company's capital requirements and operational needs for
the foreseeable future.
YEAR 2000 READINESS
- -------------------
The Company has developed and is implementing a strategic plan to address Year
2000 issues. The Year 2000 issue involves the risk that various problems may
result from the improper processing of dates and date-sensitive calculations by
computers and other equipment as the year 2000 approaches. The Company and its
subsidiaries conduct on-going employee education on the issue and have attempted
to identify all information technology (computers, software, etc.) and
non-information technology (machinery, alarms, etc.) that may be affected by the
Year 2000 date change.
The Company began in 1996 implementing its plan to ensure that all mission
critical software of its systems will function properly in the year 2000 and
thereafter. The majority of the software used by the corporate office and all
operations other than Hampshire Brands and Winona Knitting Mills has been
developed in-house; therefore, the emphasis has been primarily on modifying
these systems. The systems used by Hampshire Brands and Winona Knitting Mills
have been modified, tested and certified by the third party vendors who supplied
the software.
The Company believes that the conversion of substantially all critical operating
systems will be completed by June 1999 and that its customers are aware of and
are addressing their Year 2000 issues. However, in the Company's most reasonably
likely worse case scenario, some portion of a critical system may not function
properly. If a critical system temporarily fail to perform properly, the Company
will invoke its contingency plan to correct the problem, The Company will incur
extra costs for salaries and for independent expert assistance. These costs are
not expected to be material.
The Company intends to make a complete test of its hardware as well as software
during the 4th of July shut-down week. Management estimated that on December 31,
1998 the project was 90% complete. The Company has developed contingency plans
to mitigate the potential effects of a disruption in normal operations resulting
from Year 2000 problems. The plans include, among other alternatives, operating
on substitute hardware.
The Company's Directors & Officers liability insurance policy was rewritten upon
renewal in August 1998 and coverage of Year 2000 issues was added.
The direct cost of the projects solely intended to correct Year 2000 problems
are currently estimated at less than $1 million of which approximately $800,000
has been expended or committed to as of December 31, 1998. With the exception of
approximately $100,000 for outside software enhancements, all other costs have
been expensed as incurred. The Company does not expect any cost increases above
its current estimates to have a material effect on its financial results. The
Company has been in contact with its significant suppliers and customers with
which its systems interface regarding Year 2000 compliance and does not
anticipate any problems relating to the exchange of data.
The preceding discussion of the Year 2000 issue includes forward-looking
statements reflecting management's current assessments and estimates and which
involve risks and uncertainties. Various factors could cause actual results to
differ materially from those expected by such assessments and forward-looking
statements. Factors that might affect the timely and satisfactory completion of
the Year 2000 project include, but are not limited to, vendor representations
and timely corrections of hardware or software problems, the readiness of key
utilities, suppliers and customers, and similar uncertainties. The Company's
management of the project is an ongoing process involving continual evaluation.
Unanticipated problems could emerge and alternative solutions may be devised
that may be more costly than anticipated or more difficult to solve.
OUTLOOK
- -------
The Company has experienced substantial growth in net sales over the past few
years. The growth in sales is attributable to the acquisition and business
development strategy of the sweater segment. Sales of the men's branded products
under the Jantzen, Geoffrey Beene, Ron Chereskin and Robert Stock licenses,
contributed in excess of $25 million in 1998.
The Company continues to believe that the 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 very cognizant
of the pricing pressures within the market which could adversely affect earnings
of the Company.
13
<PAGE>
ITEM 7A - MARKET RISK
The long term debt of the Company is at fixed interest rates which were at
market when the debt was issued and which approximates market interest rates at
December 31, 1998. The short-term debt of the Company has variable interest
rates based on the prime rate of the financial institution purchasing the debt.
The Company had no short-term debt at December 31, 1998.
In purchasing sweaters from foreign manufacturers, the Company uses letters
of credit which require the payment of dollars upon receipt of bills of lading
for the sweaters.
Hampshire Investments does not issue or own foreign indetedness. Hampshire
Investments either purchases foreign based assets with dollars or with foreign
currency purchased with dollars. Real property which is owned by Hampshire
Investments and which is located outside the United States is leased for dollars
and not foreign currency. The primary market risk which Hampshire Investments
has with respect to foreign currencies is the impact that fluctuations in such
currencies have on the businesses of the lessees of such real property and on
the foreign based businesses and the foreign based funds in which Hampshire
Investments owns equity.
Hampshire Investments limits its market risk in the common stock of publicly
traded apparel companies primarily by limiting the amount of its investments. In
addition to following all of its investments closely, Hampshire Investments
limits the market risk, of its investments by limiting the amount of the
aggregate investments to not in excess of 50% of annual net income of the
Company on a cumulative basis.
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 1998.
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 1999 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 1999 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 1999 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 1999 Proxy Statement.
14
<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-2 of this
Annual Report on Form 10-K. All other schedules have been omitted
because the required information is shown in the consolidated financial
statements or notes thereto, or they are not applicable.
(3)Exhibits:
Exhibit No. Description Footnote
------------ ---------------------------------------------- --------
Exhibits Incorporated by References:
-----------------------------------
(3)(A) Restated Certificate of incorporation of Hampshire
Group, Limited 2
(3)(A)(1) Certificate of Amendment to the Certificate of
Incorporation of Hampshire Group, Limited 2
(3)(A)(2) Amended and Restated By-Laws of Hampshire Group,
Limited 2
(3)(B)(2) Agreement of Merger between Hampshire Hosiery, Inc.
and Hampshire Designers, Inc. dated June 26, 1995 2
(3)(B)(3) Agreement of Merger between Segue (America) Limited
and H.G. Knitwear, Inc. dated December 26, 1995 2
(3)(B)(4) Agreement and Plan of Merger among Hampshire Group,
Limited, The Winona Knitting Mills, Inc. and
Peter and Joyce Woodworth dated June 5, 1995 2
(3)(B)(5) Asset Purchase Agreement among Segue (America)
Limited, Segue, Ltd. and Neil Friedman dated
February 15, 1995 2
(10)(A)(2) Employment Agreement between Hampshire Designers,
Inc. and Peter Woodworth dated October 10, 1995 2
(10)(B)(1) Form of Hampshire Group, Limited 1992 Stock Option
Plan Amended and Restated effective June 7, 1995 2
(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 2
(10)(D)(1) Form of Hampshire Group, Limited and Subsidiaries 401(k)
Retirement Savings Plan 2
- -------------------------------------------------------------------------------
(1) Incorporated by reference to the Company's 1996 Annual Report on Form 10-K.
(2) Incorporated by reference to the Company's 1997 Annual Report on Form 10-K.
(Exhibits continued on next page)
15
<PAGE>
(Exhibits continued from previous page)
Exhibit No. Description Footnote
- ------------ --------------------------------------------------- --------
(10)(D)(2) Form of Hampshire Group, Limited Voluntary Deferred
Compensation Plan for Directors and Executives Amended
and Restated December 30, 1997 2
(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 2
(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 2
(10)(K)(1) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated May 13, 1994 2
(10)(K)(2) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated October 12, 1994 2
(10)(K)(3) Loan and Security Agreement among San Francisco
Knitworks, Inc., Hampshire Designers, Inc. and
MetLife Capital Corporation dated September 22, 1995 2
(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)(M) Agreement between Glamourette Fashion Mills, Inc. and
The Commonwealth of Puerto Rico on Repatriation of
Earnings (the "Closing Agreement"), dated June 30, 1993 2
(10)(N) Loan and Security Agreement between Hampshire Designers,
Inc. and SouthTrust Bank of Alabama, N.A. dated
May 1, 1994 2
(10)(O) Loan and Security Agreement between Hampshire Designers,
Inc. and Central Fidelity National Bank dated
February 8, 1995 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)(Q) Loan Agreement between Hampshire Designers, Inc. and
NationsBank of South Carolina, N.A. dated June 27, 1995 2
(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
(Exhibits continued on next page)
16
<PAGE>
(Exhibits continued from previous page)
Exhibits filed herewith:
-----------------------
(10)(A)(3) Employment Agreement between Hampshire Group, Limited and
Ludwig Kuttner dated as of January 1, 1998
(10)(H)(1) Note Purchase Agreement between Hampshire Group, Limited
Phoenix Home Life Mutual Insurance Company and
The Ohio National Life Insurance Company dated May 15, 1998
(10)(H)(2) Credit Agreement and Guaranty between Hampshire Group,
Limited and The Chase Manhattan Bank, Republic National
Bank of New York and NationsBank, N.A. Dated May 28, 1998
(10)(J)(5) Renewed Lease Agreement between Hampshire Designers, Inc.
and Commerce Center Associates, Inc. for the Company's
Anderson, South Carolina corporate offices dated August 1, 1998
(10)(J)(6) Renewed Lease Agreement between Hampshire Designers, Inc. and
Commerce Center Associates, Inc. for the Company's Anderson,
South Carolina distribution center dated August 1, 1998
(10)(R) Restated Term Note between MetLife Capital Corporation and
Hampshire Designers, Inc., dated July 30, 1998
(21) Subsidiaries of the Company
(23) Consent of PricewaterhouseCoopers LLP
(27) Financial Data Schedule
(b) There were no reports on Form 8-K filed in the fourth quarter of 1998.
17
<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 19th day of March 1999.
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 19, 1999
Ludwig Kuttner President and Chief Executive Officer
(Principal Executive Officer)
/s/ CHARLES W. CLAYTON Vice President, Secretary, Treasurer March 19, 1999
Charles W. Clayton and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ HERBERT ELISH Director March 19, 1999
Herbert Elish
/s/ HARVEY L. SPERRY Director March 19, 1999
Harvey L. Sperry
/s/ EUGENE WARSAW Director March 19, 1999
Eugene Warsaw
/s/ JOEL GOLDBERG Director March 19, 1999
Joel Goldberg
/s/ PETER W. WOODWORTH Director March 19, 1999
Peter W. Woodworth
18
<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, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, 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/ PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 11, 1999
F-1
<PAGE>
HAMPSHIRE GROUP, LIMITED
Index To Consolidated Financial Statements
Page
----
Report of Independent Accountants F-1
Consolidated Balance Sheet F-3
Consolidated Statement of Income F-4
Consolidated Statement of Comprehensive Income F-5
Consolidated Statement of Cash Flows F-6
Consolidated Statement of Changes
in Stockholders' Equity F-7
Notes to Consolidated Financial Statements F-8 - F-21
Financial Statement Schedules
I. Valuation and Qualifying Accounts F-23
II. Real Estate and Accumulated Depreciation F-24 - F-25
Quarterly and Financial Stock Data F-26
F-2
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
Consolidated Balance Sheet
(in thousands, except share data)
<CAPTION>
December 31, 1998 1997
- --------------------------------------------------------------------------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $13,886 $12,003
Available-for-sale securities 549 914
Accounts receivable trade - net 24,194 16,227
Other accounts receivable 1,428 434
Inventories 20,789 18,728
Deferred tax asset 4,006 3,198
Hosiery assets held for sale - net 774 -
Other current assets 597 508
-------------------------
Total current assets 66,223 52,012
Property, plant and equipment - net 13,677 15,093
Real property investments - net 8,679 4,127
Long-term investments 5,238 3,051
Trading securities held in retirement trust 1,087 547
Deferred tax asset 2,416 2,326
Intangible assets - net 3,390 3,385
Other assets 138 44
-------------------------
$100,848 $80,585
=========================
- --------------------------------------------------------------------------------
LIABILITIES
- -----------
Current liabilities:
Current portion of long-term debt $ 1,782 $ 3,411
Accounts payable 5,772 4,068
Accrued expenses and other liabilities 7,386 8,230
-------------------------
Total current liabilities 14,940 15,709
Long-term debt 20,777 6,209
Deferred compensation 1,728 957
Commitments and contingencies - -
-------------------------
Total liabilities 37,445 22,875
-------------------------
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, $.10 par value; 4,253,492 and
4,191,721 shares issued and 4,218,246 and
4,135,125 outstanding 425 419
Additional paid-in capital 28,276 27,474
Retained earnings 35,459 30,886
Accumulated other comprehensive loss (188) (89)
Treasury stock, 35,246 and 59,210 shares at cost (569) (980)
-------------------------
Total stockholders' equity 63,403 57,710
-------------------------
$100,848 $80,585
=========================
<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, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $168,688 $140,807 $117,575
Cost of goods sold 133,769 107,726 88,395
---------------------------------
Gross profit 34,919 33,081 29,180
Other revenue 507 43 942
---------------------------------
35,426 33,124 30,122
Selling, general and administrative expenses 24,971 21,156 19,494
Asset impairment charge 2,500 - 667
---------------------------------
Income from operations 7,955 11,968 9,961
Other income (expense):
Interest expense (1,696) (824) (716)
Interest income 243 363 195
Other 502 (139) (90)
---------------------------------
Income before provision for income taxes 7,004 11,368 9,350
Income tax (provision) benefit:
Current (1,471) (2,649) (1,780)
Deferred 194 200 3,900
---------------------------------
Net income from continuing operations 5,727 8,919 11,470
Income (loss) from discontinued operations-net (214) 87 426
Loss from disposal of discontinued
operations-net (500) - -
---------------------------------
Net income 5,013 9,006 11,896
Preferred stock dividend requirements - (167) (184)
---------------------------------
Net income applicable to common stock $ 5,013 $ 8,839 $11,712
=================================
- -------------------------------------------------------------------------------
Net income per share from Basic $1.39 $2.27 $2.99
continuing operations: ---------------------------------
Diluted $1.29 $2.00 $2.62
---------------------------------
Net income per share: Basic $1.21 $2.29 $3.10
---------------------------------
Diluted $1.13 $2.02 $2.72
---------------------------------
Weighted average number Basic 4,128 3,856 3,778
of shares outstanding: ---------------------------------
Diluted 4,443 4,465 4,379
---------------------------------
- -------------------------------------------------------------------------------
<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 Comprehensive Income
(in thousands)
<CAPTION>
Year Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $5,013 $9,006 $11,896
Other comprehensive income, net of tax:
Unrealized holding losses on securities
arising during periods 49 (89) -
Plus reclassification adjustment for
gains included in net income (148) - -
----------------------------------
Other comprehensive loss (99) (89) -
----------------------------------
Comprehensive income $4,914 $8,917 $11,896
==================================
- ------------------------------------------------------------------------------
<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 Cash Flows
(in thousands)
<CAPTION>
Year Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,013 $ 9,006 $11,896
Loss (income) from discontinued operations 214 (87) (426)
Loss from disposal of discontinued operation 500 - -
----------------------------------
Income from continuing operations 5,727 8,919 11,470
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,397 3,508 3,471
Write-down of foreign investments 2,500 - -
Loss on impairment of asset - - 667
Loss on sale of assets 1 4 59
Deferred income taxes (781) (200) (3,900)
Tax benefit relating to common stock plans 227 100 122
Net change in operating assets and
liabilities, net of effects of acquired
or disposed companies:
Receivables (7,960) (4,132) 3,458
Inventories (6,383) (4,312) 3,506
Accounts payable 2,000 340 (247)
Accrued expenses and other liabilities 401 2,927 (1,733)
Other assets (42) (93) (153)
---------------------------------
Net cash provided by (used in)
continuing operations 87 7,061 16,720
Net cash provided by (used in)
discontinued operations (820) 957 211
---------------------------------
Net cash provided by (used in) operating
activities (733) 8,018 16,931
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,094) (4,400) (2,847)
Proceeds from sales of property and
equipment 580 4 110
Purchase of available-for-sale securities-net (622) (1,400) -
Purchase of real property and other
investments (9,126) (6,900) (503)
Additional purchase price of business
acquisition (265) - -
---------------------------------
Net cash used in investing activities (12,527) (12,696) (3,240)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 17,523 1,645 711
Debt issuance costs (112) - -
Repayment of long-term debt (2,939) (2,947) (4,245)
Proceeds from issuance of common stock 375 90 764
Repurchase of common stock warrants - (1,000) -
Redemption of preferred stock - - (308)
Cash dividends on preferred stock - (167) (184)
Reduction (purchase) of treasury stock - net 296 (1,325) (78)
---------------------------------
Net cash provided by (used in) financing
activities 15,143 (3,704) (3,340)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 1,883 (8,382) 10,351
Cash and cash equivalents - beginning of year 12,003 20,385 10,034
---------------------------------
Cash and cash equivalents - end of year $13,886 $12,003 $20,385
=================================
Supplementary disclosure of cash flow information
- -------------------------------------------------------------------------------
Cash paid during the year for:
Interest $1,434 $1,329 $1,304
Income taxes 1,387 2,152 1,952
- -------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
F-6
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED
Consolidated Statement of Changes in Stockholders' Equity
(in thousands, except share data)
Years Ended December 31, 1996, 1997 and 1998
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - Beginning of year 3,771,624 $377 $22,979 $11,399
Net income for the year - - - 11,896
Purchase of treasury stock (62,500) - - -
Shares issued under the
common stock plans 176,379 12 752 -
Tax benefit relating to
common stock plans - - 122 -
Deferred compensation payable
in Company shares 245,763 - - -
Shares held in trust for deferred
compensation liability (245,763) - - -
Dividends on preferred stock - - - (184)
- -------------------------------------------------------------------------------
Balance - December 31, 1996 3,885,503 389 23,853 23,111
Net income for the year - - - 9,006
Additional shares issued
for business acquisition 14,223 1 264 -
Preferred stock conversion 276,995 27 3,267 -
Purchase of treasury stock (91,615) - - -
Shares issued under the
common stock plans 50,019 2 88 (92)
Repurchase of stock warrant - - (98) (902)
Repurchase of subsidiary stock - - - (70)
Tax benefit relating to
common stock plans - - 100 -
Deferred compensation payable
in Company shares 276,616 - - -
Shares held in trust for deferred
compensation liability (276,616) - - -
Unrealized loss on available-
for-sale securities - net - - - -
Dividends on preferred stock - - - (167)
- -------------------------------------------------------------------------------
Balance - December 31, 1997 4,135,125 419 27,474 30,886
Net income for the year - - - 5,013
Additional shares issued -
for business acquisition 17,952 2 204 -
Purchase of treasury stock (44,200) - - -
Shares issued under the
common stock plans 109,369 4 371 (440)
Tax benefit relating to
common stock plans - - 227 -
Deferred compensation payable
in Company shares 314,050 - - -
Shares held in trust for deferred
compensation liability (314,050) - - -
Unrealized loss on available-
for-sale securities - net - - - -
- -------------------------------------------------------------------------------
Balance - December 31, 1998 4,218,246 $425 $28,276 $35,459
================================================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
F-7
<PAGE>
<TABLE>
Consolidated Statement of changes in Stockholders' Equity
(Continued)
<CAPTION>
Accumulated
Other
Comprehensive Treasury Total
Loss
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance - Beginning of year - - $34,755
Net income for the year - - 11,896
Purchase of treasury stock - ($746) (746)
Shares issued under the
common stock plans - 668 1,432
Tax benefit relating to
common stock plans - - 122
Deferred compensation payable
in Company shares - 1,835 1,835
Shares held in trust for deferred
compensation liability - (1,835) (1,835)
Dividends on preferred stock - - (184)
- -------------------------------------------------------------------------------
Balance - December 31, 1996 - (78) 47,275
Net income for the year - - 9,006
Additional shares issued
for business acquisition - - 265
Preferred stock conversion - - 3,294
Purchase of treasury stock - (1,443) (1,443)
Shares issued under the
common stock plans - 541 539
Repurchase of stock warrant - - (1,000)
Repurchase of subsidiary stock - - (70)
Tax benefit relating to
common stock plans - - 100
Deferred compensation payable
in Company shares - 2,356 2,456
Shares held in trust for deferred
compensation liability - (2,456) (2,456)
Unrealized loss on available-
for-sale securities - net ($89) - (89)
Dividends on preferred stock - - (167)
- -------------------------------------------------------------------------------
Balance - December 31, 1997 (89) (980) 57,710
Net income for the year - - 5,013
Additional shares issued
for business acquisition - - 206
Purchase of treasury stock - (748) (748)
Shares issued under the
common stock plans - 1,159 1,094
Tax benefit relating to
common stock plans - - 227
Deferred compensation payable
in Company shares - 2,903 2,903
Shares held in trust for deferred
compensation liability - (2,903) (2,903)
Unrealized loss on available-
for-sale securities - net (99) - (99)
- -------------------------------------------------------------------------------
Balance - December 31, 1998 ($188) ($569) $63,403
================================================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
F-7
<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 investing in and holding of
real estate and equity securities. The Company, with headquarters in Anderson,
South Carolina, operates sweater manufacturing and distribution plants in South
Carolina, Virginia, Minnesota, California and Puerto Rico. The Company's knitted
products are sold primarily in the United States through various retail and
mail-order companies. The investment company, with a subsidiary located in the
United Kingdom, acquires real properties and equity securities primarily in the
United States, Russia and Eastern Europe, for the purpose of investments.
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
- -----------------------------------
The fair value of long-term debt approximates its carrying value due to the fact
the rates do not differ materially from market rates of interest for similar
instruments.
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 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.
Intangible Assets
- -----------------
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
F-8
<PAGE>
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. Rental
income is recognized on a straight-line basis.
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 accounting period. Actual results could differ from these estimates.
Presentation of Prior Year Data
- -------------------------------
Certain reclassifications have been made to data of prior years to conform with
the current-year presentation.
Earnings Per Common Share
- -------------------------
In 1997 the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") which
superseded APB Opinion No. 15 "Earnings Per Share". SFAS 128 requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for entities with complex capital structures. Earnings per share for
prior years have been restated to provide comparable information.
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
- ---------------------------
On January 1, 1998, the Company adopted 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 is presented in other comprehensive income.
The Company also adopted on January 1, 1998 Statement of Financial Accounting
Standards No. 131 "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS131"). SFAS 131 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 feels that determination of financial data for
disclosure by product is impractical; therefore, adoption of SFAS 131 had no
effect on the Company's segment reporting.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
which is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (January 1, 2000 for the Company). SFAS 133 requires all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether the derivative is
F-9
<PAGE>
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Due to the present limited use of derivative instruments,
management anticipates the adoption of SFAS 133 will not have a significant
impact on the Company's results of operations or its financial position.
Note 2 - Available-for-Sale Securities
- --------------------------------------
A summary of available-for-sale securities at December 31, 1998 and 1997 is set
forth in the adjacent table.
Gain or loss on the sale of securities has been reported in the Consolidated
Statement of Income under Other Income.
(in thousands) 1998 1997
- ------------------------------------
Original cost $847 $1,056
Unrealized gains 15 2
Unrealized losses (313) (144)
- ------------------------------------
Fair market value $549 $ 914
====================================
Note 3 - 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 for its trade receivables. The accounts receivable are stated
net of allowances for doubtful accounts and returns and allowances of $3,817,000
and $3,295,000 at December 31, 1998 and 1997, respectively. At December 31,
1998, and 1997, 60% and 55%, 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 two major customers (defined as sales in
excess of 10% of total sales ) which as a percentage of total sales accounted
for approximately 25%, 20% and 17% for 1998, 1997 and 1996, respectively.
Note 4 - Inventories
- --------------------
The components of inventories at December 31, 1998 and 1997 are set forth in the
adjacent table.
Approximately 39% and 58% of total inventories were valued using the LIFO method
at December 31, 1998 and 1997, respectively.
(in thousands) 1998 1997
- ------------------------------------------------
Finished goods $14,904 $11,512
Work-in-progress 3,460 6,938
Raw materials and supplies 4,126 4,393
- ------------------------------------------------
22,490 22,843
Less - Excess of current cost
over LIFO carrying value (1,701) (4,115)
- ------------------------------------------------
Total $20,789 $18,728
================================================
Note 5 - Property, Plant and Equipment
- --------------------------------------
The components of property, plant and equipment for December 31, 1998 and 1997
are set forth in the adjacent table. Depreciation expense was $3,797,000,
$3,202,000, and $2,979,000, respectively, for the years ended December 31, 1998,
1997 and 1996.
Estimated
(in thousands) Useful Lives 1998 1997
- ---------------------------------------------------------------------
Land $ 324 $ 225
Buildings and improvements 15-45 years 3,879 3,301
Leasehold improvements 5-10 years 4,515 4,980
Machinery and equipment 3-7 years 25,171 28,126
Furniture and fixtures 3-7 years 1,227 1,179
Transportation equipment 3-5 years 122 233
Construction in progress 127 76
- ---------------------------------------------------------------------
Total cost 35,365 38,120
Less - Accumulated depreciation (21,688) (23,027)
- ---------------------------------------------------------------------
Total $13,677 $15,093
=====================================================================
F-10
<PAGE>
Note 6 - Real Property and Long-Term 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 historical cost, net of $1,850,000 asset impairment charge recorded in 1998.
Depreciation is provided over the estimated useful lives of the property, which
is 15 years.
Real Property Investments
- -------------------------------------------------------
(in thousands) 1998 1997
- -------------------------------------------------------
Commercial property:
United States $5,933 $1,687
Russia 2,141 2,461
Europe 806 -
- -------------------------------------------------------
8,880 4,148
Less: Accumulated depreciation (201) (21)
- -------------------------------------------------------
Total $8,679 $4,127
=======================================================
Long-term investments consist principally of common stock of non-publicly traded
companies. The carrying values set forth in the adjacent table are shown net of
asset impairment charge of $650,000 recorded in 1998. To recognize the effect of
the devaluation of the Russian ruble, and other permanent impairment.
Long-Term Investments
- -------------------------------------------------------
(in thousands) 1998 1997
- -------------------------------------------------------
United States $1,909 $ 827
Russia 131 -
Europe 3,198 2,224
- -------------------------------------------------------
Total $5,238 $3,051
=======================================================
Note 7 - Intangible Assets
- --------------------------
In connection with the merger of Winona Knitting Mills (the "Winona Division"),
the Company recorded an additional $413,000 and $530,000 in 1998 and 1997,
respectively, in goodwill as a result of certain payments to be made in
accordance with the contingent purchase price agreement.
Activity in intangible assets for the years ended December 31, 1998 and 1997 is
summarized in the adjacent table.
(in thousands) 1998 1997
- ------------------------------------------------------
Balance - beginning of year $3,385 $3,161
Addition from contingent purchase
price of Winona Knitting Mills 413 530
Other additions 12 -
Amortization during year (420) (306)
- ------------------------------------------------------
Balance - end of year $3,390 $3,385
======================================================
Note 8 - Accrued Expenses and Other Liabilities
- -----------------------------------------------
Accrued expenses and other liabilities at December 31, 1998 and 1997 are
summarized in the adjacent table.
(in thousands) 1998 1997
- ----------------------------------------
Compensation $1,870 $2,799
Interest 821 304
Income taxes 709 1,678
Medical and health care 956 836
Workers' compensation 629 501
Other 2,401 2,112
- ----------------------------------------
$7,386 $8,230
========================================
F-11
<PAGE>
Note 9 - Borrowings
- -------------------
Revolving Credit Agreement
- --------------------------
The Company has renewed its principal credit facility through May 26, 1999 with
three participating commercial banks. The credit facility consists of a $42
million combined line of credit and letter of credit facility. Advances under
the facility 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; plus (ii)
a seasonal adjustment of up to $12 million during the period March 1 to October
31.
Advances under the facility bear interest at either the bank's prime rate or, at
the option of the Company, a fixed rate of LIBOR plus 1.5% for a fixed term. The
loan is collateralized, pari passu with the Senior Notes, by the trade accounts
receivable of Hampshire Designers, Inc. and its subsidiaries, other than certain
factored trade accounts receivable. In addition, letters of credit issued under
the facility are collateralized by the inventory shipped pursuant to the letters
of credit. The Company has pledged as collateral a $5 million insurance policy
on the life of its Chairman and the common stock of its subsidiaries; and, such
subsidiaries guarantee the performance of the Company.
The Company maintains an unsecured $2.5 million credit facility for Hampshire
Designers 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 Company's option, 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, 1998 or 1997. For a subsidiary of Hampshire Designers, the Company
maintains with a bank a $4 million facility which is used primarily to fund
international letters of credit. Advances on the facility bear interest at the
bank's prime rate and are collateralized by the inventory purchased pursuant
thereto and are guaranteed by Hampshire Group, Limited. Outstanding letters of
credit of all lines totaled approximately $6.4 million at December 31, 1998.
At December 31, 1998, a subsidiary of Hampshire Designers had available from a
commercial bank an unsecured $2 million credit facility 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, 1998 or 1997.
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 the prime rate plus 1%. The agreement requires a
commission rate of 1% of the factored accounts receivable.
Senior Notes Agreement
- ----------------------
The Senior Notes are collateralized pari passu by the trade accounts receivable
of Hampshire Designers, Inc. and its subsidiaries, other than certain factored
trade accounts receivable. The Company has also pledged as collateral a $5
million insurance policy on the life of its Chairman and the common stock of its
subsidiaries; and such subsidiaries guarantee the performance of the Company
under the Agreements, hereafter defined. Both the Revolving Credit Agreement and
the Senior Note Agreement (the "Agreements") contain covenants which require
certain financial performance and restrict certain payments by the Company and
the Restricted Subsidiaries (defined as Hampshire Designers, Inc. and its
Subsidiaries).
The covenants require maintenance of a consolidated tangible net worth not less
than $43 million plus 50% of the net income for the year 1998 and each
succeeding year; an average current ratio of not less than 1.75 to 1.00; a fixed
charge ratio of consolidated income for fixed charges for the period of four
consecutive fiscal quarters most recently ended of at least 2.50 times
consolidated fixed charges for such period and restricts funded debt to
F-12
<PAGE>
capitalization ratio not to exceed 0.45 to 1.00. The Agreements also require a
short-term debt cleanup of 45 days during any 12-month period, restricts the
sale of assets and restricts payments of cash dividends and investments in the
non-restricted subsidiary.
Long-Term Debt
- ---------------
Long-term debt at December 31, 1998 and 1997 is composed of:
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Senior Notes payable to two insurance companies in seven
annual installments of $2,142,857 commencing January 2002,
interest at 7.05% per annum, payable semi-annually,
collateralized pari passu with the Revolving Credit Facility $15,000 -
Debt collateralized by real property
Note payable to a mortgage company in monthly installments
of $12,326, including interest at 7.36% through 2008 1,684 -
Note payable to a bank in monthly installments of $12,350,
including interest at 8.4% through 2007 922 $ 989
Note payable to a bank in monthly installments of $8,300,
including interest at 8.06% through 2008 (guaranteed by the
Company) 597 637
Other notes payable collateralized by real estate payable
in monthly installments of $9,400, including interest at
various rates from 7.25% to 8.00% 1,075 251
Debt collateralized by machinery and equipment
Notes payable to an insurance company in monthly installments
of $80,406 including interest at various rates from 7.55%
to 9.03% through 2000 1,152 3,568
Note payable to a bank in monthly installments of $30,150,
plus interest, at LIBOR plus 1.75%, adjusted quarterly,
through 2001 713 1,076
Note payable to a bank in monthly installments of $15,800,
including interest at 8.25% through 2002. 599 733
Other notes payable in monthly installments of approximately
$18,000, including interest at various rates from 5.88% to
10.3% through 2007 439 1,327
Unsecured debt
Note payable to Minnesota Economic Development Division in
monthly installments of $4,400, including interest at 4.0%
through 2007 378 414
Note payable to a related party plus interest at 9.08%, paid
December 1998 - 625
- -------------------------------------------------------------------------------
Total debt 22,559 9,620
Less - Amount payable within one year (1,782) (3,411)
- -------------------------------------------------------------------------------
Amount payable after one year $20,777 $6,209
===============================================================================
Maturities of long-term debt as of December 31, 1998 are summarized in the
adjacent table.
Year (in thousands)
- ------------------------------
1999 $1,782
2000 1,254
2001 566
2002 2,586
2003 2,681
Thereafter 13,690
- ------------------------------
$22,559
==============================
F-13
<PAGE>
Note 10 - Income Taxes
- ----------------------
The components of income tax expense for the years ended December 31, 1998, 1997
and 1996 are set forth in the adjacent table.
(in thousands) 1998 1997 1996
- ----------------------------------------------
Current:
Federal $1,068 $2,201 $1,320
State 271 311 280
Puerto Rico 132 137 180
- ----------------------------------------------
1,471 2,649 1,780
- ----------------------------------------------
Deferred:
Federal 28 (200) (3,900)
State (222) - -
- ----------------------------------------------
(194) (200) (3,900)
- ----------------------------------------------
Total $1,277 $2,449 ($2,120)
==============================================
The domestic, Puerto Rico and foreign components of income (loss) before income
taxes are set forth in the adjacent table.
(in thousands) 1998 1997 1996
- ------------------------------------------------------
Domestic $5,244 $ 6,230 $3,615
Puerto Rico 4,183 5,138 5,735
Foreign (2,423) - -
- ------------------------------------------------------
Income before income taxes $7,004 $11,368 $9,350
======================================================
A reconciliation of the provision (benefit) for income taxes computed by
applying the statutory federal income tax rate to income from continuing
operations before income taxes and the Company's actual provision for income
taxes is set forth in the adjacent table.
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------
Tax provision at federal statutory rate $2,381 $3,865 $3,179
Increase (decrease) in tax arising from:
Effect of exemption of Puerto Rico
earnings from United States tax (1,422) (1,747) (1,950)
Puerto Rico taxes on income, including
withholding taxes 132 137 180
State taxes, less federal income tax benefit 85 174 159
Foreign operating losses 85 - -
Change in valuation allowance - - (4,618)
Other 16 20 930
- ---------------------------------------------------------------------------
$1,277 $2,449 ($2,120)
===========================================================================
F-14
<PAGE>
A summary of the temporary differences and carryforwards giving rise to deferred
income tax assets and liabilities as of December 31, 1998 and 1997 is set forth
in the adjacent table.
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Deferred income tax assets:
Inventories $ 199 $ 249
Allowances for receivables 936 1,055
Write-down of assets not currently deductible 925 -
Accrued liabilities and other temporary differences 2,359 1,840
Unrealized losses on available-for-sale securities 110 53
Provision for discontinued operations 294 -
Net operating loss carryforwards 3,039 3,633
Tax credit carryforwards 697 1,034
- --------------------------------------------------------------------------------
Gross deferred income tax assets 8,559 7,864
- --------------------------------------------------------------------------------
Deferred income tax liabilities:
Property, plant and equipment (268) (471)
- --------------------------------------------------------------------------------
Gross deferred income tax liabilities (268) (471)
- --------------------------------------------------------------------------------
Valuation allowance for deferred income tax assets (1,869) (1,869)
- --------------------------------------------------------------------------------
Total $6,422 $5,524
================================================================================
The net operating loss carryforwards for federal income tax purposes expire as
set forth in the adjacent table.
(in thousands)
Year Regular Tax
- --------------------
2000 $ 159
2001 1,344
2002 1,384
2003 1,334
2004-2009 4,717
- --------------------
Total $8,938
====================
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 the extension of the grant, the Company has been granted 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
ranging from 0% to 5% on dividends. 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.
F-15
<PAGE>
carryforwards and AMT credit carryforwards. During 1996, Section 936 was
repealed and is being phased out over a 10-year period. As a result, the Company
believes that during this phase-out period it will incur regular US tax
liabilities and therefore will 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 received dividends from Glamourette of approximately $2.0 million,
$5.0 million and $5.0 million in 1998, 1997 and 1996, respectively. The Company
has approximately $9.0 million of Glamourette's undistributed earnings which it
considers permanently invested. Additionally, any undistributed earnings of
other foreign subsidiaries are expected to be indefinitely reinvested overseas.
For this reason, deferred income taxes have not been provided thereon.
In January 1999, the Company received notice from the Internal Revenue Service
of an examination of the Company's consolidated tax return for the year ended
December 31, 1996. The examination has been completed and an adjustment letter
in the amount of $65,000 deficiency (after giving effect to the amended return
filed in 1997) has been issued and has been accepted by the Company.
In February 1998, the Internal Revenue Service commenced an examination of the
1995 tax return of the Company's Puerto Rican subsidiaries, Glamourette Fashion
Mills, Inc.; however, the examination has not been completed. 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.
Note 11 - Commitments and Contingencies
- ---------------------------------------
The Company leases premises and equipment under operating leases having terms
from monthly to 8 years. At December 31, 1998, 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 to the right:
Rent expenses on operating leases were $1,532,000, $1,596,000 and $1,636,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
Year (in thousands)
- ----------------------
1999 $1,579
2000 1,627
2001 1,359
2002 1,005
2003 885
Thereafter 1,276
- ----------------------
Total $7,731
======================
The Company is, from time to time, involved in litigation incidental to the
conduct of its business. Management believes that no currently pending
litigation to which it is a party will have a material adverse effect on the
Company's consolidated financial condition or results of operations.
Note 12 - Capitalization
- ------------------------
The Company's authorized capital stock consists of 10,000,000 shares of common
stock and 1,000,000 shares of serial preferred stock (the "Preferred Stock"),
each having a par value of $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 in
October 1995, 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.
F-16
<PAGE>
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
shares into common stock of the Company. Effective December 30, 1997, all shares
of Series A stock in the amount of $1,550,000 and Series D stock in the amount
of $1,744,000 were converted into 240,995 shares of Hampshire Group, Limited
common stock.
Note 13 - Stock Options, Warrants and Compensation Plans
- --------------------------------------------------------
In 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, 330,000 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
discretion 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.
Stock option activity is set forth in the adjacent table.
Number of Weighted Average
Options Exercise Price
- -------------------------------------------------------------------
Outstanding - January 1, 1996 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
Granted 52,945 16.31
Exercised (65,767) 8.15
Canceled or expired (5,794) 10.77
- -------------------------------------------------------------------
Outstanding - December 31, 1998 412,016 $ 9.23
- -------------------------------------------------------------------
F-17
<PAGE>
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
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 1998, 1997 or 1996. Additionally,
in accordance with SFAS 123, the Company is required to disclose fair value
information about its stock-based employee compensation plans for all periods
presented. 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 adjacent table.
1998 1997 1996
- --------------------------------------------------------
Expected life (years) 5.24 4.37 5.11
Expected volatility 22.73% 18.60% 21.40%
Dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 5.14% 6.54% 5.37%
Weighted-average fair values
of options granted $5.33 $5.07 $3.38
- ---------------------------------------------------------
The adjacent table sets forth the effect on net income and diluted earnings per
share had compensation cost been determined under SFAS 123.
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------
Net income: As reported $5,013 $9,006 $11,896
---------------------------
Pro forma $4,927 $8,930 $11,813
- ---------------------------------------------------------------------
Diluted earnings per share: As reported $1.13 $2.02 $2.72
---------------------------
Pro forma $1.11 $2.00 $2.70
- ---------------------------------------------------------------------
A summary of the current status of options outstanding at December 31, 1998, is
set forth in the table below.
Options Outstanding Options Exercisable
- ---------------------------------------------------- ------------------------
Weighted Weighted Weighted
Number Range of Average Average Number Average
Outstanding Exercise Exercise Remaining Exercisable Exercise
12/31/98 Prices Price Life 12/31/98 Price
- --------------------------------------------------- ------------------------
68,455 $5.81-$6.00 $ 5.84 1.51 68,455 $ 5.84
32,727 6.19 6.19 2.00 32,727 6.19
48,889 7.50 7.50 2.22 48,889 7.50
65,909 7.87 7.87 0.53 65,909 7.87
15,000 8.25 8.25 2.00 15,000 8.25
72,727 9.90 9.90 0.75 72,727 9.90
63,159 11.00-12.13 11.58 4.77 36,252 11.39
11,775 12.50-14.50 14.42 5.44 6,138 14.34
30,000 18.13 18.13 7.50 - -
3,375 22.69 22.69 6.50 844 22.69
- -------------------------------------------------- -------------------------
412,016 $9.23 346,941 $ 8.24
================================================== =========================
F-18
<PAGE>
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 for $1 million ($7.534 per share), 132,728 of
these warrants leaving a balance of 205,454 outstanding.
Common Stock Purchase Plan
- --------------------------
Pursuant to the Hampshire Group, Limited 1992 Common Stock Purchase Plan for
Directors and Executives ("Stock Purchase Plan"), non-employee directors may
elect to use their fees as directors to purchase common stock of the Company.
Under the same provision, key executives may elect to use up to 10% of their
annual salaries and up to 40% of their annual bonuses to purchase common stock
of the Company under the Plan.
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 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 $487,000, $735,000 and $560,000 of their compensation for 1998,
1997 and 1996, respectively, to purchase common stock of the Company under the
Stock Purchase Plan. 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. The deferred compensation liability and the Company's shares are
presented as offsetting amounts in the stockholders' equity section on Page F-7
hereof.
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 1998 and 1997 the participants deferred $430,000 and $547,000,
respectively, with the resulting liability being included as deferred
compensation. To fund the deferred compensation liability, the Company has
invested the amounts deferred by the executives in certain mutual funds which
are presented as "Trading securities in retirement trust". The market value of
these mutual funds at December 31, 1998 and 1997, was $1,087,000 and $547,000,
respectively, which equal the liability of the Company at the respective date.
Since both the deferred liability and the related mutual funds are marked to
market, there is no effect on net income.
Note 14 - 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 $345,000, $346,000 and $313,000 in
1998, 1997 and 1996, respectively. Such matching contributions vest fully over
seven years of employment.
F-19
<PAGE>
Note 15 - Related Party Transactions
- ------------------------------------
The Company leases certain buildings from an affiliated company. Ludwig Kuttner,
Chief Executive Officer of the Company, and his wife together own approximately
18% of the voting stock of the affiliate. Rent expense under such leases was
$208,000, $200,000 and $192,000 in 1998, 1997 and 1996, respectively. The
Company also leases certain buildings from a director of the Company and
President and Chief Executive Officer of the Winona Division, Peter Woodworth,
his wife and certain of his relatives. Rent expense under such leases was
$179,000, $162,000 and $135,000, respectively, for 1998, 1997 and 1996. 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.
A company owned by the adult son of Ludwig Kuttner is the general contractor
performing certain renovations on the real estate owned by the Company located
in Charlottesville, Virginia.
Note 16 - Discontinued Operations
- ---------------------------------
The Board of Directors of the Company approved a formal plan to discontinue the
operations and sell the assets of the Hampshire Hosiery Division, which is
engaged in the manufacture and sale of ladies' and children's hosiery and socks.
Accordingly, the operating results of the Hosiery segment have been reflected as
discontinued operations in the accompanying consolidated statement of income.
The management of the Hosiery division (the "Purchaser") has delivered to the
Company a letter of intent for the purchase of substantially all of the assets
and business of the Hosiery division. Details of a purchase agreement, which is
expected to close in April 1999, are currently being negotiated.
As a condition of the sale, the Company will retain the two manufacturing plants
located in Spruce Pine, North Carolina. The facilities will be leased to the
Purchaser for three years at $126,000 annually with a purchase option of
$840,000. The lease also provided for an option to renew for three additional
years at escalated rent. The Company also will retain certain machinery and
equipment, with a fair market value of approximately $1,700,000, which will be
leased to the Purchaser at fair market rates. The machinery and equipment
collateralize a purchase note payable by the Company of $695,000 and a note
payable of $1,091,000 which is being assumed by the Purchase but for which the
Company remains contingently liable.
Net sales for the Hosiery division for the years ended December 31, 1998 and
1997 was $24,118,000 and $23,621,000, respectively. Operating results for 1998,
restated on a discontinued operations basis was an operating loss of $214,000,
which combined with the after-tax accrual of $500,000 for estimated loss on
disposal of the Hosiery assets, amounts to $0.16 per share on a diluted basis.
For the year 1997, the Hosiery division produced a profit of $87,000, $0.02 per
share.
F-20
<PAGE>
Note 17 - 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")
computations.
For the Year 1996 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares 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
================================================================================
For the Year 1997 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares 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
================================================================================
For the Year 1998 Numerator Denominator Per-Share
(in thousands, except per share data) Income Shares Amount
- --------------------------------------------------------------------------------
Basic EPS:
Income available to common stockholders $5,013 4,128 $1.21
Effect of dilutive securities:
Options/warrants - 315 -
- --------------------------------------------------------------------------------
Diluted EPS:
Income available to common stockholders
plus assumed conversions $5,013 4,443 $1.13
================================================================================
Note 18 - Industry Segments and Geographical Areas
- ---------------------------------------------------
The Company operates in two industry segments - Sweaters and Investments. The
Sweater segment includes sales of apparel, primarily women's and men's tops,
both knitted and woven. The products are sold to customers throughout the United
States of America including major department stores, specialty retail stores and
catalog companies. Some of the Company's major customers operate both retail and
mail-order businesses; therefore, it is impossible for the Company to determine
sales to the individual markets. The Investment segment makes investments both
domestically and internationally, principally in real property and common stock
of apparel companies.
(See segment data in the table on the following page.)
F-21
<PAGE>
<TABLE>
Industrial Segment Data
- -----------------------
<CAPTION>
Year Ended December 31, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales Sweaters $168,688 $140,807 $117,575
Other revenue Sweaters - - 942
Investments 507 43 -
---------------------------------
$169,195 $140,850 $118,517
- -------------------------------------------------------------------------------
Gross profit Sweaters 34,919 33,081 29,180
20.7% 23.5% 24.8%
- -------------------------------------------------------------------------------
Revenue by United States $169,086 $140,850 $118,517
geographic area Russia 99 - -
Europe 10 - -
---------------------------------
$169,195 $140,850 $118,517
- -------------------------------------------------------------------------------
Interest income Sweaters $108 $ 28 $ 54
Corporate 112 272 141
Investments 23 63 -
---------------------------------
$243 $363 $195
- -------------------------------------------------------------------------------
Interest expense * Sweaters $1,262 $713 $594
Corporate 335 111 122
Investments 99 - -
---------------------------------
$1,696 $824 $716
*Net of intercompany interest eliminated in consolidation.
- -------------------------------------------------------------------------------
Income before income tax Sweaters $6,183 $9,655 $7,315
from continuing operations Corporate 3,336 1,712 2,035
Investments (2,515) 1 -
---------------------------------
$7,004 $11,368 $9,350
- -------------------------------------------------------------------------------
Income tax provision Sweaters $850 $1,750 $1,300
Corporate 591 899 480
Investments 30 - -
---------------------------------
$1,471 $2,649 $1,780
- -------------------------------------------------------------------------------
Identifiable assets Sweaters $60,080 $49,778 $41,277
Corporate 20,708 15,386 22,198
Investments 15,505 8,290 -
---------------------------------
96,293 73,454 63,475
Discontinued business 4,555 7,131 8,455
---------------------------------
$100,848 $80,585 $71,930
- -------------------------------------------------------------------------------
Capital expenditures Sweaters $3,084 $4,346 $2,829
Corporate 5 54 18
Investments 5 - -
---------------------------------
$3,094 $4,400 $2,847
- -------------------------------------------------------------------------------
Depreciation and Sweaters $4,195 $3,459 $3,445
amortization Corporate 22 28 26
Investments 180 21 -
---------------------------------
$4,397 $3,508 $3,471
- -------------------------------------------------------------------------------
Long-lived assets United States $19,464 $16,759 $13,596
Russia 2,086 2,461 -
Europe 806 - -
---------------------------------
$22,356 $19,220 $13,596
- -------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
<TABLE>
SCHUEDULE I
HAMPSHIRE GROUP, LIMITED
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<CAPTION>
Balance Charged to Charged Balance at
beginning sales and to Deduc- end of
of year expenses other tions year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful
accounts $ 816 ($ 206) (1) - ($ 12) $ 598
Allowance for returns
and adjustments 2,479 4,296 - (3,556) 3,219
- --------------------------------------------------------------------------------
<FN>
(1) Negative provision for doubtful accounts resulted from the elimination of
excess provisions in prior years for Hampshire Hosiery and Mary Jane
Marcasiano Divisions.
</FN>
</TABLE>
F-23
<PAGE>
<TABLE>
SCHEDULE II
1 of 2
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
December 31, 1998
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
---------------------------- ---------------
Encum- Land and Building
Properties brances Land Buildings Buildings Improvements
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UNITED STATES
- -------------
Charlottesville-
Commercial Building -
Charlottesville, Virginia - $ 285 $ 397 $ 682 $ 417
Amity Mall-Shopping Center
Amityville, New York $ 597 187 664 851 63
2620 North Australian Ave
West Palm Beach, Florida 251 135 301 436 -
Fairfax Village-Shopping
Center - Washington, D.C. 2,258 764 1,687 2,451 34
Hidden Creek Ranch
Blanco, Texas - 999 - 999 -
- --------------------------------------------------------------------------------
Total United States
Real Property 3,106 2,370 3,049 5,419 514
- -------------------------------------------------------------------------------
ST PETERSBURG, RUSSIA
- ---------------------
Bolshaya Knonushennaya
No. 15, Apt. No. 2 - - 152 152 188
Nevsky 64 - - 330 330 206
Nevsky 11, Apt. No. 17 - - 34 34 -
Nevsky 43 - - 255 255 256
Nevsky 11, Apt. No. 6,
2nd Floor - - 182 182 199
Millionnaya 29; 2nd Floor - - 210 210 175
Nevsky 23, Apt. No. 4 - - 155 155 134
Nevsky 11, Apt. No. 6,
3rd Floor - - 182 182 111
Nevsky 23, Apt. No. 20
Hotel - - 203 203 219
Nevsky 64, Apt. No. 39 - - 130 130 82
Nevsky 11, Apt. No. 8,
2nd Floor - - 104 104 26
Nevsky 13, Apt. No. 9 - - 92 92 85
Millonaya 11, Embankment - - 175 175 24
Millonaya 29, Flat No. 5,
3rd Floor - - 80 80 2
- --------------------------------------------------------------------------------
Total Russian Real Property - - 2,284 2,284 1,707
Real Property Write-Down - - - - -
- --------------------------------------------------------------------------------
Net Russian Real Property - - 434 434 1,707
- --------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
<TABLE>
HAMPSHIRE GROUP, LIMITED REAL ESTATE AND ACCUMULATED DEPRECIATION (continued)
(in thousands)
December 31, 1998
<CAPTION>
Gross Amount at Which
Carried at End of Period
-------------------------------
Building
and Accumulated
Properties Land Improvements Total Depreciation
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES
- -------------
Charlottesville-
Commercial Building -
Charlottesville, Virginia $ 285 $814 $1,099 ($40)
Amity Mall-Shopping Center
Amityville, New York 187 727 914 (51)
2620 North Australian Ave
West Palm Beach, Florida 135 301 436 (17)
Fairfax Village-Shopping
Center - Washington, D.C. 764 1,721 2,485 (38)
Hidden Creek Ranch
Blanco, Texas 999 - 999 -
- --------------------------------------------------------------------------------
Total United States
Real Property 2,370 3,563 5,933 (146)
- -------------------------------------------------------------------------------
ST PETERSBURG, RUSSIA
- ---------------------
Bolshaya Knonushennaya
No. 15, Apt. No. 2 - 340 340 (6)
Nevsky 64 - 536 536 (8)
Nevsky 11, Apt. No. 17 - 34 34 -
Nevsky 43 - 511 511 (9)
Nevsky 11, Apt. No. 6,
2nd Floor - 381 381 (6)
Millionnaya 29; 2nd Floor - 385 385 (6)
Nevsky 23, Apt. No. 4 - 289 289 (5)
Nevsky 11, Apt. No. 6,
3rd Floor - 293 293 (5)
Nevsky 23, Apt. No. 20
Hotel - 422 422 (7)
Nevsky 64, Apt. No. 39 - 212 212 -
Nevsky 11, Apt. No. 8,
2nd Floor - 130 130 -
Nevsky 13, Apt. No. 9 - 177 177 (3)
Millonaya 11, Embankment - 199 199 -
Millonaya 29, Flat No. 5,
3rd Floor - 82 82 -
- --------------------------------------------------------------------------------
Total Russian Real Property - 3,991 3,991 (55)
Real Property Write-Down - (1,850) (1,850) -
- --------------------------------------------------------------------------------
Net Russian Real Property - 2,141 2,141 (55)
- --------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
<TABLE>
SCHEDULE II
2 of 2
(continuted)
HAMPSHIRE GROUP, LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
December 31, 1998
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
---------------------------- ---------------
Encum Land and Building
Properties brances Land Buildings Buildings Improvements
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BUCHAREST, ROMANIA
- ------------------
Jean Texier Street,
No. 7, Apt. No. 1 - - 160 160 -
Nicolae Balcescu Blvd.
No. 5, Apt. No. 32 - - 60 60 -
Nicolae Balcescu Blvd.
No. 5, Apt. No. 35 - - 118 118 -
Television Blvd.
Apt. No. 1 - - 80 80 30
- -------------------------------------------------------------------------------
Total Romanian Real Property - - 418 418 30
- -------------------------------------------------------------------------------
PRAGUE, CZECH REPUBLIC
- ---------------------
Office Building, No. 1 - - 136 136 -
Office Building, No. 2 - - 222 222 -
- --------------------------------------------------------------------------------
Total Czech Republic
Real Property - - 358 358 -
- --------------------------------------------------------------------------------
$3,106 $2,370 $6,109 $8,479 $2,251
- --------------------------------------------------------------------------------
Gross Amount at Which
Carried at End of Period
-------------------------------
Building
and Accumulated
Properties Land Improvements Total Depreciation
- --------------------------------------------------------------------------------
BUCHAREST, ROMANIA
- ------------------
Jean Texier Street,
No. 7, Apt. No. 1 - 160 160 -
Nicolae Balcescu Blvd.
No. 5, Apt. No. 32 - 60 60 -
Nicolae Balcescu Blvd.
No. 5, Apt. No. 35 - 118 118 -
Television Blvd.
Apt. No. 1 - 110 110 -
- -------------------------------------------------------------------------------
Total Romanian Real Property - 448 448 -
- -------------------------------------------------------------------------------
PRAGUE, CZECH REPUBLIC
- ---------------------
Office Building, No. 1 - 136 136 -
Office Building, No. 2 - 222 222 -
- --------------------------------------------------------------------------------
Total Czech Republic
Real Property - 358 358 -
- --------------------------------------------------------------------------------
$2,370 $6,540 $8,880 ($201)
- --------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
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 income tax purposes was approximately $10,730 at December
31, 1998.
The changes in total real estate assets and accumulated depreciation for the
period ending December 31, 1998 are as follows:
Total Real Estate Assets
- -------------------------
Balance, beginning of period $4,148
Acquisitions 5,116
Additions and improvements 1,466
Write-downs (1,850)
- --------------------------------------
Balance, end of period $8,880
======================================
Accumulated Depreciation
- ------------------------
Balance, beginning of period ($21)
Depreciation (180)
Disposals -
- --------------------------------------
Balance, end of period ($201)
======================================
F-25
<PAGE>
<TABLE>
Quarterly Financial and Stock Data (unaudited)
(in thousands, except per share data and stock prices)
<CAPTION>
Annual
In 1997 Quarter Ended Mar. 29 Jun. 28 Sept. 27 Dec. 31 Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales previously reported $23,580 $21,466 $61,008 $58,374 $164,428
Less sales of discontinued
operations (4,730) (5,411) (7,253) (6,227) (23,621)
-----------------------------------------------
Net sales of continuing
operations 18,850 16,055 53,755 52,147 140,807
- -------------------------------------------------------------------------------
Gross profit previously reported 4,691 4,374 13,769 13,963 36,797
Less gross profit of discontinued
operations (447) (846) (1,195) (1,228) (3,716)
----------------------------------------------
Gross profit of continuing
operations 4,244 3,528 12,574 12,735 33,081
- -------------------------------------------------------------------------------
Operating income (loss)
previously reported (92) (255) 6,796 6,121 12,570
Income (loss) of discontinued
operations 330 (34) (361) (594) (659)
----------------------------------------------
Operating income (loss) of
continuing operations 238 (289) 6,450 5,569 11,968
- -------------------------------------------------------------------------------
Income of continuing operations $ 3 ($ 57) $4,938 $4,035 $8,919
Income (loss) applicable to
common stock (304) (277) 5,069 4,351 8,839
- -------------------------------------------------------------------------------
Income of continuing operations
Basic - ($0.01) $1.28 $1.05 $2.27
---------------------------------------------
Diluted - (0.01) 1.12 0.91 2.00
- -------------------------------------------------------------------------------
Income (loss) per common share
Basic ($0.08) ($0.07) $1.31 $1.13 $2.29
---------------------------------------------
Diluted (0.08) (0.07) 1.16 0.99 2.00
- -------------------------------------------------------------------------------
Common stock price: High $15.75 $15.75 $17.50 $20.00 $20.00
---------------------------------------------
Low 12.75 14.00 14.75 17.50 12.75
===============================================================================
===============================================================================
Annual
In 1998 Quarter Ended Mar. 28 Jun. 27 Sept. 26(1) Dec. 3 Total
- -------------------------------------------------------------------------------
Net sales previously reported $26,180 $28,599 $60,215 $77,812 $192,806
Less sales of discontinued
operations (4,487) (5,358) (6,286) (7,985) (24,118)
-------------------------------------------------
Net sales of continuing
operations 21,693 23,241 53,927 69,827 168,688
- -------------------------------------------------------------------------------
Gross profit previously reported 4,423 5,067 12,136 16,607 38,233
Less gross profit of discontinued
operations (404) (678) (874) (1,358) (3,314)
-------------------------------------------------
Gross profit of continuing
operations 4,019 4,389 11,262 15,249 34,919
- -------------------------------------------------------------------------------
Operating income (loss)
previously reported (1,465) (848) 2,270 8,166 8,123
Income (loss) of discontinued
operations 350 87 (90) (515) (168)
-------------------------------------------------
Operating income (loss) of
continuing operations (1,115) (761) 2,180 7,651 7,955
- -------------------------------------------------------------------------------
Income (loss) of continuing
operations ($878) ($668) $704 $6,569 $5,727
Income (loss) applicable to
common stock (1,158) (800) 663 6,308 5,013
- -------------------------------------------------------------------------------
Income (loss) of Basic ($0.21) ($0.16) $0.18 $1.59 $1.39
continuing operations -------------------------------------------------
Diluted (0.21) (0.16) 0.16 1.50 1.29
- -------------------------------------------------------------------------------
Income (loss) per Basic ($0.28) ($0.19) $0.16 $1.52 $1.21
common share -------------------------------------------------
Diluted (0.28) (0.19) 0.15 1.44 1.13
- -------------------------------------------------------------------------------
Common stock price: High $19.00 $20.38 $18.25 $13.25 $20.38
Low 18.50 20.38 18.12 10.00 10.00
- -------------------------------------------------------------------------------
<FN>
(1) Net income for the third quarter of 1998 includes $2.5 million asset
impairment charge resulting principally from the affect of the devaluation
of the Russian ruble on certain investments, and as a result earnings per
share were reduced by $0.56.
</FN>
</TABLE>
F-26
<PAGE>
HAMPSHIRE GROUP, LIMITED
1998 EXHIBIT INDEX
Exhibit No. Description
- ----------- ----------------------------------------------------------
(10)(A)(3) Employment Agreement between Hampshire Group, Limited and
Ludwig Kuttner dated as of January 1, 1998
(10)(H)(1) Note Purchase Agreement between Hampshire Group, Limited
Phoenix Home Life Mutual Insurance Company and The Ohio
National Life Insurance Company dated May 15, 1998
(10)(H)(2) Credit Agreement and Guaranty between Hampshire Group,
Limited and The Chase Manhattan Bank, Republic National
Bank of New York and NationsBank, N.A. Dated May 28, 1998
(10)(J)(5) Renewed Lease Agreement between Hampshire Designers, Inc.
and Commerce Center Associates, Inc. for the Company's
Anderson, South Carolina corporate offices dated
August 1, 1998
(10)(J)(6) Renewed Lease Agreement between Hampshire Designers, Inc.
and Commerce Center Associates, Inc. for the Company's
Anderson, South Carolina distribution center dated
August 1, 1998
(10)(R) Restated Term Note between MetLife Capital Corporation and
Hampshire Designers, Inc., dated July 30, 1998
(21) Subsidiaries of the Company
(23) Consent of PricewaterhouseCoopers LLP
(27) Financial Data Schedule
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of this 1st day of January, 1998, between
Hampshire Group, Limited, a Delaware corporation (the "Company"), and Ludwig G.
Kuttner (the "Executive").
R E C I T A L S:
WHEREAS, the Executive currently serves as President and Chief Executive Officer
of the Company, and the Company recognizes that the future growth, profitability
and success of the Company's business will be substantially and materially
enhanced by the continued employment of the Executive by the Company;
WHEREAS, the Company desires to continue to employ the Executive and the
Executive has indicated his willingness to continue to provide his services, on
the terms and conditions set forth herein;
NOW, THEREFORE, on the basis of the foregoing premises and in consideration of
the mutual covenants and agreements contained herein, the parties hereto agree
as follows:
Section 1. Employment. Subject to the terms and conditions contained
herein, the Executive shall serve as the President and Chief Executive Officer
of the Company and, in such capacity, shall report directly to the Board of
Directors of the Company (the "Board of Directors") and shall have such duties
as are typically performed by a president and chief executive officer of a
corporation. In the performance of his duties, the Executive shall not be
required to reside at any location other than Keene, Virginia, although the
Executive understands and agrees that he may be required to travel from time to
time for business reasons.
Section 2. Term. The Executive's employment hereunder shall commence on the
date hereof and shall continue until terminated by the Company or the Executive
pursuant to Section 6 hereof.
Section 3. Compensation. During the Employment Term, the Executive shall be
entitled to the following compensation and benefits:
(a) Salary. As compensation for the performance of the Executive's
services hereunder, the Company shall pay to the Executive a salary (the
"Salary") of $400,000 per annum with increases, if any, as may be approved
by the Board of Directors. The Salary shall be payable in accordance with
the payroll practices of the Company as the same shall exist from time to
time. In no event shall the Salary be decreased during the Employment Term.
(b) Bonus. The Executive shall be entitled to receive an annual cash
bonus (the "Bonus") equal to 7% of the Company's net earnings for the
fiscal year with respect to which the Bonus is payable, as determined by
the Company's independent auditors and disclosed in the Company's financial
statements.
(c) Benefits. In addition to the Salary and Bonus, the Executive shall
be entitled to participate in health, insurance, pension and other benefits
provided to other senior executives of the Company on terms no less
favorable than those available to such senior executives of the Company,
<PAGE>
provided that the Company shall maintain, at the Company's expense, a life
insurance policy for the benefit of the Executive, in the amount of $1
million payable upon the Executive's death to the Executive's surviving
spouse or, if there is no surviving spouse, to the Executive's estate. The
Executive shall also be entitled to the same number of vacation days,
holidays, sick days and other benefits as are generally allowed to other
senior executives of the Company in accordance with the Company policy in
effect from time to time.
(d) Deferred Compensation. The Company shall maintain a deferred
compensation account (the "Deferred Compensation Account") in the name of
the Executive, which shall be credited by the Company with $100,000 per
annum. The amounts accrued in the Deferred Compensation Account shall be
credited with interest at 110% of the Applicable Federal Long Term Interest
Rate, provided that the Executive shall have the right to diversify the
deemed investment of the Deferred Compensation Account into notional
investment funds, in the same manner afforded to participants in the
Company's Voluntary Deferred Compensation Plan for Directors and Executives
(the "DC Plan"). The Deferred Compensation Account shall be administered in
a manner consistent with the provisions of the DC Plan. All amounts
credited to the Deferred Compensation Account shall be fully vested and
payable in accordance with the terms thereof.
(e) Automobile. The Company shall provide the Executive, at the
Company's expense, with an automobile and a chauffeur, in accordance with
prior Company practices.
Section 4. Exclusivity. During the Employment Term, the Executive shall
devote his full time to the business of the Company, shall faithfully serve the
Company, shall in all respects conform to and comply with the lawful and
reasonable directions and instructions given to him by the Board of Directors in
accordance with the terms of this Agreement, shall use his best efforts to
promote and serve the interests of the Company and shall not engage in any other
business activity, whether or not such activity shall be engaged in for
pecuniary profit, except that the Executive may (i) continue to operate
agriculture businesses in Keene, Virginia and (ii) make personal investments in
businesses that are not competitive with the business of the Company.
Section 5. Reimbursement Expenses. The Executive is authorized to incur
reasonable expenses in the discharge of the services to be performed hereunder,
including expenses for travel, entertainment, lodging and similar items in
accordance with the Company's expense reimbursement policy, as the same may be
modified by the Board of Directors from time to time. The Company shall
reimburse the Executive for all such proper expenses in accordance with the
financial policy of the Company, as in effect from time to time.
Section 6. Termination of Employment.
(a) Death. The Executive's employment shall automatically terminate
upon his death and upon such event, the Executive's estate shall be
entitled to receive (i) all compensation accrued but unpaid hereunder
through the date of death, including Salary, "Accrued Bonus" as defined
below, and unreimbursed expenses, and (ii) the Termination Benefit, as
defined below. For purposes of this Agreement, "Accrued Bonus" shall mean
the sum of (a) any Bonus earned in respect of the fiscal year of the
Company first preceding the year of termination which has not been paid at
the time of termination ("Prior Year Bonus"), and (b) with respect to the
year of termination, a pro rata portion of the Bonus that would have been
payable to the Executive for that year, based on the number of days elapsed
<PAGE>
in such year as of the date of such termination, such amount to be paid as
soon as practicable after the determination of the Company's net earnings
for such year ("Pro Rata Bonus"). For purposes of this Agreement,
"Termination Benefit" shall mean an amount equal to (1) the annual average,
with respect to the 5-calendar year period ending with the calendar year
immediately preceding the year in which the Executive's employment
terminates, of the sum of the Executive's Salary, Bonus and the amounts (if
any) realized by the Executive upon the exercise of any Company stock
options, (2) multiplied by 2. The Termination Benefit shall be paid to the
Executive's estate in 24 equal monthly installments; provided, however,
that if a Change of Control (as defined in Section 6(f) hereof) occurs
during such 24 month period, the balance of the Termination Benefit as of
the date of the Change of Control shall be paid to the Executive's estate
in a lump sum on the closing date of the transaction which constitutes a
Change of Control.
(b) Disability. The Company may terminate the Executive's employment
in the event of the Executive's Disability (as defined below), provided
that, at the time of such termination, the Company maintains, at the
Company's expense, a disability insurance policy (the "Disability Insurance
Policy") which provides for payments to the Executive of $120,000 per annum
until the earlier of (i) termination of the Executive's disability (within
the meaning of the Disability Insurance Policy) or (ii) the attainment by
the Executive of age 65. For purposes of this Agreement, "Disability" shall
mean the Executive's inability, for a period of at least 180 consecutive
days, to perform the duties required of him under this Agreement because of
illness, incapacity, or physical or mental disability. Upon termination of
the Executive's employment pursuant to this Section 6(b), the Executive
shall be entitled to receive from the Company all compensation accrued but
unpaid hereunder through the date of termination, including Salary, Accrued
Bonus and unreimbursed expenses. The Executive and his eligible dependents
shall continue to be covered under the Company's medical and life insurance
plans in which the Executive and such dependents participated on the date
of the termination of the Executive's employment as a result of his
Disability, for the period provided in such plans.
(c) Cause. The Company may terminate the Executive's employment at any
time for Cause. In the event of termination pursuant to this Section 6(c)
for Cause, the Company shall deliver to the Executive written notice
setting forth the basis for such termination, which notice shall
specifically set forth the nature of the Cause which is the reason for such
termination. Termination of the Executive's employment hereunder shall be
effective upon delivery of such notice of termination. For purposes of this
Agreement, "Cause" shall mean: (i) the Executive's failure (except where
due to Disability) to perform his duties under this Agreement, which
failure amounts to extended and continuous neglect, (ii) continued use by
the Executive of non-prescription drugs, including alcohol, which
materially interferes with the performance of the Executive's duties to the
Company, (iii) the commission by the Executive of an act of fraud or
embezzlement against the Company or any of its affiliates, or (iv)
conviction of the Executive for the commission of a felony. Upon
termination of the Executive's employment for Cause, the Executive shall be
entitled to receive from the Company all compensation accrued but unpaid
hereunder through the date of termination, including Salary, Prior Year
Bonus and unreimbursed expenses, but excluding any Pro Rata Bonus.
(d) Without Cause. The Company may terminate the Executive's
employment at any time without Cause. If the Executive's employment is
terminated by the company without Cause, the Executive shall be entitled to
receive from the Company (i) all compensation accrued but unpaid hereunder
through the termination date, including Salary, Accrued Bonus and
unreimbursed expenses, (ii) the Termination Benefit, payable in 24 equal
monthly installments and (iii) for a period of 18 months following the
<PAGE>
termination date, continued life and health insurance coverage for the
Executive and his eligible dependents.
(e) Resignation. The Executive shall have the right to terminate his
employment by giving to the Company a 90-days' advance notice of his
resignation. Upon the Executive's resignation from the company, the
Executive shall be entitled to receive from the Company all compensation
accrued but unpaid hereunder through the date of termination, including
Salary, Prior Year Bonus and unreimbursed expenses, but excluding any Pro
Rata Bonus.
(f) Change of Control. The Executive shall have the right to terminate
his employment by giving to the Company a notice of his resignation within
180 days following a Change of Control. In the event of termination of the
Executive's employment pursuant to this Section 6(f), the Executive shall
be entitled to receive from the Company (i) all compensation accrued but
unpaid hereunder through the date of termination, including Salary, Bonus
and unreimbursed expenses, and (ii) the Termination Benefit, payable in a
single lump sum on the closing date of the transaction that constitutes a
Change of Control.
For purposes of this Agreement, a "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule13d-3 promulgated
under the Exchange Act) of 50% or more of either (1) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (1) any acquisition directly from the Company, (2)
any acquisition by the Company or any corporation controlled by the
Company, (3) any acquisition by any shareholder of the Company who on
the date hereof owns 5% or more of the Outstanding Company Common
Stock or (4) any acquisition by any corporation pursuant to a
transaction which complies with clauses (1), (2) and (3) of subsection
(iii) of this Section 6(f); or
(ii) Individuals who, as of the date hereof, constitute the Board
of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of
Directors; or
<PAGE>
(iii) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (1) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(2) no Person (excluding any corporation resulting from such Business
Combination or any shareholder of the Company on the date hereof who
owns 5% or more of the Outstanding Company Common Stock), beneficially
owns, directly or indirectly, 50% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination and (3)
at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board of Directors, providing for
such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(g) Gross-Up. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
distribution, waiver of Company rights, acceleration of vesting of any
stock options or other awards, or any other payment or benefit in the
nature of compensation to or for the benefit of the Executive, alone or in
combination (whether such payment, distribution, waiver acceleration or
other benefit is made pursuant to the terms of this Agreement or any other
agreement, plan or arrangement providing payments or benefits in the nature
of compensation to or for the benefit of the Executive, but determined
without regard to any additional payments required under this Section 6(g))
(a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (or any successor provision) or any interest or
penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to an additional payment (a "Gross-Up Payment")
in an amount such that after payment by the Executive of all taxes with
respect to the Gross-Up Payment (including any interest or penalties
imposed with respect to such taxes) including, without limitation, any
income and employment taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
<PAGE>
(h) No Set Of f Against Deferred Compensation Account. The Company
shall have no right to set off any claim which it may have against the
Executive against amounts credited to the Deferred Compensation Account
(and deemed earnings thereon).
Section 7. Nondisclosure of Confidential Information. The Executive, except
in connection with his employment hereunder, shall not disclose to any person or
entity or use, either during the Employment Term or at any time thereafter, any
information not in the public domain or generally known in the industry, in any
form, acquired by the Executive while employed by the Company or any predecessor
to the Company's business or, if acquired following the Employment Term, such
information which, to the Executive's knowledge, has been acquired, directly or
indirectly, from any person or entity owing a duty of confidentiality to the
Company or any of its subsidiaries or affiliates. The Executive agrees and
acknowledges that all of such information, in any form, and copies and extracts
thereof, are and shall remain the sole and exclusive property of the Company,
and upon termination of his employment with the Company, the Executive shall
return to the Company the originals and all copies of any such information
provided to or acquired by the Executive in connection with the performance of
his duties for the Company, and shall return to the Company all files,
correspondence and/or other communications received, maintained and/or
originated by the Executive during the course of his employment.
Section 8. Injunctive Relief. Without intending to limit the remedies
available to the Company, the Executive acknowledges that a breach of any of the
covenants contained in Section 7 hereof may result in material irreparable
injury to the Company or its subsidiaries or affiliates for which there is no
adequate remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of such a breach or threat thereof,
the Company shall be entitled to obtain a temporary restraining order and/or a
preliminary or permanent injunction, without the necessity of proving
irreparable harm or injury as a result of such breach or threatened breach of
Section 7 hereof, restraining the Executive from engaging in activities
prohibited by Section 7 hereof or such other relief as may be required
specifically to enforce any of the covenants in Section 7 hereof.
Section 9. Successors and Assigns; No Third-Party Beneficiaries. This
Agreement shall inure to the benefit of, and be binding upon, the successors and
assigns of each of the parties, including, but not limited to, the Executive's
heirs and the personal representatives of the Executive's estate; provided,
however, that neither party shall assign or delegate any of the obligations
created under this Agreement without the prior written consent of the other
party. Nothing in this Agreement shall confer upon any person or entity not a
party to this Agreement, or the legal representatives of such person or entity,
any rights or remedies of any nature or kind whatsoever under or by reason of
this Agreement.
Section 10. Waiver and Amendments. Any waiver, alteration, amendment or
modification of any of the terms of this Agreement shall be valid only if made
in writing and signed by the parties hereto; provided, however, that any such
waiver, alteration, amendment or modification is consented to on the Company's
behalf by the Board of Directors. No waiver by either of the parties hereto of
their rights hereunder shall be deemed to constitute a waiver with respect to
any subsequent occurrences or transactions hereunder unless such waiver
specifically states that it is to be construed as a continuing waiver.
Section 11. Governing Law; Arbitration; Jurisdiction.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to
be performed entirely within such state.
(b) Any disputes arising under this Agreement, except those arising
under Section 7, shall be resolved solely by arbitration in New York, New
York in accordance with the Rules of the American Arbitration Association.
Any arbitration award shall include a determination as to whether the
<PAGE>
Company or the Executive shall bear all of the costs of the arbitration,
including reasonable attorneys' fees. It is the intention of the Company
and the Executive that the party who does not prevail in the arbitration
will bear such costs.
(c) The Company and the Executive shall submit solely to the
jurisdiction of the Federal Courts or New York State Courts sitting in New
York County, New York with respect to any disputes arising under Section 7
or 8 of this Agreement.
Section 12. Notices.
(i) All communications under this Agreement shall be in writing
and shall be delivered by hand or mailed by overnight courier or by
registered or certified mail, postage prepaid:
(1) if to the Executive, at Estouteville Farm, Keene,
Virginia 22946, or at such other address as the Executive may
have furnished the Company in writing,
(2) if to the Company, at Hampshire Group, Limited, 215
Commerce Blvd., P.O. Box 2667, Anderson, South Carolina 29622,
marked for the attention of Secretary, or at such other address
as it may have furnished in writing to the Executive.
(ii) Any notice so addressed shall be deemed to be given; if
delivered by hand, on the date of such delivery; if mailed by courier,
on the first business day following the date of such mailing; and if
mailed by registered or certified mail, on the third business day
after the date of such mailing.
Section 13. Section Headings. The headings of the sections and subsections
of this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof, affect the meaning or interpretation of this
Agreement or of any term or provision hereof.
Section 14. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto regarding the employment of
the Executive. This Agreement supersedes all prior negotiations, discussions,
correspondence, communications, understandings and agreements between the
parties relating to the subject matter of this Agreement.
Section 15. Severability. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
Section 16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
/s/ Ludwig Kuttner
Ludwig G. Kuttner
<PAGE>
UNANIMOUS CONSENT
STOCK OPTION AND COMPENSATION COMMITTEE
HAMPSHIRE GROUP, LIMITED
We, the undersigned, constituting all of the members of the Stock Option
and Compensation Committee of Hampshire Group, Limited ("Company") hereby
unanimously approve the Employment Agreement between the Company and Ludwig G.
Kuttner, dated as of January 1, 1998, a copy of which is annexed hereto and made
a part hereof.
IN WITNESS WHEREOF, we have executed this Unanimous Consent as of April 1,
1998.
/s/ Herbert Elish
Herbert Elish
/s/ Harvey L. Sperry
Harvey L. Sperry
HAMPSHIRE GROUP, LIMITED
Note Purchase Agreement
DATED AS OF MAY 15, 1998
$15,000,000 7.05% SENIOR SECURED NOTES DUE JANUARY 2, 2008
<PAGE>
TABLE OF CONTENTS
PAGE
1. AUTHORIZATION OF NOTES 1
2. SALE AND PURCHASE OF NOTES 2
3. CLOSING 2
4. CONDITIONS TO CLOSING 2
4.1 Representations and Warranties 2
4.2 Performance; No Default 2
4.3 Compliance Certificates 3
4.4 Opinions of Counsel 3
4.5 Purchase Permitted By Applicable Law, etc 3
4.6 Sale of Other Notes 4
4.7 Payment of Special Counsel Fees 4
4.8 Private Placement Number 4
4.9 Changes in Structure 4
4.10 Evidence of Key-Person Life Insurance 4
4.11 Security Agreement 4
4.12 Financing Statements 5
4.13 UCC Searches 5
4.14 Insurance 5
4.15 Credit Agreement 5
4.16 Intercreditor Agreement 6
4.17 Proceedings and Documents 6
5. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS 6
5.1 Organization; Power and Authority 6
5.2 Authorization, etc 6
5.3 Disclosure 7
5.4 Organization and Ownership of Shares of
Material Subsidiaries; Affiliates 8
5.5 Financial Statements 8
5.6 Compliance with Laws, Other Instruments, etc 9
5.7 Governmental Authorizations, etc 9
5.8 Litigation; Observance of Agreements, Statutes and Orders 9
5.9 Taxes 10
5.10 Title to Property; Leases 10
5.11 Licenses, Permits, etc 10
5.12 Pension Plans 11
5.13 Private Offering by the Company 12
5.14 Use of Proceeds; Margin Regulations 12
5.15 Existing Debt; Future Liens 12
5.16 Foreign Assets Control Regulations, etc 13
5.17 Status under Certain Statutes 13
5.18 Environmental Matters 13
<PAGE>
TABLE OF CONTENTS (cont.)
PAGE
5.19 Obligors Interdependent 14
5.20 Other Representations and Warranties 14
6. REPRESENTATIONS OF THE PURCHASER 14
6.1 Purchase for Investment 14
6.2 Source of Funds 14
7. INFORMATION AS TO COMPANY 16
7.1 Financial and Business Information 16
7.2 Officer's Certificate 19
7.3 Inspection 19
8. PREPAYMENT OF THE NOTES 20
8.1 Required Prepayments 20
8.2 Optional Prepayments of Notes with Make-Whole Amount 20
8.3 Allocation of Note Partial Prepayments 20
8.4 Change in Control 20
8.5 Maturity; Surrender, etc. 22
8.6 Purchase of Notes 23
8.7 Make-Whole Amount 23
9. INTEREST ON THE NOTES
10.AFFIRMATIVE COVENANTS 24
10.1 Compliance with Law 25
10.2 Insurance 25
10.3 Maintenance of Properties 27
10.4 Payment of Taxes and Claims 27
10.5 Corporate Existence, etc 28
10.6 Pan Passu Obligations 28
10.7 Guaranties of Subsidiaries 28
10.8 Year 2000 29
10A.AFFIRMATIVE COVENANTS 29
10A.1 Compliance with Law 30
10A.2 Insurance 30
10A.3 Maintenance of Properties 30
10A.4 Payment of Taxes and Claims 30
11. NEGATIVE COVENANTS 31
11.1 Transactions with Affiliates 31
11.2 Merger, Consolidation, etc 31
11.3 Consolidated Tangible Net Worth 32
<PAGE>
TABLE OF CONTENTS (cont.)
PAGE
11.4 Average Current Ratio 33
11.5 Fixed Charge Coverage 33
11.6 Funded Debt to Capitalization 33
11.7 Current Debt 33
11.8 Restricted Subsidiary Debt 33
11.9 Sale of Assets, etc 34
11.10 Restricted Payments and Restricted Investments 36
11.11 Liens 37
11.12 Line of Business 41
12. EVENTS OF DEFAULT 42
13. REMEDIES ON DEFAULT, ETC 44
13.1 Acceleration 44
13.2 Other Remedies 45
13.3 Rescission 46
13.4 No Waivers or Election of Remedies, Expenses, etc 46
14. REGISTRATION EXCHANGE; SUBSTITUTION OF NOTES 46
14.1 Registration of Notes 46
14.2 Transfer and Exchange of Notes 46
14.3 Replacement of Notes 47
15. PAYMENTS ON NOTES 47
15.1 Place of Payment 47
15.2 Home Office Payment 48
16. EXPENSES, ETC 48
16.1 Transaction Expenses 48
16.2 Survival 48
17.SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT 49
18.AMENDMENT AND WAIVER 49
18.1 Requirements 49
18.2 Solicitation of Holders of Notes 49
18.3 Binding Effect, etc 50
18.4 Notes held by Obligor, etc 50
19.NOTICES 51
20.REPRODUCTION OF DOCUMENTS 51
<PAGE>
TABLE OF CONTENTS (cont.)
PAGE
21.CONFIDENTIAL INFORMATION 52
22.SUBSTITUTION OF PURCHASER 53
23.GUARANTEE 53
23.1 Guaranteed Obligations 53
23.2 Performance under this Agreement and the Other Agreement 54
23.3 Waivers 54
23.4 Certain Waivers of Subrogation, Reimbursement and Indemnity 55
23.5 Release 56
23.6 Marshaling 56
23.7 Liability 57
23.8 Character of Obligation 57
23.9 Election to Perform Obligations 58
23.10 No Election 59
23.11 Severability 59
23.12 Other Enforcement Rights 59
23.13 Delay or Omission; No Waiver 59
23.14 Restoration of rights and Remedies 60
23.15 Cumulative Remedies 60
23.16 Survival 60
23.17 Miscellaneous 60
24.MISCELLANEOUS 61
24.1 Successors and Assigns 61
24.2 Payments Due on Non-Business Days 61
24.3 Severability 61
24.4 Construction 61
24.5 Counterparts 61
24.6 Governing Law 62
SECTION 25. COLLATERAL AGENT 62
25.1 Appointment 62
25.2 Distribution 63
25.3 Indemnification 64
25.4 Trustee 64
1.SECURITY INTEREST Exhibit 4.11 -(CSA)-1
2.OBLIGATIONS DEFINED Exhibit 4.11 -(CSA)-2
3.WARRANTIES AND COVENANTS Exhibit 4.11 -(CSA)-2
4.EVENTS OF DEFAULT Exhibit 4.11 -(CSA)-5
<PAGE>
TABLE OF CONTENTS (cont.)
5. RIGHTS AND REMEDIES Exhibit 4.11-(CSA)-5
6. MISCELLANEOUS Exhibit 4.11 -(CSA)-5
1. THE PLEDGE Exhibit 4.11 -(CPA)-1
1. SECURITY INTEREST Exhibit 4.1 1-(GSA)-1
2. OBLIGATIONS DEFINED Exhibit 4.11 -(GSA)-2
3. WARRANTIES AND COVENANTS Exhibit 4.11 -(GSA)-2
4. EVENTS OF DEFAULT Exhibit 4.11 -(GSA)-5
5. RIGHTS AND REMEDIES Exhibit 4.11 -(GSA)-5
6. MISCELLANEOUS Exhibit 4.11 -(GSA)-5
1. THE PLEDGE Exhibit 4.11 -(GPA)-1
<PAGE>
TABLE OF CONTENTS (cont.)
SCHEDULES:
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE C -- Payment Instructions at Closing
SCHEDULE 5.1 -- Foreign Qualification
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Ownership of the Company; Affiliates
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.9 -- Taxes
SCHEDULE 5.11 -- Patents, Etc.
SCHEDULE 5.12(a) -- Compliance of Pension Plans
SCHEDULE 5.12(f) -- Certain Pension Plans
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness; Liens
<PAGE>
TABLE OF CONTENTS (cont.)
EXHIBITS:
EXHIBIT 1 -- Form of 7.05% Senior Secured Note due January 2, 2008
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
EXHIBIT 4.1 1-(CSA) -- Form of Security Agreement for Company
EXHIBIT 4.11 -(GSA) -- Form of Security Agreement for Guarantor
EXHIBIT 4.11 -(CPA) -- Form of Pledge Agreement for Company
EXHIBIT 4.11 -(GPA) -- Form of Pledge Agreement for Guarantor
EXHIBIT 4.16 -- Form of Intercreditor Agreement
EXHIBIT 10.7 -- Form of Guarantee Joinder Agreement
<PAGE>
HAMPSHIRE GROUP, LIMITED
215 Commerce Boulevard
Anderson, South Carolina 29622
$15,000,000 7.05% Senior Secured Notes Due January 2, 2008
Dated as of May 15,1998
[Separately addressed to each of the Purchasers identified on Schedule A]
Ladies and Gentlemen:
HAMPSHIRE GROUP, LIMITED, a Delaware corporation (together with its permitted
successors, the "Company"), HAMPSHIRE DESIGNERS, INC., a corporation organized
under the laws of Delaware (together with its permitted successors, "HDI") and
each of HAMPSHIRE INVESTMENTS, LIMITED, a corporation organized under the laws
of Delaware (together with its permitted successors, "HIL"), SEGUE (AMERICA)
LIMITED, a corporation organized under the laws of Delaware (together with its
permitted successors, "Segue"), GLAMOURETTE FASHION MILLS, INC., a corporation
organized under the laws of Delaware (together with its permitted successors,
"Glamourette"), and SAN FRANCISCO KNITWORKS, INC., a corporation organized under
the laws of Delaware (together with its permitted successors, "SF Knitworks")
(the foregoing Persons other than the Company together with each other Person
becoming a Guarantor hereunder pursuant to Section 10.7 being referred to herein
individually as a "Guarantor" and collectively as the "Guarantors"; the Company
and the Guarantors (other than HIL) being referred to herein individually as an
"Obligor" and collectively as the "Obligors"), hereby agree, jointly and
severally, with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $15,000,000 aggregate principal
amount of its 7.05% Senior Secured Notes due January 2, 2008 (the "Notes"). The
term "Notes" as used in this Agreement shall include each Note delivered
pursuant to this Agreement and the Other Agreement (as hereinafter defined) and
any such notes issued in substitution therefor pursuant to Section 14 of this
Agreement or the Other Agreement. The Notes shall be substantially in the form
set out in Exhibit 1, with such changes therefrom, if any, as may be approved by
you and the Company. Certain capitalized terms used in this Agreement are
defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company will issue
and sell to you and you will purchase from the Company, at the Closing provided
for in Section 3, Notes in the principal amount specified below your name in
Schedule A at the purchase price of 100% of the principal amount thereof.
Contemporaneously with entering into this Agreement, the Company is entering
into another separate Note Purchase Agreement (the "Other Agreement") identical
with this Agreement with the other purchaser named in Schedule A (the "Other
Purchaser"), providing for the sale at such Closing to the Other Purchaser of
Notes in the principal amount specified below its name in Schedule A. Your
obligation hereunder and the obligations of the Other Purchaser under the Other
Agreement are several and not joint obligations and you shall have no obligation
under the Other Agreement and no liability to any Person for the performance or
non-performance by the Other Purchaser thereunder.
<PAGE>
3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the Other
Purchaser shall occur at the offices of Willkie, Farr & Gallagher, at 10:00
a.m., local time, at a closing (the "Closing") on June 4,1998 or on such other
Business Day thereafter as may be agreed upon by the Company and you and the
Other Purchaser. At the Closing the Company will deliver to you the Notes to be
purchased by you in the form of a single Note (or such greater number of Notes
in denominations of at least $500,000 as you may request), dated the date of the
Closing and registered in your name (or in the name of your nominee), against
delivery by you to the Company or its order of immediately available funds in
the amount of the purchase price therefor by wire transfer of immediately
available funds for the account of the Company as indicated on Schedule C. If at
the Closing the Company shall fail to tender such Notes to you as provided above
in this Section 3, or any of the conditions specified in Section 4 shall not
have been fulfilled to your satisfaction, you shall, at your election, be
relieved of all further obligations under this Agreement, without thereby
waiving any rights you may have by reason of such failure or such
nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at the
Closing is subject to the fulfillment to your satisfaction, prior to or at the
Closing, of the following conditions:
4.1 Representations and Warranties.
The representations and warranties of the Obligors and HIL in the Financing
Documents shall be correct when made and at the time of the Closing.
4.2 Performance; No Default.
Each Obligor and HIL shall have performed and complied with all agreements and
conditions contained in the Financing Documents required to be performed or
complied with by it prior to or at the Closing and, after giving effect to the
issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by Schedule 5.14) no Default or Event of Default shall have
occurred and be continuing. Neither any Obligor nor HIL shall have entered into
any transaction since February 18, 1998 that would have been prohibited by
Section 11.1 had such Section applied since such date.
4.3 Compliance Certificates.
(a) Obligor's Officer's Certificates. Each Obligor and HIL shall have
delivered to you an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in Section 4.1, Section 4.2 and
Section 4.9 have been fulfilled.
(b) Obligor Secretary's Certificates. Each Obligor and HIL shall have
delivered to you a certificate of its Secretary or one of its Assistant
Secretaries, dated the date of the Closing, certifying as to the
resolutions attached thereto and other proceedings relating to the
authorization, execution and delivery of the Financing Documents to which
it is a party.
4.4 Opinions of Counsel.
You shall have received opinions in form and substance satisfactory to you,
dated the date of the Closing,
<PAGE>
(a) from Willkie, Farr & Gallagher, counsel for the Company, substantially
in the form set out in Exhibit 4.4(a) and covering such matters incident to
the transactions contemplated hereby as you or your counsel may reasonably
request (and the Company hereby instructs its counsel to deliver such
opinion to you), and
(b) from Hebb & Gitlin, your special counsel in connection with the
transactions contemplated hereby, substantially in the form set out in
Exhibit 4.4(b) and covering such other matters incident to the transactions
contemplated hereby as you may reasonably request.
The Company hereby instructs its counsel named in clause (a) above to deliver
such opinion to you.
4.5 Purchase Permitted By Applicable Law, etc.
On the date of the Closing, your purchase of Notes shall (a) be permitted by the
laws and regulations of each jurisdiction to which you are subject, without
recourse to provisions (such as section 1405(a)(8) of the New York Insurance
Law) permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (b) not violate any applicable
law or regulation (including, without limitation, Regulation U, T or X of the
Board of Governors of the Federal Reserve System) and (c) not subject you to any
tax, penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date of your execution and
delivery of this Agreement. If requested by you, you shall have received an
Officer's Certificate certifying as to such matters of fact as you may
reasonably specify to enable you to determine whether such purchase is so
permitted.
4.6 Sale of Other Notes.
Contemporaneously with the Closing the Company shall sell to the Other Purchaser
and the Other Purchaser shall purchase the Notes to be purchased by them at the
Closing as specified in Schedule A.
4.7 Payment of Special Counsel Fees.
Without limiting the provisions of Section 16.1, the Company shall have paid on
or before the Closing the fees, charges and disbursements of your special
counsel referred to in Section 4.4 to the extent reflected in a statement of
such counsel rendered to the Company at least one Business Day prior to the date
of the Closing.
4.8 Private Placement Number.
A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in
cooperation with the Securities Valuation Office of the National Association of
Insurance Commissioners) shall have been obtained for the Notes.
4.9 Changes in Structure.
The Obligors and HIL shall not have changed their jurisdiction of incorporation
or organization or been a party to any merger or consolidation and shall not
have succeeded to all or any substantial part of the liabilities of any other
entity, at any time following the date of the most recent financial statements
referred to in Schedule 5.5.
4.10 Evidence of Key-Person Life Insurance.
The Company shall have delivered to you a copy of the Key-Person Policy and
collateral assignments thereof, which Policy and assignments shall be reasonably
satisfactory to you and the Other Purchaser. The Company shall have delivered to
you evidence that all premiums in respect of the Key-Person Policy have been
paid.
<PAGE>
4.11 Security Agreement.
(a) Security Agreements. A Security Agreement (as may be amended, restated
or otherwise modified from time to time, the "Company's Security
Agreement"), substantially in the form of Exhibit 4.11 (CSA), shall have
been duly authorized, executed and delivered by the Company, shall be in
full force and effect, and you shall have received an original executed
counterpart thereof. A Security Agreement (as may be amended, restated or
otherwise modified from time to time, a "Guarantor's Security Agreement"),
substantially in the form of Exhibit 4.11 -(GSA), shall have been duly
authorized, executed and delivered by each of the Guarantors (other than
HIL), shall be in full force and effect, and you shall have received an
original executed counterpart thereof.
(b) Pledge Agreements. A Pledge Agreement (as may be amended, restated or
otherwise modified from time to time, the "Company's Pledge Agreement"),
substantially in the form of Exhibit 4.11 (CPA), shall have been duly
authorized, executed and delivered by the Company, shall be in full force
and effect, and you shall have received an original executed counterpart
thereof. All stock certificates and stock powers required to be delivered
to the Collateral Agent under the Pledge Agreement in respect of each of
the Subsidiaries owned by the Company shall have been so delivered. A
Pledge Agreement (as may be amended, restated or otherwise modified from
time to time, a "Guarantor's Pledge Agreement"), substantially in the form
of Exhibit 4.11 -(GPA), shall have been duly authorized, executed and
delivered by each of the Guarantors (other than HIL), shall be in full
force and effect, and you shall have received an original executed
counterpart thereof. All stock certificates and stock powers required to be
delivered to the Collateral Agent under each such Guarantor's Pledge
Agreement in respect of each of the Subsidiaries owned by such Guarantor
shall have been so delivered.
4.12 Financing Statements.
Each financing statement required to be filed, registered or recorded in
connection with the transactions contemplated by this Agreement and the other
Financing Documents shall have been properly filed, registered or recorded in
each office in each jurisdiction required in order to create in favor of the
Collateral Agent, for the ratable benefit of you and the Other Purchaser, a
valid and/or perfected first priority Lien (subject only to the Liens permitted
under the lntercreditor Agreement) in and to the Collateral and the Pledged
Stock Collateral; the Collateral Agent and you shall have received such evidence
satisfactory to the Collateral Agent that all such filings, registrations and
recordations have been made; and all necessary filing, recording and other
similar fees, and all taxes and other charges related to such filings,
registrations and recordations (including such other taxes and charges requested
by you), shall have been paid in full.
4.13 UCC Searches
Uniform Commercial Code financing statement, judgment lien and Federal income
tax lien searches in such central and local recording offices as you shall have
identified to the Company shall have been delivered to you or your special
counsel and shall be satisfactory to you in your sole discretion.
4.14 Insurance.
Certificates of insurance evidencing the insurance policies and endorsements
required to be delivered pursuant to Section 3D of the Security Agreements shall
have been delivered to you and the Other Purchaser.
<PAGE>
4.15 Credit Agreement.
You shall have received a copy of the Credit Agreement and such other documents
related thereto as you may reasonably request, the Credit Agreement and such
other documents shall be in form and substance reasonably satisfactory to you.
4.16 Intercreditor Agreement
An lntercreditor Agreement (as may be amended, restated or otherwise modified
from time to time, the "Intercreditor Agreement"), substantially in the form of
Exhibit 4.16, shall have been duly authorized, executed and delivered by the
lenders and agent under the Credit Agreement, the Other Purchaser, each of the
Guarantors and the Company, shall be in full force and effect, and you shall
have received an original executed counterpart thereof.
4.17 Proceedings and Documents.
All corporate and other proceedings in connection with the transactions
contemplated by the Financing Documents and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.
Each Obligor and HIL, jointly and severally, represents and warrants to you, as
of the date of the Closing, that:
5.1 Organization; Power and Authority.
Each Obligor and HIL is a corporation, duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and each is
duly qualified as a foreign corporation and is in good standing (to the extent
such concept is recognized) in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Each Obligor and HIL
has the corporate power and authority to own or hold under lease the properties
it purports to own or hold under lease, to transact the business it transacts
and proposes to transact, to execute and deliver the Financing Documents to
which it is a party and to perform the provisions hereof and thereof.
5.2 Authorization, etc.
(a) The Company. The Financing Documents to which the Company is a party
have been duly authorized by all necessary corporate action on the part of
the Company, and this Agreement constitutes, and each of such other
Financing Documents, upon execution and delivery thereof, will constitute,
a legal, valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may
be limited by (i) applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or et law).
(b) The Guarantors. Each Financing Document has been duly authorized by all
necessary corporate action on the part of each Guarantor that is a party
thereto, and each such Financing Document constitutes a legal, valid and
<PAGE>
binding obligation of each such Guarantor, enforceable against each such
Guarantor in accordance with its terms, except as such enforceability may
be limited by (i) applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(c) Solvency of Guarantors. None of the Guarantors intends to incur any
obligations hereunder or otherwise make any transfers in connection
herewith, with actual intent to hinder, delay or defraud either present or
future creditors. Before, and after giving effect to, the consummation of
the transactions contemplated hereby, without limitation, the issuance of
the Notes and the delivery of the Guarantees:
(i) the assets of each Guarantor at a fair valuation thereof on a
going concern basis will not be less than the amount that will be
required to pay the probable liability with respect to its debts
(including, without limitation, contingent, subordinated, unmatured
and unliquidated liabilities on existing debts, as such liabilities
may become absolute and matured), in each case both prior to and after
giving effect to the transactions contemplated by this Agreement,
(ii) no Guarantor is currently engaged in or about to engage in a
business or transaction for which the property remaining in its
respective hands is an unreasonably small capital and
(iii) each Guarantor will be able to pay its respective debts as they
mature.
5.3 Disclosure.
The financial statements referred to in Schedule 5.5 do not, nor does any
Financing Document or any written statement furnished by or on behalf of any
Obligor and HIL to you in connection with the negotiation or the closing of the
sale of the Notes, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein not misleading
when viewed in the aggregate. There is no fact that the Company has not
disclosed to you in writing that has had or, so far as the Company can now
reasonably foresee, could reasonably be expected to have a Material Adverse
Effect. Except as expressly described in Schedule 5.3, or in one of the
documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since December 31,1997, there has
been no change in the financial condition, operations, business, properties or
prospects of the Obligors except changes that individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect. There is no
fact known to a Senior Financial Officer of the Company that could reasonably be
expected to have a Material Adverse Effect that has not been set forth herein,
in the other Financing Documents or in any other written statement delivered to
you by or on behalf of any Obligor or HIL specifically for use in connection
with the transactions contemplated hereby. In connection with the foregoing, the
Company hereby discloses to you and you acknowledge such disclosure that the
Company incurred losses of approximately $1,150,000 in its fiscal quarter ended
March 31, 1998.
5.4 Organization and Ownership of Shares of Material Subsidiaries; Affiliates.
(a) Schedule 5.4 contains (except as noted therein) complete and correct
lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary,
the correct name thereof, whether such Subsidiary is a Restricted
Subsidiary or an Unrestricted Subsidiary, the jurisdiction of its
<PAGE>
organization and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and each
other Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries
and other than Persons that are Affiliates solely as a consequence of being
controlled by one or more Acceptable Control Persons (which Affiliates are
unrelated to the business of the Company and its Subsidiaries), and (iii)
of the Company's directors and senior officers. All of the Company's
Restricted Subsidiaries (other than Keynote) are Guarantors.
(b) All of the outstanding shares of capital stock of each Subsidiary shown
in Schedule 5.4 as being owned by the Company and its Subsidiaries have
been validly issued, are fully paid and nonassessable and are owned by the
Company or another Subsidiary free and clear of any Lien (except as
otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or other
legal entity duly organized, validly existing and in good standing (to the
extent such concept is recognized) under the laws of its jurisdiction of
organization, and is duly qualified as a foreign corporation or other legal
entity and is in good standing (to the extent such concept is recognized)
in each jurisdiction in which such qualification is required by law, other
than those jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each such Subsidiary has the
corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the
business it transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any legal
restriction or any agreement (other than this Agreement, the other
Financing Documents, the agreements listed on Schedule 5.4 and customary
limitations imposed by corporate law statutes) restricting the ability of
such Subsidiary to pay dividends out of profits or make any other similar
distributions of profits to the Company or any of its Subsidiaries that
owns outstanding shares of capital stock or similar equity interests of
such Subsidiary.
5.5 Financial Statements.
The Company has delivered to you and the Other Purchaser copies of the financial
statements of the Company and its Subsidiaries listed on Schedule 5.5. All of
said financial statements (including in each case the related schedules and
notes) fairly present, in all material respects, the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
5.6 Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of the Notes and by the
Obligors and HIL of the other Financing Documents will not
<PAGE>
(a) contravene, result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of any
Obligor or HIL under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter, bylaws or other
constitutive document, or any other material agreement or instrument to
which such Obligor or HIL is bound or by which such Obligor or HIL or any
of their respective properties may be bound or affected,
(b) conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to any Obligor or HIL, or
(c) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to any Obligor or HIL.
5.7 Governmental Authorizations, etc.
No consent, approval or authorization of, or registration, filing or declaration
with, any Governmental Authority is required in connection with the execution,
delivery or performance of the Notes by the Company or the other Financing
Documents by the Obligors or HIL (other than the filing of financing and/or
continuation statements as contemplated by the Financing Documents).
5.8 Litigation; Observance of Agreements, Statutes and Orders.
(a) Except as disclosed in Schedule 5.8, there are no actions, suits or
proceedings pending or, to the knowledge of the Obligors, threatened
against or affecting any Obligor or any property of any Obligor in any
court or before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
(b) No Obligor is in default under any term of any agreement or instrument
to which it is a party or by which it is bound, or any order, judgment,
decree or ruling of any court, arbitrator or Governmental Authority or is
in violation of any applicable law, ordinance, rule or regulation
(including, without limitation, Environmental Laws) of any Governmental
Authority, which default or violation, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect.
5.9 Taxes.
The Obligors have filed all tax returns that are required to have been filed in
any jurisdiction, and have paid all taxes shown to be due and payable on such
returns and all other taxes and assessments levied upon them or their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent,
except for any taxes and assessments (a) the amount of which is not individually
or in the aggregate Material or (b) the amount, applicability or validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which such Obligor has established adequate reserves in
accordance with GAAP. The Obligors know of no basis for any other tax or
assessment that could reasonably be expected to have a Material Adverse Effect.
The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of Federal, state or other taxes for all fiscal periods
are adequate. Other than with respect to a currently on-going Internal Revenue
Service audit of one or more of the Obligors (which audit has not been
completed), there are no other continuing or open audits with respect to any
Obligor.
<PAGE>
HIL has filed all Federal income tax returns that are required to have been
filed and has paid all such taxes shown to be due and payable on such returns,
to the extent such taxes have become due and payable and before they have become
delinquent, except for any taxes the amount of which is not individually or in
the aggregate Material or the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which HIL has established adequate reserves in accordance with GAAP.
HIL knows of no basis for any other Federal income tax that could reasonably be
expected to have a Material Adverse Effect. The charges, accruals and reserves
on the books of HIL in respect of Federal income taxes for all fiscal periods
are adequate.
5.10 Title to Property; Leases.
The Obligors have good and sufficient title to their respective properties that
individually or in the aggregate are Material, including all such properties
reflected in the most recent audited balance sheet referred to in Section 5.5 or
purported to have been acquired by any Obligor after said date (except as sold
or otherwise disposed of in the ordinary course of business), in each case free
and clear of Liens prohibited by this Agreement. All leases that individually or
in the aggregate are Material are valid and subsisting and are in full force and
effect in all material respects.
5.11 Licenses, Permits, etc.
Except as disclosed in Schedule 5.11,
(a) the Obligors possess all licenses, permits, franchises, authorizations,
patents, copyrights, service marks, trademarks and trade names, or rights
thereto, that individually or in the aggregate are Material, without known
conflict with the rights of others;
(b) to the best knowledge of the Obligors, no product or practice of any
Obligor infringes in any material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or
other right owned by any other Person, which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect;
and
(c) to the best knowledge of the Obligors, there is no material violation
by any Person of any right of any Obligor with respect to any patent,
copyright, service mark, trademark, trade name or other right owned or used
by such Person which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
5.12 Pension Plans. Except as disclosed in Schedule 5.12,
(a) the Company and each ERISA Affiliate have operated and administered
each Plan (other than any Multiemployer Plan) in compliance with all
applicable laws except for such instances of noncompliance as have not
resulted in and could not reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred
any liability in the nature of a penalty, excise tax or fine pursuant to
Title I of ERISA, any liability under Title IV of ERISA or any liability
under sections 4971 through 4980E of the Code, and no event, transaction or
condition has occurred or exists that could reasonably be expected to
result in the incurrence of any such liability by the Company or any ERISA
Affiliate, or in the imposition of any Lien on any of the rights,
<PAGE>
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or pursuant to sections 4971 through
4980E of the Code or pursuant to section 401 (a)(29) or 412 of the Code,
other than such liabilities or Liens as would not, individually or in the
aggregate, result in a Material Adverse Effect;
(b) the present value of the aggregate benefit liabilities under all of the
Plans subject to Title IV of ERISA (other than Multiemployer Plans),
determined as of the end of each such Plan's most recently ended plan year
on the basis of the actuarial assumptions specified for funding purposes in
such Plan's most recent actuarial valuation report, did not exceed the
aggregate current value of the assets of all such Plans by an amount that
is Material. The term "benefit liabilities" has the meaning specified in
section 4001 of ERISA and the terms "current value" and "present value"
have the meaning specified in section 3 of ERISA;
(c) the Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities)
under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material;
(d) the unfunded expected postretirement benefit obligation (determined as
of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of the Company and its Subsidiaries
is not Material;
(e) the execution and delivery of this Agreement and the issuance and sale
of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of section 406(a) of ERISA or in connection with which a
tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The
representation by the Obligors in the first sentence of this Section
5.12(e) is made in reliance upon and subject to the accuracy of your
representation in Section 6.2 as to the sources of the funds used to pay
the purchase price of the Notes to be purchased by you;
(f) the Multiemployer Plans in respect of which any Obligor or any ERISA
Affiliate makes contributions or has any liability or obligation are set
forth on Schedule 5.12(f). The Plans constituting "defined benefit plans"
(as defined in section (3)(35) of ERISA) are set forth on Schedule 5.12(f).
5.13 Private Offering by the Company.
Neither the Obligors nor HIL nor anyone acting on their behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any Person other than you, the Other Purchaser and not more than 1 other
Institutional Investor, which has been offered the Notes at a private sale for
investment. Neither any of the Obligors nor HIL nor anyone acting on their
behalf has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of section 5 of the
Securities Act.
5.14 Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes as set forth in
Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder will
be used, directly or indirectly, for the purpose of buying or carrying any
<PAGE>
margin stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve the Company in
a violation of Regulation X of said Board (12 CFR 224) or to involve any broker
or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin
stock does not constitute more than 20% of the value of the consolidated assets
of the Obligors and HIL, and the Obligors and HIL do not have any present
intention that margin stock will constitute more than 20% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of buying
or carrying" shall have the meanings assigned to them in said Regulation U.
5.15 Existing Debt; Future Liens.
(a) Except as described therein, Schedule 5.15 sets forth a complete and
correct list of all outstanding Debt of the Obligors as of December 31,
1997, since which date there has been no Material change in the amounts,
interest rates, sinking funds, installment payments or maturities of the
Debt of the Obligors except as described in Schedule 5.15. No Obligor is in
default, and no waiver of default is currently in effect, in the payment of
any principal or interest on any Debt of any Obligor, and no event or
condition exists with respect to any such Debt of any Obligor that would
permit (or that with notice or the lapse of time, or both, would permit)
one or more Persons to cause such Debt to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, no Obligor has agreed or
consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property, whether now owned or
hereafter acquired, to be subject to a Lien not permitted by Section 11.11.
5.16 Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its use of the
proceeds thereof will violate the Trading with the Enemy Act, as amended, or any
of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17 Status under Certain Statutes.
Neither any Obligor nor HIL is subject to regulation under the Investment
Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935,
as amended, the Transportation Acts (49 U.S.C.), as amended (which would require
any approval or registration of the issuing of Notes or the granting of the
Collateral), or the Federal Power Act, as amended.
5.18 Environmental Matters.
No Obligor has knowledge of any claim or has received any written notice of any
claim, and no proceeding has been instituted against any Obligor raising any
claim against any Obligor or any of its real properties now or formerly owned,
leased or operated by any of them or other assets, alleging any damage to the
environment or violation of any Environmental Laws, except, in each case, such
as would not reasonably be expected to result in a Material Adverse Effect.
Except as otherwise disclosed to you in writing,
(a) no Obligor has knowledge of any facts which would give rise to any
claim, public or private, against any Obligor of the violation of
Environmental Laws or damage to the environment emanating from, occurring
on or in any way related to real properties now or formerly owned, leased
or operated by any of them or to other assets or their use, except, in each
case, such as would not reasonably be expected to result in a Material
Adverse Effect;
<PAGE>
(b) no Obligor has stored any Hazardous Materials on real properties now or
formerly owned, leased or operated by any of them in a manner contrary to
any Environmental Laws and has not disposed of any Hazardous Materials in a
manner contrary to any Environmental Laws in each case in any manner that
could reasonably be expected to result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or operated by
any Obligor are in compliance with applicable Environmental Laws, except
where failure to comply would not reasonably be expected to result in a
Material Adverse Effect.
5.19 Obligors Interdependent.
The Company and the Guarantors are directly dependent upon each other for and in
connection with their borrowing activities. Each Guarantor will receive direct
and indirect economic, financial and other benefits from the indebtedness
incurred hereunder and under the Notes by the Company, and under the Guarantee
of each Guarantor, and the incurrence of such indebtedness is in the best
interests of the Company and each Guarantor. The Company and the Guarantors have
explicitly induced you and the Other Purchaser to purchase the Notes based on
and in reliance on the consolidated financial condition of the Company and the
Guarantors.
5.20 Other Representations and Warranties.
The representations and warranties of the Company set forth in the other
Financing
Documents are true and correct as of the date of Closing
6. REPRESENTATIONS OF THE PURCHASER.
6.1 Purchase for Investment.
You represent that you are purchasing the Notes for your own account or for one
or more separate accounts maintained by you or for the account of one or more
pension or trust funds (or commingled pension trust funds) or for the account of
one or more "accredited investors" within the meaning of Regulation D under the
Securities Act for whom you are acting as investment manager, agent or
investment adviser, and not with a view to the distribution thereof, provided
that the disposition of your or their property shall at all times be within your
or their control. You understand that the Notes have not been registered under
the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law, and that the Company is not required to
register the Notes.
6.2 Source of Funds.
You represent that at least one of the following statements is an accurate
representation as to each source of funds (a "Source") to be used by you to pay
the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account" as defined in
Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (60 FR
35925, July 12,1995) and in respect thereof you represent that there is no
"employee benefit plan" (as defined in section 3(3) of ERISA and section
4975(e)(1) of the Code, treating as a single plan all plans maintained by
<PAGE>
the same employer or employee organization or affiliate thereof) with
respect to which the amount of the general account reserves and liabilities
of all contracts held by or on behalf of such plan exceed 10% of the total
reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual
Statement filed with your state of domicile; or
(b) if you are an insurance company, the Source does not include assets
allocated to any separate account maintained by you in which any employee
benefit plan (or its related trust) has any interest, other than a separate
account that is maintained solely in connection with your fixed contractual
obligations under which the amounts payable, or credited, to such plan and
to any participant or beneficiary of such plan (including any annuitant)
are not affected in any manner by the investment performance of the
separate account; or
(c) the Source is either (i) an insurance company pooled separate account,
within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank
collective investment fund, within the meaning of the PTE 91-38 (issued
July 12, 1991) and, except as you have disclosed to the Company in writing
pursuant to this paragraph (c), no employee benefit plan or group of plans
maintained by the same employer, affiliate of such employer or employee
organization beneficially owns more than 10% of all assets allocated to
such pooled separate account or collective investment fund; or
(d) (i) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), (ii) no employee benefit plan's assets that are included
in such investment fund, when combined with the assets of all other
employee benefit plans established or maintained by the same employer or by
an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption)
of such employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM, (iii) the
conditions of Part 1(c) and (g) of the QPAM Exemption are satisfied, (iv)
neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in any Obligor or HIL and (v) the
identity of such QPAM and the names of all employee benefit plans whose
assets are included in such investment fund have been disclosed to the
Company in writing pursuant to this paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a separate account
or trust fund comprised of one or more employee benefit plans, each of
which has been identified to the Company in writing pursuant to this
paragraph (f); or
(g) the Source does not include assets of any employee benefit plan, other
than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1 Financial and Business Information.
The Company shall deliver to each holder of Notes:
<PAGE>
(a) Quarterly Statements --within 60 days after the end of each quarterly
fiscal period in each fiscal year of the Company (other than the last
quarterly fiscal period of each such fiscal year), duplicate copies of
(i) consolidated balance sheets of (x) the Company and its
Subsidiaries, and (y) the Company and the Restricted Subsidiaries, as
at the end of such quarter, and
(ii) consolidated statements of operations, stockholders' equity and
cash flows for (x) the Company and its Subsidiaries, and (y) the
Company and the Restricted Subsidiaries, for such quarter and (in the
case of the second and third quarters) for the portion of the fiscal
year ending with such quarter, setting forth in each case in
comparative form the figures for the corresponding periods in the
previous fiscal year of the Company, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly financial
statements generally, and certified by a Senior Financial Officer of
the Company as fairly presenting, in all material respects, the
financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting
from year-end adjustments, provided that delivery within the time
period specified above of copies of the Company's Quarterly Report on
Form 10-Q prepared in compliance with the requirements therefor and
filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of Section 7.1 (a)(i)(x) and Section 7.1
(a)(ii)(x);
(b) Annual Statements -- within 120 days after the end of each fiscal year
of the Company, duplicate copies of
(i) a consolidated balance sheet of (x) the Company and its
Subsidiaries, and (y) the Company and the Restricted Subsidiaries, as
at the end of such year, and
(ii) consolidated statements of operations, stockholders' equity and
cash flows of (x) the Company and its Subsidiaries, and (y) the
Company and the Restricted Subsidiaries, for such year, setting forth
in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied
(A) in the case of the consolidated balance sheet referred to in
Section 7.1 (b)(i)(x) above and the consolidated statements of
operations, stockholders' equity and cash flows referred to in
Section 7.1 (b)(ii)(x) above, by an opinion thereon of
independent certified public accountants of recognized national
standing, which opinion shall state that such financial
statements present fairly, in all material respects, the
financial position of the companies being reported upon and the
results of their operations and cash flows and have been prepared
<PAGE>
in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been
made in accordance with generally accepted auditing standards,
and that such audit provides a reasonable basis for such opinion
in the circumstances,
(B) in the case of the consolidated balance sheet referred to in
Section 7.1 (b)(i)(y) above and the consolidated statements of
operations, stockholders' equity and cash flows referred to in
Section 7.1 (b)(ii)(y) above, a certificate of a Senior Financial
Officer, which certificate shall state that such financial
statements present fairly, in all material respects, the
financial position of the companies being reported upon and the
results of their operations and cash flows and have been prepared
in conformity with GAAP, and
(C) by a certificate of such accountants stating that they have
reviewed this Agreement and stating further whether, in making
their audit, they have become aware of any condition or event
that then constitutes a Default or an Event of Default, and, if
they are aware that any such condition or event then exists,
specifying the nature and period of the existence thereof (it
being understood that such accountants shall not be liable,
directly or indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such accountants should
have obtained knowledge thereof in making an audit in accordance
with generally accepted auditing standards or did not make such
an audit), provided that the delivery within the time period
specified above of the Company's Annual Report on Form 10-K for
such fiscal year (together with the Company's annual report to
shareholders, if any, prepared pursuant to Rule 1 4a-3 under the
Exchange Act) prepared in accordance with the requirements
therefor and filed with the Securities and Exchange Commission,
together with the accountant's certificate described in clause
(B) above, shall be deemed to satisfy the requirements of Section
7.1 (b)(i)(x) and Section 7.1 (b)(ii)(x);
(c) SEC and Other Reports -- promptly upon their becoming available, one
copy of (i) each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such holder),
and each prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission and of all press
releases and other statements made available generally by the Company or
any Subsidiary to the public concerning developments that are Material;
(d) Notice of Default or Event of Default -- promptly, and in any event
within 5 days after a Responsible Officer becoming aware of the existence
of any Default or Event of Default or that any Person has given any notice
or taken any action with respect to a claimed default hereunder or that any
Person has given any notice or taken any action with respect to a claimed
default of the type referred to in Section 12(f), a written notice
specifying the nature and period of existence thereof and what action the
Company is taking or proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within 5 days after a
Responsible Officer becoming aware of any of the following, a written
notice setting forth the nature thereof and the action, if any, that the
Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined in
section 4043 of ERISA and the regulations thereunder, for which notice
thereof has not been waived pursuant to such regulations as in effect
on the date hereof; or
<PAGE>
(ii) the taking by the PBGC of steps to institute, or the threatening
by the PBGC of the institution of, proceedings under section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in the
incurrence of any liability by the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
or such penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then existing,
could reasonably be expected to have a Material Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in any event
within 10 days of receipt thereof by a Responsible Officer, copies of any
notice to the Company or any Subsidiary from any Federal or state
Governmental Authority relating to any order, ruling, statute or other law
or regulation that could reasonably be expected to have a Material Adverse
Effect; and
(g) Requested Information -- with reasonable promptness, such other data
and information relating to the business, operations, affairs, financial
condition, assets or properties of the Company or any of its Subsidiaries
or relating to the ability of the Company to perform its obligations under
this Agreement, the Other Agreement, the Notes and the other Financing
Documents as from time to time may be reasonably requested by any such
holder of Notes.
7.2 Officer's Certificate.
Each set of financial statements delivered to a holder of Notes pursuant to
Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of
a Senior Financial Officer of the Company setting forth: a Covenant Compliance
- -- the information (including detailed calculations) required in order to
establish whether the Company was in compliance with the requirements of Section
11.2 through Section 11.11, inclusive, during the quarterly or annual period
covered by the statements then being furnished (including with respect to each
such Section, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the terms of
such Sections, and the calculation of the amount, ratio or percentage then in
existence); and
(b) Event of Default -- a statement that such officer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Obligors
and HIL from the beginning of the quarterly or annual period covered by the
statements then being furnished to the date of the certificate and that
such review shall not have disclosed the existence during such period of
any condition or event that constitutes a Default or an Event of Default
or, if any such condition or event existed or exists, specifying the nature
and period of existence thereof and what action the Obligors or HIL shall
have taken or propose to take with respect thereto.
7.3 Inspection.
The Company shall permit the representatives of each holder of Notes that is an
Institutional Investor:
<PAGE>
(a) No Default -- if no Default or Event of Default then exists, at the
expense of such holder and upon reasonable prior notice to the Company, to
visit any one or more of the principal executive offices of the Company, to
discuss the affairs, finances and accounts of the Company and the
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its independent
public accountants, and (with the consent of the Company, which consent
will not be unreasonably withheld) to visit the other offices and
properties of the Company and each Subsidiary, all at such reasonable times
and as often as may be reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists, at the expense
of the Company, to visit and inspect upon reasonable prior notice to the
Company any of the offices or properties of the Company or any Subsidiary,
to examine all their respective books of account, records, reports and
other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers
and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and accounts
of the Company and its Subsidiaries), all at such reasonable times and as
often as may be reasonably requested.
8. PREPAYMENT OF THE NOTES.
8.1 Required Prepayments.
On January 2, 2002 and on each January 2 thereafter to and including January 2,
2007, the Company will prepay $2,142,857.15 principal amount (or such lesser
principal amount as shall then be outstanding) of the Notes at par and without
payment of the Make-Whole Amount or any premium, provided that upon any partial
prepayment of the Notes pursuant to Section 8.4, the principal amount of each
required prepayment of the Notes becoming due under this Section 8.1 on and
after the date of such prepayment shall be reduced in the same proportion as the
aggregate unpaid principal amount of the Notes is reduced as a result of such
prepayment. On January 2, 2008, all of the Notes then outstanding shall mature
and become due and payable.
8.2 Optional Prepayments of Notes with Make-Whole Amount.
The Company may, at its option, upon notice as provided below, prepay at any
time all, but not less than all, of the Notes then outstanding at 100% of the
principal amount thereof and accrued interest thereon to the date of prepayment,
plus the Make-Whole Amount determined in respect of such date of prepayment. The
Company will give each holder of Notes to be prepaid under this Section 8.2
written notice of such optional prepayment not less than 30 days and not more
than 60 days prior to the date fixed for such prepayment (which shall be a
Business Day). Each such notice shall specify such date, the aggregate principal
amount of the Notes held by such holder and to be prepaid on such date, and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer of the Company as to the estimated Make-Whole Amount due in connection
with such prepayment (calculated as if the date of such notice were the date of
the prepayment), setting forth the details of such computation. Two Business
Days prior to such prepayment, the Company shall deliver to each holder of Notes
a certificate of a Senior Financial Officer of the Company specifying the
calculation of the Make-Whole Amount in respect of such Notes as of the
specified prepayment date.
8.3 Allocation of Note Partial Prepayment.
Except as provided in Section 8.4 with respect to payments pursuant to that
Section accepted by any holder of Notes, in the case of any partial prepayment
<PAGE>
of Notes, as required under Section 8.1, the principal amount of the Notes to be
prepaid shall be allocated among all of the Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for prepayment.
8.4 Change in Control.
(a) Notice of Change In Control or Control Event. The Company will, within
three Business Days after any Responsible Officer has knowledge of the
occurrence of any Change in Control or Control Event, give written notice
of such Change in Control or Control Event to each holder of Notes (by
telecopy transmission and, simultaneously with the sending of such
telecopied notice, by sending a copy of such notice to each such holder via
an overnight courier of national reputation) unless notice in respect of
such Change in Control (or the Change in Control contemplated by such
Control Event) shall have been given previously pursuant to clause (b) of
this Section 8.4. If a Change in Control has occurred, such notices shall
contain and constitute an offer to prepay Notes as described in clause (c)
of this Section 8.4 and shall be accompanied by the certificate described
in clause (g) of this Section 8.4. In the case of any such notice
containing and constituting such an offer to prepay Notes, if the Company
shall not have received a written response to such first notice from each
holder of Notes within 10 days after the transmission of such telecopy
thereof, then the Company will immediately send a second such written
notice via an overnight courier of national reputation to each holder of
Notes who shall have not previously responded to the Company.
(b) Condition to Action. Neither the Company nor any other Obligor nor HIL
will take any action that consummates or finalizes a Change in Control
unless (i) at least 30 days prior to such action the Company shall have
given to each holder of Notes written notice containing and constituting an
offer to prepay Notes as described in clause (c) of this Section 8.4,
accompanied by the certificate described in clause (g) of this Section 8.4,
and (ii) contemporaneously with such action, the Company prepays all Notes
required to be prepaid in accordance with this Section 8.4.
(c) Offer to Prepay Notes. The offer to prepay Notes contemplated by
clauses (a) and (b) of this Section 8.4 shall be a written offer to prepay,
in accordance with and subject to this Section 8.4, all, but not less than
all, the Notes held by each holder (in this case only, "holder" in respect
of any Note registered in the name of a nominee for a disclosed beneficial
owner shall mean such beneficial owner) on a date specified in such offer
(the "Proposed Prepayment Date"). If such Proposed Prepayment Date is in
connection with an offer contemplated by clause (a) of this Section 8.4,
such date shall be not less than 30 days and not more than 60 days after
the date of the first notice that constitutes an offer to prepay the Notes
referred to in clause (a) of this Section 8.4 (if the Proposed Prepayment
Date shall not be specified in such first notice, the Proposed Prepayment
Date shall be the 30th day after the date of such notice).
(d) Acceptance, Rejection. A holder of Notes may accept the offer to prepay
made pursuant to this Section 8.4 by causing a notice of such acceptance to
be delivered to the Company at least 10 days prior to the Proposed
Prepayment Date. A failure by a holder of Notes to respond (by such time)
to an offer to prepay made pursuant to this Section 8.4 shall be deemed to
constitute an acceptance of such offer by such holder.
<PAGE>
(e) Prepayment. Prepayment of the Notes to be prepaid pursuant to this
Section 8.4 solely because of the satisfaction of clause (a) or clause (b)
of the definition of "Change in Control" in Schedule B shall be at 100% of
the principal amount of such Notes, together with interest on such Notes
accrued to the date of prepayment and Make-Whole Amount determined with
respect to such principal amount. Prepayment of the Notes to be prepaid
pursuant to this Section 8.4 solely because of the satisfaction of clause
(c) of the definition of "Change in Control" in Schedule B shall be at 100%
of the principal amount of such Notes, at par and without payment of any
Make-Whole Amount or any premium, together with interest on such Notes
accrued to the date of prepayment. Each such prepayment shall be made on
the Proposed Prepayment Date except as provided in clause (f) of this
Section 8.4.
(f) Deferral Pending Change in Control. The obligation of the Company to
prepay Notes pursuant to the offers required by clause (b) and accepted in
accordance with clause (d) of this Section 8.4 is subject to the occurrence
of the Change in Control in respect of which such offers and acceptances
shall have been made. In the event that such Change in Control does not
occur on the Proposed Prepayment Date in respect thereof, the prepayment
shall be deferred until and shall be made on the date on which such Change
in Control occurs. The Company shall keep each holder of Notes reasonably
and timely informed of (i) any such deferral of the date of prepayment,
(ii) the date on which such Change in Control and the prepayment are
expected to occur, and (iii) any determination by the Company that efforts
to effect such Change in Control have ceased or been abandoned (in which
case the offers and acceptances made pursuant to this Section 8.4 in
respect of such Change in Control shall be deemed rescinded). In the event
that such Change in Control is deferred for 60 or more days after the
Proposed Prepayment Date, the offers and acceptances made pursuant to this
Section 8.4 in respect of such Change in Control shall be deemed rescinded.
If any such offers and acceptances are deemed rescinded pursuant to this
clause (f), then all requirements of this Section 8.4 (including, without
limitation, the requirement to give notice and make offers pursuant to
clauses (a) and (b)) with respect to any Change in Control (including,
without limitation, with respect to such deferred Change in Control)
occurring after such rescission shall be reinstated.
(g) Officer's Certificate. Each offer to prepay the Notes pursuant to this
Section 8.4 shall be accompanied by a certificate, executed by a Senior
Financial Officer of the Company and dated the date of such offer,
specifying: (i) the Proposed Prepayment Date; (ii) that such offer is made
pursuant to this Section 8.4; (iii) the principal amount of each Note
offered to be prepaid; (iv) the interest that would be due on each Note
offered to be prepaid, accrued to the Proposed Prepayment Date; (vi) the
calculation of the estimated Make-Whole Amount (if any) due in respect
thereof (calculated as if the date of such notice were the date of the
prepayment) and setting forth the details of such computation; (v) that the
conditions of this Section 8.4 have been fulfilled; and (vi) in reasonable
detail, the nature and date or proposed date of the Change in Control. In
addition to the foregoing requirement, 2 Business Days prior to any such
prepayment (other than a prepayment of the Notes solely pursuant to the
satisfaction of clause (c) of the definition of "Change in Control" in
Schedule B), the Company shall deliver to each holder of a Note to be
prepaid under this Section 8.4 a certificate of a Senior Financial Officer
of the Company specifying the calculation of the Make-Whole Amount in
respect of such Notes as of the specified prepayment date and setting forth
the details of such computation.
8.5 Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each such Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
<PAGE>
principal amount when so due and payable, together with the interest and Make
Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and canceled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.
8.6 Purchase of Notes.
The Company will not and will not permit any Subsidiary to purchase, redeem,
prepay or otherwise acquire, directly or indirectly, any of the outstanding
Notes except upon the payment or prepayment of the Notes in accordance with the
terms of this Agreement and the Notes. The Company will promptly cancel all
Notes acquired by it or any Subsidiary pursuant to any payment, prepayment or
purchase of Notes pursuant to any provision of this Agreement and no Notes may
be issued in substitution or exchange for any such Notes.
8.7 Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note, an amount equal to
the excess, if any, of the Discounted Value with respect to the Called Principal
of such Note over the amount of such Called Principal, provided that the
Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings: "Called Principal" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or Section 8.4 or has
become or is declared to be immediately due and payable pursuant to Section
13.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal of any Note, the
amount obtained by discounting all Remaining Scheduled Payments with respect to
such Called Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of any Note,
the sum of (a) 0.50% per annum plus (b) the yield to maturity implied by (I) the
yields reported, as of 10:00 a.m. (New York City time) on the second Business
Day preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Dow Jones Market Service (or such other
display as may replace Page 678 on Dow Jones Market Service) for actively traded
U.S. Treasury securities having a maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date, or (ii) if such yields are
not reported as of such time or the yields reported as of such time are not
ascertainable (including by interpolation), the Treasury Constant Maturity
Series Yields reported, for the latest day for which such yields have been so
reported as of the second Business Day preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release H.1 5
(519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (1) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (2) interpolating linearly between (A) the actively traded U.S.
Treasury security with the maturity closest to and greater than the Remaining
Average Life and (B) the actively traded U.S. Treasury security with the
maturity closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called Principal, the number
of years (calculated to the nearest one-twelfth year) obtained by dividing (a)
such Called Principal into (b) the sum of the products obtained by multiplying
<PAGE>
(i) the principal component of each Remaining Scheduled Payment with respect to
such Called Principal by (ii) the number of years (calculated to the nearest
one-twelfth year) that will elapse between the Settlement Date with respect to
such Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the Called Principal of
any Note, all payments of such Called Principal and interest thereon that would
be due after the Settlement Date with respect to such Called Principal if no
payment of such Called Principal were made prior to its scheduled due date,
provided that if such Settlement Date is not a date on which interest payments
are due to be made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date and required to be paid on such Settlement Date
pursuant to Section 8.2, 8.4 or 13.1.
"Settlement Date" means, with respect to the Called Principal of any Note, the
date on which such Called Principal is to be prepaid pursuant to Section 8.2 or
Section 8.4 or has become or is declared to be immediately due and payable
pursuant to Section 13.1, as the context requires.
9. INTEREST ON THE NOTES.
Interest (computed on the basis of a 360-day year of twelve 30-day months) shall
accrue on the unpaid principal balance of the Notes at 7.05% per annum from the
date of each Note, and shall be payable to the holders thereof semi-annually, on
January 2 and July 2 in each year, commencing with the later of July 2,1998 and
the payment date next succeeding the date of such Note, until the principal
thereof shall have become due and payable, and, to the extent permitted by law
in respect of any Note, on any overdue payment of principal, any overdue payment
of interest and any overdue payment of Make-Whole Amount with respect thereto,
payable, on demand, at a rate per annum equal to the Default Rate.
10. AFFIRMATIVE COVENANTS.
For so long as any of the Notes are outstanding, each Obligor covenants as set
forth below:
10.1 Compliance with Law.
The Company will and will cause each of its Restricted Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failure to obtain or maintain
in effect such licenses, certificates, permits, franchises and other
governmental authorizations would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, provided that nothing
in this Section 10.1 shall affect or reduce the obligations of the Company under
section 3R of the Security Agreements with respect to the Collateral.
<PAGE>
10.2 Insurance.
The Company will and will cause each of its Restricted Subsidiaries to,
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles) as is customary in the case of entities of established reputations
engaged in the same or a similar business and similarly situated, provided that
nothing in this Section 10.2 shall affect or reduce the obligations of the
Company under section 3D of the Security Agreements with respect to the
Collateral.
The Company will obtain and maintain in full force and effect for so long as any
Notes are outstanding a key-person life insurance policy (the "Key-Person
Policy") in an amount not less than $5,000,000 on the life of Mr. Ludwig
Kuttner. The insurer and the form of the Key-Person Policy shall be reasonably
satisfactory to the Required Holders. The Company shall pay all premiums in
respect of the Key-Person Policy and shall deliver a copy of the Key-Person
Policy and all endorsements and riders thereto to the Collateral Agent. Except
as may be provided for in the lntercreditor Agreement, the Collateral Agent
shall have the sole right
(a) to collect from the insurer under the Key-Person Policy the proceeds of
such policy upon the death of Mr. Kuttner,
(b) to surrender said policy and receive the surrender value thereof,
(c) to collect and receive all distributions, shares of surplus, dividends,
deposits or other similar payments in respect of the Key-Person Policy,
provided that for so long as the Company shall not be in default hereunder,
under any of the other Financing Documents or under the Credit Agreement,
such distributions, shares, dividends, deposits and payments shall be paid
to, or retained by, the Company, as the case may be,
(d) to exercise any options under the Key-Person Policy,
(e) to designate and change the beneficiary in respect of the Key-Person
Policy and
(f) to elect any optional mode of settlement permitted by the Key-Person
Policy.
The Company shall execute a form of life insurance policy assignment acceptable
to the insurer under the Key-Person Policy pursuant to which the Key-Person
Policy shall be assigned to the Collateral Agent on behalf of the holders of
Notes; if requested by the Collateral Agent, the Company shall cause the sole
named beneficiary of the Key-Person Policy to be the Collateral Agent. Any such
assignment notwithstanding, the Company shall continue to be obligated to
perform its undertakings in this Section 10.2. In order to induce you to accept
the Company's undertaking in respect of obtaining and maintaining a Key-Person
Policy, the Company hereby represents and warrants to you that it is not aware
of any reason why a Key-Person Policy in respect of him would not be issued.
<PAGE>
If, at the time of receipt of proceeds in respect of the Key-Person Policy, an
Actionable Event of Default shall exist under, and as defined in, the
Intercreditor Agreement and enforcement and/or foreclosure actions are being or
will be undertaken in respect of the Collateral, the proceeds of the Key-Person
Policy shall be paid and distributed by the Collateral Agent as provided for in
Section 3 of the lntercreditor Agreement.
If, at the time of receipt of proceeds in respect of the Key-Person Policy, the
lntercreditor Agreement shall no longer be in effect and an Event of Default
shall exist hereunder and enforcement and/or foreclosure actions are being or
will be undertaken in respect of the Collateral, the proceeds of the Key-Person
Policy shall be applied by the Collateral Agent to the obligations hereunder and
under the other Financing Documents.
If, at the time of receipt of proceeds in respect of the Key-Person Policy,
there shall be in existence no Actionable Event of Default (as defined above) or
Event of Default in respect of which enforcement and/or foreclosure actions are
being or Will be undertaken with respect to the Collateral, the proceeds of the
Key-Person Policy shall be paid by the Collateral Agent (or, if for any reason
whatsoever, received by the Company or any other Obligor, by the Company or such
Obligor) to the banks under the Credit Agreement and the holders of Notes as
follows:
(1) in the case of each bank under the Credit Agreement, the portion of
such proceeds equal to the ratio that the aggregate principal amount
outstanding at such time under the Credit Agreement and owing to such bank
bears to the total of the aggregate principal amount outstanding at such
time and owing to all banks under the Credit Agreement plus the aggregate
principal amount of all Notes then outstanding, or
(2) in the case of each holder of Notes that shall have exercised its
rights under Section 8.4 in respect of the death of Mr. Kuttner prior to
the receipt of such proceeds or after the receipt of such proceeds if such
exercise after such receipt is in accordance with the requirements set
forth in Section 8.4, the lesser of (i) the amount otherwise payable to
such holder under Section 8.4 and (ii) the portion of such proceeds equal
to the ratio that the aggregate principal amount outstanding at such time
of the Notes of such holder bears to the total of the aggregate principal
amount outstanding at such time and owing to all banks under the Credit
Agreement plus the aggregate principal amount of all Notes then
outstanding.
To the extent that any holder of Notes shall have exercised its rights under
Section 8.4 in respect of the death of Mr. Kuttner and the proceeds distributed
to such holder under clause (2) above are sufficient to fully pay all
obligations of the Company in respect thereof, nothing contained in this Section
10.2 shall limit or restrict the obligations of the Company to make all payments
in respect thereof required by Section 8.4. The collateral Agent may make all
payments to the banks provided for above to the agent for the banks under the
Credit Agreement. the Company shall cooperate with the collateral Agent in
connection with any payments under this Section 10.3. To the extent that
proceeds from the Key-Person Policy shall not have been paid to the banks and/or
any one or more holders of Notes and are not subject to distribution under
Section 3 of the Intercreditor Agreement, they shall be paid by the Collateral
<PAGE>
Agent to the Company free and clear of any Lien created by any Financing
Document.
10.3 Maintenance of Properties.
The Company will and will cause each of its Restricted Subsidiaries to maintain
and keep, or cause to be maintained and kept, their respective properties in
good repair, working order and condition (other than ordinary wear and tear), so
that the business carried on in connection therewith may be properly conducted
at all times, provided that his Section shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Anything continued in this Section 10.3 to the contrary notwithstanding, nothing
in this Section 10.3 shall affect or reduce the obligations of the Company under
Section 3E of the Security Agreements with respect to the Collaterals.
10.4 Payment of Taxes and Claims.
The Company will and will cause each of its Restricted Subsidiaries to file all
tax returns required to be filed in any jurisdiction and to pay and discharge
all taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Restricted
Subsidiary (including, without limitation, mechanic's liens or other similar
construction liens), provided that neither the Company nor any Restricted
Subsidiary need pay any such tax or assessment or claims if (a) the amount,
applicability or validity thereof is contested by the Company or such Restricted
Subsidiary on a timely basis in good faith and in appropriate proceedings, and
the Company or such Restricted Subsidiary has established adequate reserves
therefor in accordance with GAAP on the books of the Company or such Restricted
Subsidiary or (b) the nonpayment of all such taxes and assessments and claims in
the aggregate would not reasonably be expected to have a Material Adverse
Effect.
10.5 Corporate Existence, etc.
The Company will at all times preserve and keep in full force and effect its
corporate existence. Subject to Section 11.2 and Section 11.9, each Guarantor
will at all times preserve and keep in full force and effect its respective
corporate existence.
10.6 Pari Passu Obligations.
The Company covenants that its obligations under the Notes and the other
Financing Documents do and will rank at least pari passu in right of payment
with all its other present and future secured and unsubordinated Debt. Each
Guarantor covenants that its obligations under the Guarantee do and will rank at
<PAGE>
least pari passu in right of payment with all its other present and future
secured and unsubordinated Debt.
10.7 Guaranties of Subsidiaries.
(a) Additional Subsidiaries as Guarantors. If the Company or any Restricted
Subsidiary creates or otherwise acquires any Subsidiary at any time after
the date of Closing (or if the book investment of the Obligors and HIL in
Keynote reaches or exceeds $100,000), the Company shall promptly (and in
any event within 30 days) cause such Subsidiary to become a Guarantor
hereunder and under the Other Agreement by delivering to each holder of
Notes an instrument referring to this Agreement and the Other Agreement
wherein such Subsidiary agrees to be bound by all of the terms and
conditions applicable to a "Guarantor" under this Agreement and the Other
Agreement as of the date thereof, which instrument shall be substantially
in the form of Exhibit 10.7. In connection with the delivery of such
instrument, the Company shall also deliver the following to each of the
holders of Notes:
(i) a certificate of the secretary or assistant secretary of such
Subsidiary certifying the names and true signatures of the officers of
such Subsidiary authorized to execute such instrument and the proper
adoption of a resolution of the board of directors or stockholders of
such Subsidiary approving the execution, delivery and performance of
such instrument; and
(ii) a certificate executed by a Senior Financial Officer of the
Company, dated as of the date of such instrument, stating that (x)
except as to such exceptions as shall be set forth in writing therein,
the representations and warranties contained in Section 5 are true and
correct on and as of the date of such instrument to the extent such
representations and warranties are applicable to such Subsidiary as a
"Guarantor" or "Obligor" hereunder and (y) no Default or Event of
Default exists as of the date of such instrument, and shall pledge to
the Collateral Agent on behalf of the holders of Notes all of the
stock of such Subsidiary, which stock shall also be made subject to
the terms and provisions of the appropriate Pledge Agreement and the
lntercreditor Agreement, and shall cause such Subsidiary to execute
and deliver to the Collateral Agent on behalf of the holders of Notes
a Guarantor's Security Agreement and a Guarantor's Pledge Agreement
and to make all necessary filings and registrations in respect
thereof.
(b) Release of Guarantees of Subsidiaries. If, with respect to any
Subsidiary that is a Guarantor, all of the Company's and any Restricted
Subsidiary's capital stock or other equity ownership interests in such
Guarantor is Transferred in accordance with the requirements of Section
11.9, then the Company may elect to cause the withdrawal of the Guarantee
of such Guarantor hereunder and under the Other Agreement. Such election
shall be exercised by a Senior Financial Officer of the Company informing,
in writing, each holder of Notes of such election, certifying in such
writing that the requirements of this Section 10.7 have been satisfied,
that no Default or Event of Default exists and that the investment grade
rating of the Notes has been confirmed by any nationally recognized credit
<PAGE>
rating agency or the Securities Valuation Office of the National
Association of Insurance Commissioners after giving effect to such
withdrawal. Thereafter, the Guarantee of such Guarantor shall be null and
void and without effect and such Guarantor shall no longer be, or be deemed
to be, a party to this Agreement or any of the Other Agreement or to any
other Financing Document to which it is a party, provided that, if the
aforesaid requirements under this Section 10.7(b) shall not have been
satisfied or any of the aforesaid certifications are not true, then the
Guarantee of such Guarantor shall continue in full force and effect and
such Guarantor shall continue to be a party hereto and to the Other
Agreement and such other Financing Documents notwithstanding the delivery
of such writing by the Company to each of the holders of Notes until all of
such requirements shall have been satisfied.
10.8 Year 2000.
Any reprogramming required to permit the proper functioning, in and following
the year 2000, of (a) the Company's and the Subsidiaries' computer systems and
(b) equipment containing embedded microchips (including systems and equipment
supplied by others or with which the Company's and the Subsidiaries' systems
interface) and the testing of all such systems and equipment, as so
reprogrammed, will be completed in a timely manner and as soon as practicable.
The cost to the Company and the Subsidiaries of such reprogramming and testing
and of the reasonably foreseeable consequences of year 2000 to the Company and
the Subsidiaries (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in an Event of Default
or otherwise reasonably be expected to have a Material Adverse Effect. Except as
such of the reprogramming referred to in the preceding sentence as may be
necessary, the computer and management information systems of the Company and
the Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient to permit the Company
and the Subsidiaries to conduct their business without the reasonable likelihood
of a Material Adverse Effect as a result thereof.
10A. AFFIRMATIVE COVENANTS.
For so long as any of the Notes are outstanding, HIL covenants as set forth
below:
10A.1 Compliance with Law.
HIL will use its best efforts to, and will cause each of its subsidiaries to use
their respective best efforts to, comply with all laws, ordinances or
governmental rules or regulations to which each of them is subject, including,
without limitation, Environmental Laws, and will use their respective best
efforts to obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failure to obtain or maintain
in effect such licenses, certificates, permits, franchises and other
governmental authorizations would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
<PAGE>
10A.2 Insurance.
NIL will use its best efforts to, and will cause each of its subsidiaries to use
their respective best efforts to, maintain, with financially sound and reputable
insurers, insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms and in
such amounts (including deductibles) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
10A.3 Maintenance of Properties.
HIL will use its best efforts to, and will cause each of its subsidiaries to use
their respective best efforts to, maintain and keep, or cause to be maintained
and kept, their respective properties in good repair, working order and
- -condition (other than ordinary wear and tear), so that the business carried on
in connection therewith may be properly conducted at all times.
10A.4 Payment of Taxes and Claims.
HIL will use its best efforts to, and will cause each of Its subsidiaries to use
their respective best efforts to, file all tax returns required to be filed in
any jurisdiction and to pay and discharge all taxes shown to be due and payable
on such returns and all other taxes, assessments, governmental charges, or
levies imposed on them or any of their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent and all claims for which sums have become due and
payable that have or might become a lien on properties or assets of NIL or any
of Its subsidiaries, provided that neither HIL nor such subsidiary need pay any
such tax or assessment or claims if (a) the amount, applicability or validity
thereof is contested by HIL or such subsidiary on a timely basis in good faith
and in appropriate proceedings, and NIL or such subsidiary has established
adequate reserves therefor in accordance with GMP on the books of HIL or such
subsidiary or (b) the nonpayment of all such taxes and assessments and claims in
the aggregate would not reasonably be expected to have a Material Adverse
Effect.
11. NEGATIVE COVENANTS.
For so long as any of the Notes are outstanding, each Obligor covenants as set
forth below:
11.1 Transactions With Affiliates.
The Company will not and will not permit any Restricted Subsidiary to enter into
directly or indirectly any Material transaction or Material group of related
transactions (including, without limitation, the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or a Restricted Subsidiary), except in the
ordinary course and pursuant to the reasonable requirements of the Company's or
such Restricted Subsidiary's business and upon fair and reasonable terms no less
favorable to the Company or such Restricted Subsidiary than would be obtainable
<PAGE>
in a comparable arm's-length transaction with a Person not an Affiliate and
except that the Company may make loans and provide equity capital to HIL from
time to time pursuant to the reasonable requirements of HIL's and the Company's
businesses and upon such terms as the Board of Directors have determined, in
good faith, are appropriate and in the best interests of HIL and the Company.
11.2 Merger, Consolidation, etc.
(a) The Company will not and will not permit any of its Restricted
Subsidiaries to consolidate, amalgamate or merge with or into any other
Person or convey, transfer or lease all or substantially all of its assets
in a single transaction or series of transactions to any Person (except
that (x) any Restricted Subsidiary may consolidate or merge with or into,
or convey, transfer or lease all or substantially all of its assets in a
single transaction or series of transaction to, the Company or any
Wholly-Owned Restricted Subsidiary and (y) any Restricted Subsidiary may
convey, transfer or lease all or substantially all of its assets if
permitted pursuant to Section 11.9(a)(iv) or (v)), provided that the
foregoing restrictions do not apply to the consolidation or merger of the
Company with or into, or the conveyance, transfer or lease of all or
substantially all of the assets of the Company in a single transaction or
series of transactions to, any person so long as:
(i) The successor formed by such consolidation or the survivor or such
merger or the Person that acquires by conveyance, transfer or lease
all or substantially all of the assets of the Company as an entirety,
as the case may be (as used in this Section 11.2(a), the "Successor
Company"), shall be a solvent corporation organized and existing under
the laws of the United States of America or any State thereof
(including, without limitation, the District of Columbia);
(ii) if the Company is not the successor Company, such Successor
Company shall have executed and delivered to each holder of any Noes
its assumption of the due and punctual performance and observance of
each covenant and condition of this Agreement, the Other Agreement,
the Notes and the other Financing Documents to which the Company is
subject and shall have caused to be delivered to each holder of any
Notes an opinion of independent counsel reasonably satisfactory to the
Required Holders to the effect that all agreements or instruments
effecting such assumption are enforceable in accordance with their
terms and comply with the terms hereof and that all actions, filings
and registrations have been undertaken and effected in order to
continue the perfection and priority of the Liens and security
interests of the Collateral Agent on behalf of the holders of Notes in
and to the Collateral and the Pledged Stock Collateral;
(iii) each Guarantor shall have confirmed to each holder of Notes, in
writing, its Guarantee and its other obligations hereunder, under the
Other Agreement and under the other Financing Documents to which it is
a party and shall have caused to be delivered to each holder of any
Notes an opinion of nationally recognized independent counsel, or
other independent counsel reasonably satisfactory to the Required
Holders, to the effect that such confirmation is effective, such
Guarantee continues in full force and effect and that all actions,
<PAGE>
filings and registrations have been undertaken and effected in order
to continue the perfection and priority of the Liens and security
interests granted by such Guarantor, if any, to the Collateral Agent
on behalf of the holders of Notes in and to the Collateral and the
Pledged Stock Collateral;
(iv) immediately after giving effect to such transaction, no Default
or Event of Default would exist; and
(v) immediately after giving effect to such transaction, the
investment grade rating of the Notes shall have been confirmed by any
nationally recognized credit rating agency or the Securities Valuation
Office of the National Association of Insurance Commissioners.
(b) Except as expressly provided in Section 10.7(b), no such conveyance,
transfer or lease of all or substantially all of the assets of any
Guarantor under this Section 11.2 shall have the effect of releasing such
Guarantor from its liability under this Agreement, the Other Agreement, the
Notes and the other Financing Documents to which it is a party.
11.3 Consolidated Tangible Net Worth.
The Company will not at any time permit Consolidated Tangible Net Worth,
determined as of the end of the fiscal quarter of the Company then most recently
ended, to be less than the sum of
(a) $34,000,000, plus
(b) the sum of the Fiscal Year Net Worth Increase Amounts for all fiscal
years of the Company the last day of which occurred during the period
beginning January 1, 1998 and ending at such time.
As used in Section 11.3, "Fiscal Year Net Worth Increase Amount" means, for any
fiscal year of the Company, the greater of
(i) 50% of Consolidated Net Income for such fiscal year and
(ii) $0.
11.4 Average Current Ratio.
The Company will not at any time permit the Average Current Ratio, determined at
such time, to be less than 1.75 to 1.0.
11.5 Fixed Charge Coverage.
The Company will not at any time permit the ratio of
(a) Consolidated Income Available for Fixed Charges for the period of 4
consecutive fiscal quarters of the Company then most recently ended to
(b) Consolidated Fixed Charges for such period to be less than 2.5 to 1.0.
11.6 Funded Debt to Capitalization.
The Company will not at any time permit the ratio of
(a) Consolidated Funded Debt at such time to
(b) Consolidated Total Capitalization at such time to exceed .45 to 1.0.
<PAGE>
11.7 Current Debt.
The Company will not and will not permit any Restricted Subsidiary to have
outstanding or in any other manner be liable in respect of any Current Debt of
the type described in clause (a) of the definition of "Debt" (excluding, in any
case, from such Debt the Current Maturities of Funded Debt) unless during the
period of 12 consecutive calendar months then most recently ended there shall
have been a period of at least 45 consecutive days during which no Consolidated
Current Debt of the type described in clause (a) of the definition of "Debt"
(excluding, in any case, from such Debt the Current Maturities of Funded Debt)
shall have been outstanding on each day of such period.
11.8 Restricted Subsidiary Debt.
The Company will not permit any Restricted Subsidiary to have outstanding or in
any other manner be liable in respect of any Debt other than Permitted
Restricted Subsidiary Debt.
11.9 Sale of Assets, etc.
(a) Subject to the penultimate paragraph of this clause (a), the Company
will not and will not permit any of its Restricted Subsidiaries to make any
Transfer, provided that the foregoing restriction does not apply to a
Transfer if:
(i) the property that is the subject of such Transfer constitutes (A)
inventory, (B) equipment, fixtures, supplies or materials no longer
required in the operation of the business of the Company and the
Restricted Subsidiaries or that is obsolete or (C) checks, drafts,
money orders or other instruments with respect to accounts receivable
that are to be collected in the ordinary course of business, and, in
each case, such Transfer is in the ordinary course of business;
(ii) such Transfer is (A) from a Restricted Subsidiary to the Company
or a Wholly-Owned Restricted Subsidiary or (B) from the Company to a
Wholly-Owned Restricted Subsidiary;
(iii) such Transfer is subject to Section 11.2 and satisfies the
requirements thereof; or
(iv) such Transfer is not a Transfer described in clause (i) through
clause (iii) above, and all of the following conditions shall have
been satisfied with respect to such Transfer (each such Transfer is
referred to as a "Basket Transfer"):
(A) in the good faith opinion of the Board of Directors of the
Company, the Transfer is in exchange for consideration with a
Fair Market Value at least equal to the greater of book value or
the Fair Market Value of the property exchanged, is in the best
interests of the Company and the Restricted Subsidiaries, and is
not detrimental to the interests of the holders of Notes,
<PAGE>
(B) immediately after giving effect to such transaction no
Default or Event of Default would exist, and
(C) immediately after giving effect to such Transfer,
(I) the book value of all property that was the subject of
any Basket Transfer occurring during the period beginning
with the date that is 12 calendar months preceding the first
day of the month in which such Basket Transfer occurred and
ending on the date of such Basket Transfer does not exceed
10% of Consolidated Tangible Net Assets determined as of the
end of the then most recently fiscal year of the Company
ended prior to such period, and
(II) the Operating Income Contribution Percentage of all
property that was the subject of any Basket Transfer
occurring during the period beginning with the date that is
12 calendar months preceding the first day of the month in
which such Basket Transfer occurred and ending on the date
of such Basket Transfer does not exceed 10%.
For purposes of determining the book value of any property that is the subject
of a Transfer, such book value shall be the book value of such property, as
determined in accordance with GAAP, at the time of the consummation of such
Transfer, provided that, in the case of a Transfer of any capital stock or other
equity interests of a Subsidiary, as provided in Section 11.9(b), the book value
thereof shall be deemed to be an amount equal to
(X) the difference (determined after eliminating all intercompany
transactions, assets and liabilities in accordance with GAAP) of
(1) the book value of the total assets of such Subsidiary less
(2) the liabilities of such Subsidiary times
(Y) a percentage that is equal to the percentage of total equity interests
of such Subsidiary attributable to the capital stock or other equity
interest being so Transferred.
(b) Transfers of Restricted Subsidiary Stock. The Company will not and
will not permit any Restricted Subsidiary to Transfer any shares of
the stock (or any warrants, rights or options to purchase stock or
other securities exchangeable for or convertible into stock) of a
Restricted Subsidiary (such stock, warrants, rights, options and other
securities herein called "Restricted Subsidiary Stock"), nor will any
Restricted Subsidiary issue, sell or otherwise dispose of any shares
of its own Restricted Subsidiary Stock, provided that the foregoing
restrictions do not apply to:
(i) the issuance by a Restricted Subsidiary of shares of its own
Restricted Subsidiary Stock to the Company or a Wholly-Owned
Restricted Subsidiary;
<PAGE>
(ii) Transfers by the Company or a Restricted Subsidiary of
shares of Restricted Subsidiary Stock to the Company or to a
Wholly-Owned Restricted Subsidiary;
(iii) the issuance by a Restricted Subsidiary of directors'
qualifying shares or the issuance of Glamourette of its Exempt
Preferred Stock to its officers, directors and employees; and
(iv) the Transfer of all of the Restricted Subsidiary Stock of a
Restricted Subsidiary owned by the Company and the other
Restricted Subsidiaries if:
(A) such Transfer satisfies the requirements of Section
11.9(a)(iv) hereof;
(B) in connection with such Transfer the entire Investment
(whether represented by stock, Debt, claims or otherwise but
excluding any reserves or escrows for customary purposes
established in connection with such Transfer) of the Company
and the other Restricted Subsidiaries in such Restricted
Subsidiary is Transferred to a Person other than the Company
or a Restricted Subsidiary not being simultaneously disposed
of;
(C) the Restricted Subsidiary being disposed of has no
continuing Investment in any other Restricted Subsidiary not
being simultaneously disposed of or in the Company; and
(D) immediately after the consummation of such Transfer, and
after giving effect thereto, no Default or Event of Default
would exist.
11.10 Restricted Payments and Restricted Investments.
(a) The Company will not, and will not permit any Restricted Subsidiary to,
declare or make any Restricted Payment or make any Restricted Investment
unless:
(i) immediately after, and after giving effect to, such Restricted
Payment or such Restricted Investment, the aggregate amount of (y) all
Restricted Payments declared or made after December 31, 1997 and (z)
all Restricted Investments at such time would not exceed the sum of
(A) Eight Million Dollars ($8,000,000), plus
(B) 50% (or 100% in the case of a deficit) of Full Consolidated
Net Income for the period commencing on and including January 1,
1998 and ending on and including the date such Restricted Payment
is declared or made or such Restricted Investment is made, plus
(C) the aggregate amount of net cash proceeds received by the
Company from the sale of capital stock of the Company after
December 31,1997; and
(ii) at the time of such declaration and immediately before,
and after giving effect to, such Restricted Payment or such
Restricted Investment, no Default or Event of Default exists
or would exist.
<PAGE>
(b) Notwithstanding the limitations set forth in clause (a) hereof, the
Company may make one or more Investments in any one or more Unrestricted
Subsidiaries after December 31, 1997, in an aggregate amount in respect of
all Unrestricted Subsidiaries not in excess of $10,000,000, so long as
immediately before, and after giving effect to, such Investment, no Default
or Event of Default exists or would exist. For the avoidance of doubt, any
such Investment in any Unrestricted Subsidiary permitted by this clause (b)
shall constitute a "Restricted Investment" for purposes of this Agreement
and the Other Agreement and the amount of which shall be included in
determining compliance with clause (a) upon the declaration or making of
any Restricted Payment or the making of any other Restricted Investment
(other than an Investment in any Unrestricted Subsidiary permitted by this
clause (b)).
(c) Notwithstanding the limitations set forth in clause (a) above,
Glamourette may pay cash dividends on its Exempt Preferred Stock
outstanding from time to time and may redeem, retire, purchase or otherwise
acquire shares of its Exempt Preferred Stock from time to time. For the
avoidance of doubt, such payments and transactions relating to Exempt
Preferred Stock shall not constitute "Restricted Payments" for purposes of
this Agreement and the amounts thereof shall not be included in determining
compliance with clause (a) above for any purpose. The permissions granted
under this clause (c) are subject to the limitation that no more than 1,000
shares of Exempt Preferred Stock shall be issued and outstanding at any one
time, the issuance of Exempt Preferred Stock is solely to employees,
managers or directors of Glamourette, the maximum annual cash dividend
payable in respect of such Exempt Preferred Stock is $62 per share and the
redemption, retirement, purchase or other acquisition of Exempt Preferred
Stock by Glamourette is in connection with the resignation or termination
of employment, death or retirement of any such employee, manager or
director and is at a price which is fair and reasonable in the reasonable
opinion of the Company.
11.11 Liens.
(a) Negative Pledge. Subject to Section 11.11(d) hereof as to the
Collateral and the Pledged Stock Collateral, the Company will not, and will
not permit any Restricted Subsidiary to, cause or permit to exist, or agree
or consent to cause or permit to exist in the future (upon the happening of
a contingency or otherwise), on any of their property, whether now owned or
hereafter acquired, any Lien except:
(i) (A) Liens for taxes, assessments or other governmental charges the
payment of which is not at the time required by Section 10.4, and
(B) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen, inventory suppliers and
other similar Liens, in each case, incurred in the ordinary
course of business for sums not yet due or the payment of which
is not at the time required by Section 10.4;
(ii) Liens (A) arising from judicial attachments and judgments, (B)
securing appeal bonds or supersedeas bonds, and (C) arising in
connection with court proceedings (including, without limitation,
surety bonds and letters of credit or any other instrument serving a
<PAGE>
similar purpose), provided that (1) the execution or other enforcement
of such Liens is effectively stayed, (2) the claims secured thereby
are being actively contested in good faith and by appropriate
proceedings, (3) adequate book reserves shall have been established
and maintained and shall exist with respect thereto, in accordance
with GAAP, and (4) the aggregate amount so secured shall not at any
time exceed $500,000
(iii) Liens incurred or deposits made in the ordinary course of
business (i) in connection with workers' compensation, unemployment
insurance and other types of social security or retirement benefits or
to obtain letters of credit in connection therewith, or (ii) to secure
(or to obtain letters of credit that secure) the performance of
tenders, statutory obligations, surety bonds, appeal bonds, bids,
leases (other than Capital Leases), performance bonds, purchase,
construction or sales contracts, leases and other similar obligations,
in each case not incurred or made in connection with the borrowing of
money, the obtaining of advances or credit or the payment of the
deferred purchase price of property, and which Liens do not, in the
aggregate, materially impair the use of the property subject thereto
in the operation of the business of the Company and the Restricted
Subsidiaries or the value of such property for the purposes of such
business;
(iv) leases or subleases granted to others, easements, rights-of-way,
restrictions, zoning restrictions, governmental restrictions in
respect of any property or property right or franchise of the Company
or any Restricted Subsidiary and other similar charges or
encumbrances, in each case incidental to, and not interfering with,
the ordinary conduct of the business of the Company or any Restricted
Subsidiary, taken as a whole, provided that such charges and
encumbrances do not, in the aggregate, materially detract from the
value of such property;
(v) Liens created to secure all or any part of the purchase price, or
to secure Debt incurred or assumed to pay all or any part of the
purchase price or cost of construction, of property (or any
improvement thereon) acquired or constructed by the Company or any
Restricted Subsidiary, provided that all of the following conditions
are satisfied:
(A) any such Lien shall extend solely to the item or items of
such property (or improvements thereon) or proceeds thereof so
acquired or constructed and, if required by the terms of the
instrument originally creating such Lien, other property (or
improvements thereon) which is an improvement to or is acquired
for specific use in connection with such acquired or constructed
property (or improvements thereon) or which is real property
being improved by such acquired or constructed property (or
improvements thereon),
(B) the principal amount of the Debt secured by any such Lien
shall at no time exceed an amount equal to the cost to the
Company or such Restricted Subsidiary of the properties (or
improvements thereon) so acquired or constructed,
(C) after giving effect to the incurrence or assumption of such
Debt secured by such Lien, no Default or Event of Default shall
exist, and
<PAGE>
(D) any such Lien shall be created contemporaneously with, or
within 365 days after, the acquisition or construction of such
property;
(vi) Liens existing on property of a Person immediately prior to its
being consolidated with or merged into the Company or any Restricted
Subsidiary or its becoming a Restricted Subsidiary, or any Lien
existing on any property acquired by the Company or any Restricted
Subsidiary at the time such property is so acquired (whether or not
the Debt secured thereby shall have been assumed), provided that
(A) no such Lien shall have been created or assumed as part of
such consolidation or merger or such Person's becoming a
Restricted Subsidiary or such acquisition of property,
(B) each such Lien shall extend solely to the item or items of
property so acquired and proceeds thereof and, if required by the
terms of the instrument originally creating such Lien, other
property which is an improvement to or is acquired for specific
use in connection with such acquired property,
(C) after giving effect to such consolidation, merger or
acquisition, no Default or Event of Default shall exist, and
(D) the principal amount of the Debt secured by any such Lien
shall at no time exceed an amount equal to the lesser of book
value or Fair Market Value (as determined in good faith by the
Board of Directors of the Company) of such property (or
improvements thereon) at the time of such consolidation, merger,
becoming a Subsidiary or acquisition;
(vii) Liens securing obligations under the Credit Agreement and
related agreements (provided that the Notes are secured ratably by the
related collateral securing such obligations as contemplated by the
Intercreditor Agreement), Liens securing Permitted Restricted
Subsidiary Debt described in clause (d) of the definition thereof and
Liens securing Permitted Restricted Subsidiary Debt described in
clause (e) of the definition thereof to the extent, but only to the
extent, that such Liens encumber inventory and secure unpaid letter of
credit reimbursement obligations referred to in such clause;
(viii) Liens in existence on the Closing Date securing other Debt of
the Company and the Restricted Subsidiaries, provided that such Liens
are described on Schedule 11.11;
(ix) Liens on property or assets of the Company or any Restricted
Subsidiary securing Debt of the Company owing to any Wholly-Owned
Restricted Subsidiary or securing Debt of any Restricted Subsidiary
owing to the Company or any other Wholly-Owned Restricted Subsidiary;
(x) Liens renewing, extending or replacing Liens permitted by clauses
(v), (vi), (vii) or (viii), provided that all of the following
conditions are satisfied:
(A) no such new Lien shall extend to any property of the Company
and the Restricted Subsidiaries other than property already
encumbered by an existing Lien being so renewed, extended or
replaced, and
(B) the principal amount of the underlying obligation secured by
such existing Lien outstanding at the time of such renewal,
extension or replacement shall not be increased in connection
with such renewal, extension or replacement and the average life
thereof shall not be reduced;
<PAGE>
(xi) Liens (other than Liens permitted under clause (i) through clause
(x) above) securing any Debt of the Company, which Debt, as of the
date of the creation of such Lien, together with the aggregate
principal amount of Debt outstanding at such time secured by Liens
permitted by clause (v), clause (vi), clause (vii), clause (viii) and
clause (x) of this Section 11.11, does not exceed the applicable
percentage of Consolidated Tangible Net Worth determined with respect
to such time as set forth in the table immediately below: the
Applicable Percentage of Consolidated Tangible Net If such time is:
Worth is: On or prior to December 31, 1999 20% After December 31, 1999
and on or prior to December 31, 2000 19% After December 31, 2000 and
on or prior to December 31, 2001 18% After December 31, 2001 and on or
prior to December 31, 2002 17% After December 31, 2002 and on or prior
to December 31, 2003 16% After December 31, 2003 15%and provided that
immediately after giving effect to the incurrence or assumption of
such Debt no Default or Event of Default shall exist.
(b) Equal and Ratable Lien; Equitable Lien. In case any property shall be
subjected to a Lien in violation of this Section 11.11, the Company will
forthwith make or cause to be made, to the fullest extent permitted by
applicable law, provision whereby the Notes and the Guarantee, as the case
may be, will be secured equally and ratably with all other obligations
secured thereby pursuant to such agreements and instruments as shall be
approved by the Required Holders, and the Company will cause to be
delivered to each holder of a Note an opinion, satisfactory in form and
substance to the Required Holders, of independent counsel to the effect
that such agreements and instruments are enforceable in accordance with
their terms, and in any such case the Notes shall have the benefit, to the
fullest extent that, and with such priority as, the holders of Notes may be
entitled thereto under applicable law, of an equitable Lien on such
property securing the Notes. A violation of this Section 11.11 will
constitute an Event of Default, whether or not any such provision is made
pursuant to this Section 11.11(b).
(c) Financing Statements. The Company will not, and will not permit any
Restricted Subsidiary to, sign or file a financing statement under the
Uniform Commercial Code of any jurisdiction that names the Company or such
Restricted Subsidiary as debtor, or sign any security agreement authorizing
any secured party thereunder to file any such financing statement, except,
in any such case, a financing statement filed or to be filed to perfect or
protect a security interest that the Company or such Restricted Subsidiary
is entitled to create, assume or incur, or permit to exist, under the
foregoing provisions of this Section 11.11 or to evidence for informational
purposes a lessor's interest in property leased to the Company or any such
Restricted Subsidiary or to evidence any Transfer of an asset for which
such filing is appropriate.
(d) Collateral Anything contained to the contrary in this Section 11.11
notwithstanding, the Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly create, incur, assume or permit to
exist (upon the happening of a contingency or otherwise) any Lien on or
with respect to any property that at such time constitutes Collateral or
Pledged Stock Collateral, whether now owned or held or hereafter acquired,
or any income or profits therefrom or assign or otherwise convey any right
to receive such income or profits, provided that the foregoing restriction
and limitation shall not apply to:
(i) Liens created with respect to the Collateral and/or the Pledged
Stock Collateral pursuant to the Financing Documents;
(ii) Liens securing obligations under the Credit Agreement and related
agreements; and
(iii) Liens that would be permitted to exist under Section 11 .11
(a)(i) or Section 11.11 (a)(ii) hereof
<PAGE>
11.12 Line of Business.
The Company will not and will not permit any Restricted Subsidiary to engage in
any business if, as a result, the general nature of the business in which the
Company and the Restricted Subsidiaries, taken as a whole, would then be engaged
would be substantially changed from the general nature of the business in which
the Company and the Restricted Subsidiaries, taken as a whole, are engaged on
the date of the Closing.
12. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or events
shall occur and be continuing:
(a) the Company defaults in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or
otherwise; of
(b) the Company defaults in the payment of any interest on any Note for
more than 5 days after the same becomes due and payable; or
(c) any Obligor defaults in the performance of or compliance with any term
contained in any of Section 11.2 through Section 11.11, inclusive, or
Section 7.1(d); or
(d) any Obligor defaults in the performance of or compliance with any term
contained herein, in the Other Agreement or in any other Financing Document
(other than those referred to in paragraphs (a), (b), (c) or (k) of this
Section 12) and such default is not remedied within 30 days after the
earlier of (i) a Responsible Officer obtaining actual knowledge of such
default and (ii) the Company receiving written notice of such default from
any holder of a Note (any such written notice to be identified as a "notice
of default" and to refer specifically to this paragraph (d) of Section 12),
unless such default is capable of being cured but shall have not been cured
(notwithstanding diligent efforts with respect thereto) within such period,
in which case such period shall be extended for an additional 60 days, upon
receipt by the Required Holders of a written request from the Company in
respect thereof, provided that all cure efforts in respect thereof have
been and are being diligently pursued; failure to cure any such default by
the end of such extended period shall, in any case, be an Event of Default
under this clause (d); or
(e) (i) any representation or warranty made in writing by or on behalf of
any Obligor or by any officer of any Obligor in this Agreement, the Other
Agreement, in any other Financing Document or in any writing furnished in
connection with the transactions contemplated hereby or thereby (including,
without limitation, in any instrument delivered pursuant to Section 10.7)
proves to have been false or incorrect in any material respect on the date
as of which made or (ii) any representation or warranty made in writing by
or on behalf of HIL or by any officer of HIL in this Agreement or the Other
Agreement or in any writing furnished in connection with the transactions
contemplated hereby or thereby proves to have been false or incorrect in
any material respect on the date as of which made; or
(f) (i) any Obligor is in default (as principal or as guarantor or other
surety) in the payment of any principal of or premium or make-whole amount
or interest on any Debt (other than Debt under this Agreement, the Other
Agreement and the Notes) beyond any period of grace provided with respect
thereto, that individually or together with such other Debt as to which any
such failure exists has an aggregate outstanding principal amount of at
least $500,000, or (ii) any Obligor is in default in the performance of or
compliance with any term of any evidence of any Debt (other than
<PAGE>
indebtedness under this Agreement, the Other Agreement and the Notes), that
individually or together with such other Debt as to which any such failure
exists has an aggregate outstanding principal amount of at least $500,000,
or of compliance with any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such default
or condition such Debt has become, or has been declared (or one or more
Persons are entitled to declare such Debt to be), due and payable before
its stated maturity or before its regularly scheduled dates of payment; or
(g) any Obligor (i) is generally not paying, or admits in writing its
inability to pay, its debts as they become due, (ii) files, or consents by
answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii)
makes an assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, (v) is adjudicated as insolvent or to be liquidated, or (vi)
takes corporate action for the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction enters an
order appointing, without consent by any Obligor, a custodian, receiver,
trustee or other officer with similar powers with respect to such Obligor
or with respect to any substantial part of the property of such Obligor, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of such Obligor, or any
such petition shall be filed against such Obligor and such petition shall
not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money aggregating in
excess of $500,000 are rendered against any one or more of the Obligors and
which judgments are not, within 30 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 30 days
after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding standards of
ERISA or section 412 of the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code,
(ii) a notice of intent to terminate any Plan shall have been or is
reasonably expected to be filed with the PBGC or the PBGC shall have
instituted proceedings under section 4042 of ERISA to terminate or
appoint a trustee to administer any Plan or the PBGC shall have
notified the Company or any ERISA Affiliate that a Plan may become a
subject of any such proceedings,
(iii) the aggregate "amount of unfunded benefit liabilities" (within
the meaning of section 4001 (a)(1 8) of ERISA) under all Plans subject
to Title IV of ERISA, determined in accordance with Title IV of ERISA,
shall exceed $1,000,000,
(iv) the Company or any ERISA Affiliate shall have incurred or is
reasonably expected to incur any liability in the nature of a penalty,
excise tax or fine pursuant to Title I of ERISA, any liability under
Title IV of ERISA or any liability under section 4971 through section
4980E of the Code,
<PAGE>
(v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or
(vi) the Company or any Restricted Subsidiary establishes or amends
any employee welfare benefit plan that provides post-employment
welfare benefits in a manner that, on and after the date of Closing,
would in the aggregate increase the liability of the Company or such
Restricted Subsidiary thereunder by more than $500,000; and any such
event or events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect; as used in
this Section 12(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to
such terms in section 3 of ERISA; or
(k) the Guarantee in respect of any Guarantor or any provision thereof
shall cease to be in full force or effect except as otherwise provided
herein, or any Guarantor or any Person acting by or on behalf of such
Guarantor shall deny or disaffirm such Guarantor's obligations under such
Guarantee, or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed
pursuant to Section 23; or
(l) any Financing Document creating or granting a security interest or Lien
in and to the Collateral and/or the Pledged Stock Collateral in favor of
the Collateral Agent shall cease to be in full force and effect, except as
otherwise permitted or provided for under the terms of the Financing
Documents, or the Company shall deny or disaffirm the validity of any such
security interest or Lien; or
(m) The Chase Manhattan Bank or any other agent under the Credit Agreement
shall commence any enforcement proceedings or actions in respect of the
Collateral and/or the Pledged Stock Collateral except to the extent
permitted under the lntercreditor Agreement.
13. REMEDIES ON DEFAULT, ETC.
13.1 Acceleration.
(a) If an Event of Default with respect to the Company described in
paragraph (g) or paragraph (h) of Section 12 (other than an Event of
Default described in clause (i) of paragraph (g) or described in clause
(vi) of paragraph (g) by virtue of the fact that such clause encompasses
clause (i) of paragraph (g)) has occurred, all the Notes then outstanding
shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, any
holder or holders of 33 and 1/3% or more in principal amount of the Notes
at the time outstanding may at any time at its or their option, by notice
or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of Section 12
has occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all the Notes
held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 13.1, whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest
thereon and (y) the Make-Whole Amount determined in respect of such principal
<PAGE>
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in such Note free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that such Note is prepaid or
is accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
13.2 Other Remedies.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 13.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
The holders of Notes shall have all of the rights and remedies in favor of, or
for the benefit of, such holders under the Security Agreements, the Pledge
Agreements and the other Financing Documents in respect of the Collateral and/or
the Pledged Stock Collateral, it being expressly understood that no such right
or remedy is intended to be exclusive of any other right or remedy; but each and
every right and remedy shall be cumulative and shall be in addition to every
other right and remedy given herein, in any other Financing Document or now or
hereafter existing at law or in equity or by statute or otherwise, and may be
exercised, or caused to be exercised, from time to time as is provided in the
Security Agreements, the Pledge Agreements and such other Financing Documents.
13.3 Rescission.
At any time after any Notes have been declared due and payable pursuant to
clause (b) or clause (c) of Section 13.1, the holders of 66 and 2/3% or more in
principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal due and
payable on any Notes other than by reason of such declaration, and all interest
on such overdue principal, if any, and any Make-Whole Amount that is due and
payable in respect of the Notes other than by reason of such declaration and any
interest thereon and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the applicable Default Rate, (b) all Events
of Default and Defaults, other than non-payment of amounts that have become due
solely by reason of such declaration, have been cured or have been waived
pursuant to Section 18, and (c) no judgment or decree has been entered for the
payment of any monies due pursuant hereto or to the Notes. No rescission and
annulment under this Section 13.3 will extend to or affect any subsequent Event
of Default or Default or impair any right consequent thereon.
13.4 No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
<PAGE>
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 16, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 13, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.
14. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
14.1 Registration of Notes.
The Company shall keep at its principal executive office a register for the
registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer thereof and the name and address
of each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose name
any Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered holders
of Notes.
14.2 Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office of the Company for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Note or his attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), the Company shall execute and deliver,
at the Company's expense (except as provided below), one or more new Notes (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1. Each such new Note shall be dated and
bear interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note if no interest shall
have been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes. Notes shall not be transferred in denominations of less than
$500,000, provided that if necessary to enable the registration of transfer by a
holder of its entire holding of Notes, one Note may be in a denomination of less
than $500,000. Any transferee, by its acceptance of a Note registered in its
name (or the name of its nominee), shall be deemed to have made the
representation set forth in Section 6.2.
14.3 Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of any Note (which
evidence shall be, in the case of an Institutional Investor, notice from such
Institutional Investor of such ownership and such loss, theft, destruction or
mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note is, or is a
nominee for, you or the Other Purchaser or another holder of a Note with a
minimum net worth of at least $100,000,000, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or
<PAGE>
(b) in the case of mutilation, upon surrender and cancellation thereof, the
Company at its own expense shall execute and deliver, in lieu thereof, a
new Note, dated and bearing interest from the date to which interest shall
have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest
shall have been paid thereon.
15. PAYMENTS ON NOTES.
15.1 Place of Payment.
Subject to Section 15.2, payments of principal, Make-Whole Amount, if any, and
interest becoming due and payable on the Notes shall be made in Anderson, South
Carolina at the principal office of the Company in such jurisdiction. The
Company may at any time, by notice to each holder of a Note, change the place of
payment of the Notes so long as such place of payment shall be either a
principal office of the Company in the United States of America or a principal
office of a bank or trust company in the United States of America.
15.2 Home Office Payment.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 15.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 15.1. Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company in exchange
for a new Note or Notes pursuant to Section 14.2. The Company will afford the
benefits of this Section 15.2 to any Institutional Investor that is the direct
or indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in this
Section 15.2.
16. EXPENSES, ETC.
16.1 Transaction Expenses.
Whether or not the transactions contemplated hereby are consummated, the
Obligors will pay all costs and expenses (including reasonable attorneys' fees
of a special counsel and, if reasonably required, local or other counsel and the
$1,500 registration fee payable to the Securities Valuation Office of the
National Association of Insurance Commissioners in connection with the
registration of this transaction with such Office) incurred by you and the Other
Purchaser or any holder of a Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement or the Notes (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses incurred
in enforcing or defending (or determining whether or how to enforce or defend)
any rights under this Agreement or the Notes or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the Notes, or by reason of being a holder of any Note, and (b)
the costs and expenses, including financial advisors' fees, incurred in
<PAGE>
connection with the insolvency or bankruptcy of the Company or any Subsidiary or
in connection with any work-out or restructuring of the transactions
contemplated hereby and by the Notes. The Obligors will pay, and will save you
and each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses if any, of brokers and finders (other than those
retained by you).
16.2 Survival.
The obligations of the Obligors under this Section 16 will survive the payment
or transfer of any Note, the enforcement, amendment or waiver of any provision
of this Agreement or any other Financing Document and the termination of this
Agreement or any other Financing Document.
<PAGE>
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the execution
and delivery of this Agreement and the Notes, the purchase or transfer by you of
any Note or portion thereof or interest therein and the payment of any Note, and
may be relied upon by any subsequent holder of a Note, regardless of any
investigation made at any time by or on behalf of you or any other holder of a
Note. All statements contained in any certificate or other instrument delivered
by or on behalf of the Obligors or HIL pursuant to this Agreement shall be
deemed representations and warranties of the Obligors or HIL, as the case may
be, under this Agreement. Subject to the preceding sentence, this Agreement and
the Notes embody the entire agreement and understanding between you and the
Obligors and HIL and supersede all prior agreements and understandings relating
to the subject matter hereof.
18. AMENDMENT AND WAIVER.
18.1 Requirements.
This Agreement, the Notes and the other Financing Documents may be amended, and
the observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that
(a) no amendment or waiver of any of the provisions of any of Sections 1,
2, 3, 4, 5, 6,15.2 and 22, or any defined term (as it is used therein),
will be effective as to you unless consented to by you in writing, and
(b) no amendment or waiver may, without the written consent of the holder
of each Note at the time outstanding affected thereby, (i) subject to the
provisions of Section 13 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the
rate or change the time of payment or method of computation of interest or
of the Make-Whole Amount on, the Notes, (ii) change the percentage of the
principal amount of the Notes the holders of which are required to consent
to any such amendment or waiver hereunder or under any of the Financing
Documents, (iii) release any of the Collateral and/or the Pledged Stock
Collateral except as expressly provided for in the Security Agreements, the
Pledge Agreements or lntercreditor Agreement, (iv) change the Collateral
Agent or (v) amend any of Sections 8,12,13,18, 21 and 23.
<PAGE>
18.2 Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered decision
with respect to any proposed amendment, waiver or consent in respect of any
of the provisions hereof or of the Notes. The Company will deliver executed
or true and correct copies of each amendment, waiver or consent effected
pursuant to the provisions of this Section 18 to each holder of outstanding
Notes promptly following the date on which it is executed and delivered by,
or receives the consent or approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause to be
paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes
as consideration for or as an inducement to the entering into by any holder
of Notes of any waiver or amendment of any of the terms and provisions
hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes
then outstanding even if such holder did not consent to such waiver or
amendment.
18.3 Binding Effect, etc.
Any amendment or waiver consented to as provided in this Section 18 applies
equally to all holders of Notes and is binding upon them and upon each future
holder of any Note and upon the Obligors and HIL without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver of any rights of any holder of such Note. As used herein, the term
"this Agreement" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
18.4 Notes held by Obligor, etc.
Solely for the purpose of determining whether the holders of the requisite
percentage of the aggregate principal amount of Notes then outstanding approved
or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by any Obligor, HIL or any of
their Affiliates shall be deemed not to be outstanding. Without limiting the
foregoing and in addition thereto, if any Affiliate shall purchase, redeem,
prepay or otherwise acquire, directly or indirectly, any outstanding Notes, such
Notes shall not be counted as outstanding in connection with any determination
of any percentage of holders of Notes hereunder or under the Other Agreement
necessary to approve any action to be taken hereunder or under any other
Financing Document (including, without limitation, the determination of Required
Holders) and any such Affiliate shall have no right to vote such Notes in
connection with any such action, provided that, in connection with any proposal
to reduce the principal amount of such Notes, change the date or amount of any
scheduled principal payment of such Notes, change the final maturity date of
such Notes, reduce the rate of interest of such Notes or change the dates or
reduce the amounts of scheduled interest payments in respect of such Notes, the
written consent of all holders of Notes shall be required.
<PAGE>
19. NOTICES.
All notices and communications provided for hereunder shall be in writing and
sent (a) by telecopy if the sender on the same day sends a confirming copy of
such notice by a recognized overnight delivery service (charges prepaid), or (b)
by registered or certified mail with return receipt requested (postage prepaid),
or (c) by a recognized overnight delivery service (with charges prepaid). Any
such notice must be sent:
(i) if to you or your nominee, to you or it at the address specified for
such communications in Schedule A, or at such other address as you or it
shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such address as
such other holder shall have specified to the Company in writing,
(iii) if to the Company, to the Company at its address set forth at the
beginning hereof to the attention of the Chief Financial Officer,
telecopier: 864-225-4421 or at such other address as the Company shall have
specified to the holder of each Note in writing, or
(iv) if to any Guarantor, to such Guarantor in care of the Company at its
address set forth at the beginning hereof to the attention of the Chief
Financial Officer, telecopier: 864-225-4421, or at such other address as
such Guarantor shall have specified to the holder of each Note in writing.
Notices under this Section 19 will be deemed given only when actually received.
20. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Obligors and HIL agree and stipulate that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the original
is in existence and whether or not such reproduction was made by you in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 20 shall not prohibit the Obligors, HIL or any other holder of Notes
from contesting any such reproduction to the same extent that it could contest
the original, or from introducing evidence to demonstrate the inaccuracy of any
such reproduction.
21. CONFIDENTIAL INFORMATION.
For the purposes of this Section 21, "Confidential Information" means
information delivered to you by or on behalf of any Obligor and any Subsidiary
of any Obligor in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified when received by you as
being confidential information of the Obligors and their Subsidiaries, provided
that such term does not include information that
(a) was publicly known or otherwise known to you prior to the time of such
disclosure,
<PAGE>
(b) subsequently becomes publicly known through no act or omission by you
or any Person acting on your behalf,
(c) otherwise becomes known to you other than through disclosure by any
Obligor or any Subsidiary of an Obligor, or
(d) constitutes financial statements delivered to you under Section 7.1
that are otherwise publicly available.
You will maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by you in good faith to protect confidential
information of third parties delivered to you, provided that you may deliver or
disclose Confidential Information to:
(i) your directors, officers, trustees, employees, agents, attorneys,
auditors and affiliates (to the extent such disclosure reasonably
relates to the administration of the investment represented by your
Notes),
(ii) your financial advisors and other professional advisors who agree
to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 21,
(iii) any other holder of any Note,
(iv) any Institutional Investor to which you sell or offer to sell
such Note or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 21),
(v) any Person from which you offer to purchase any security of the
Company (if such Person has agreed in writing prior to its receipt of
such Confidential Information to be bound by the provisions of this
Section 21),
(vi) any federal or state regulatory authority having jurisdiction
over you,
(vii) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that
requires access to information about your investment portfolio or
(viii) any other Person to which such delivery or disclosure may be
necessary or appropriate
(A) to effect compliance with any law, rule, regulation or order
applicable to you,
(B) in response to any subpoena or other legal process,
(C) in connection with any litigation to which you are a party,
or
(D) if an Event of Default has occurred and is continuing, to the
extent you may reasonably determine such delivery and disclosure
to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this
Agreement.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 21 as
though it were a party to this Agreement. On reasonable request by any Obligor
<PAGE>
in connection with the delivery to any holder of a Note of information required
to be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Obligors embodying the provisions
of this Section 21.
22. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 22), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
22), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
23. GUARANTEE.
23.1 Guaranteed Obligations.
Each of the Guarantors hereby irrevocably, unconditionally, absolutely, jointly
and severally guarantees to each holder of Notes, as and for each such
Guarantor's own debt, until final and indefeasible payment of the Guaranteed
Obligations (as defined below) has been made:
(a) the due and punctual payment by the Company of the principal of, and
interest (including default interest and post-petition interest), and the
Make-Whole Amount (if any) on, the Notes at any time outstanding and the
due and punctual payment of all other amounts payable, and all other
indebtedness owing, by the Company to the holders of the Notes under this
Agreement, the Other Agreement, the Notes and the other Financing Documents
(all such obligations so guarantied are herein collectively referred to as
the "Guaranteed Obligations"), in each case when and as the same shall
become due and payable, whether at maturity, pursuant to mandatory or
optional prepayment, by acceleration or otherwise, all in accordance with
the terms and provisions hereof and thereof; it being the intent of each of
the Guarantors that the guarantee set forth in this Section 23 (the
"Guarantee") shall be a guarantee of payment and not a guarantee of
collection; and
(b) the punctual and faithful performance, keeping, observance, and
fulfillment by the Company of all duties, agreements, covenants and
obligations of the Company contained in this Agreement, the Other
Agreement, the Notes and the other Financing Documents, including, without
limitation, each undertaking by the Company herein or therein to cause a
Subsidiary to perform or discharge a particular undertaking or covenant.
23.2 Performance under this Agreement and the Other Agreement.
In the event the Company fails to make, on or before the due date thereof, any
payment of the Guaranteed Obligations, or if the Company shall fail to perform,
keep, observe, or fulfill any other obligation referred to in clause (a) or
clause (b) of Section 23.1 in the manner provided in this Agreement or the other
Financing Documents, after in each case giving effect to any applicable grace
periods or cure provisions or waivers or amendments, the Guarantors shall cause
forthwith to be paid the moneys, or to be performed, kept, observed, or
fulfilled each of such obligations, in respect of which such failure has
occurred in accordance with the terms and provisions of this Agreement and the
other Financing Documents.
<PAGE>
23.3 Waivers.
To the fullest extent permitted by law, each Guarantor does hereby waive:
(a) notice of acceptance of the Guarantee;
(b) notice of any purchase of the Notes under this Agreement or the Other
Agreement, or the creation, existence or acquisition of any of the
Guaranteed Obligations, subject to such Guarantor's right to make inquiry
of each holder of Notes to ascertain the amount of the Guaranteed
Obligations at any reasonable time;
(c) notice of the amount of the Guaranteed Obligations, subject to such
Guarantor's right to make inquiry of each holder of Notes to ascertain the
amount of the Guaranteed Obligations at any reasonable time
(d) notice of adverse change in the financial condition of the Company, any
other Guarantor or any Subsidiary or any other fact that might increase or
expand such Guarantor's risk hereunder;
(e) notice of presentment for payment, demand, protest, and notice thereof
as to the Notes or any other instrument;
(f) notice of any Default or Event of Default (except if such notice or
demand is specifically otherwise required to be given to such Guarantor
pursuant to the terms of this Agreement or any other Financing Document);
(g) all other notices and demands to which such Guarantor might otherwise
be entitled (except if such notice or demand is specifically otherwise
required to be given to such Guarantor pursuant to the terms of this
Agreement or any other Financing Document);
(h) the defense of the "single action" rule or any similar right or
protection, and the right by statute or otherwise to require any holder of
Notes to institute suit against the Company or any other Guarantor or to
exhaust its rights and remedies against the Company or any other Guarantor,
such Guarantor being bound to the payment of each and all Guaranteed
Obligations, whether now existing or hereafter accruing, as fully as if
such Guaranteed Obligations were directly owing to the holders of Notes by
such Guarantor;
(i) any defense of the Company under this Agreement or the other Financing
Documents other than the full and timely performance thereof;
(j) any defense relating to the validity or enforceability (or absence or
failure thereof) of any term of this Agreement or any other Financing
Document;
(k) any defense arising by reason of any disability or other defense (other
than the defense that the Guaranteed Obligations shall have been fully and
finally performed and indefeasible paid) of the Company or by reason of the
cessation from any cause whatsoever of the liability of the Company in
respect thereof, and any other defense that such Guarantor may otherwise
have against the Company or any holder of Notes;
(l) any stay (except in connection with a pending appeal), valuation,
appraisal, redemption or extension law now or at any time hereafter in
force which, but for this waiver, might be applicable to any sale of
property of such Guarantor made under any judgment, order or decree based
on this Agreement, and such Guarantor covenants that it will not at any
time insist upon or plead, or in any manner claim or take the benefit or
advantage of such law; and
(m) any other defense which a Guarantor may have to the full and complete
performance of its obligations hereunder.
<PAGE>
23.4 Certain Waivers of Subrogation, Reimbursement and Indemnity.
Until all of the Guaranteed Obligations shall have been fully and finally paid,
no Guarantor shall have any right of subrogation, reimbursement or indemnity
whatsoever and no right of recourse to or with respect to any assets or property
of the Company. Nothing shall discharge or satisfy the liability of any of the
Guarantors hereunder except the full and final performance and indefeasible
payment of the Guaranteed Obligations.
23.5 Releases.
Each of the Guarantors consents and agrees that, without notice to or by such
Guarantor and without, to the fullest extent permitted by applicable law,
impairing, releasing, abating, deferring, suspending, reducing, terminating or
otherwise affecting the obligations of such Guarantor hereunder, each holder of
Notes, in the manner provided herein, by action or inaction, may:
(a) compromise or settle, renew or extend the period of duration or the
time for the payment, or discharge the performance of, or may refuse to, or
otherwise not, enforce, or may, by action or inaction, release all or any
one or more parties to, any one or more of this Agreement or the other
Financing Documents;
(b) assign, sell or transfer, or otherwise dispose of, any one or more of
the Notes;
(c) grant waivers, extensions, consents and other indulgences to the
Company or any other Guarantor in respect of any one or more of this
Agreement or the other Financing Documents;
(d) amend, modify or supplement in any manner and at any time (or from time
to time) any one or more of this Agreement or the other Financing
Documents;
(e) release or substitute any one or more of the endorsers or guarantors of
the Guaranteed Obligations whether parties hereto or not;
(f) sell, exchange, release or surrender any property at any time pledged
or granted as security in respect of the Guaranteed Obligations (including,
without limitation, the Collateral and/or Pledged Stock Collateral),
whether so pledged or granted by the Company, such Guarantor or another
guarantor of the Company's obligations under this Agreement or the other
Financing Documents;
(g) exchange, enforce, waive, or release, by action or inaction, any
security for the Guaranteed Obligations or any other guarantee of any of
the Notes; and
(h) any other act or event which could have the effect of releasing a
Guarantor from the full and complete performance of its obligations
hereunder.
23.6 Marshaling.
Each Guarantor consents and agrees, to the fullest extent permitted by
applicable law, that:
(a) each holder of Notes shall be under no obligation to marshal any assets
in favor of such Guarantor or against or in payment of any or all of the
Guaranteed Obligations; and
(b) to the extent the Company or another Guarantor makes a payment or
payments to any holder of Notes, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, or required, for any of the foregoing reasons or
<PAGE>
for any other reason, to be repaid or paid over to a custodian, trustee,
receiver, or any other party under any bankruptcy law, common law, or
equitable cause, then to the extent of such payment or repayment, the
obligation or part thereof intended to be satisfied thereby shall be
revived and continued in full force and effect as if said payment or
payments had not been made and such Guarantor shall be primarily liable for
such obligation.
23.7 Liability.
Each Guarantor agrees that the liability of such Guarantor in respect of this
Section 23 shall be immediate and shall not be contingent upon the exercise or
enforcement by any holder of Notes of whatever remedies such holder may have
against the Company or any other Guarantor or the enforcement of any Lien or
realization upon any security such holder may at any time possess (including any
realization in respect of the Collateral and/or Pledged Stock Collateral).
23.8 Character of Obligation.
The Guarantee set forth in this Section 23 is a primary and original obligation
of each Guarantor and is an absolute, unconditional, continuing and irrevocable
guarantee of payment and performance (and not of collectibility) and shall
remain in full force and effect until the full, final and indefeasible payment
of the Guaranteed Obligations without respect to future changes in conditions.
The obligations of the Guarantors under this Section 23 are joint and several.
The obligations of each Guarantor under this Guarantee and the rights of the
holders of Notes to enforce such obligations by any proceedings, whether by
action at law, suit in equity or otherwise, shall not be subject to any
reduction, limitation, impairment or termination, whether by reason of any claim
of any character whatsoever or otherwise, including, without limitation, claims
of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense (other than the defense that the Guaranteed Obligations
shall have been fully and finally performed and indefeasible paid), set-off,
counterclaim, recoupment or termination whatsoever.
Without limiting the generality of the foregoing and to the fullest extent
permitted by applicable law, the obligations of each Guarantor hereunder shall
not be discharged or impaired or otherwise affected by:
(a) any default, failure or delay, willful or otherwise, in the performance
by the Company of any obligations of any kind or character whatsoever of
the Company (including, without limitation, the obligations and
undertakings of the Company hereunder or under any other Financing
Document);
(b) any creditors' rights, bankruptcy, receivership or other insolvency
proceeding of the Company or any other Person or in respect of the property
of the Company or any other Person or any merger, consolidation,
reorganization, dissolution, liquidation or winding up of the Company or
any other Person;
(c) impossibility or illegality of performance on the part of the Company
of its obligations hereunder or under any other Financing Document;
(d) the validity or enforceability of this Agreement or any other Financing
Document;
(e) in respect of the Company or any other Person, any change of
circumstances, whether or not foreseen or foreseeable, whether or not
imputable to the Company or any other Person, or other impossibility of
performance through fire, explosion, accident, labor disturbance, floods,
droughts, embargoes, wars (whether or not declared), civil commotion, acts
of God or the public enemy, delays or failure of suppliers or carriers,
inability to obtain materials, action of any federal or state regulatory
body or agency, change of law or any other causes affecting performance, or
any other force majeure, whether or not beyond the control of the Company
or any other Person and whether or not of the kind hereinbefore specified;
<PAGE>
(f) any attachment, claim, demand, charge, lien, order, process,
encumbrance or any other happening or event or reason, similar or
dissimilar to the foregoing, or any withholding or diminution at the
source, by reason of any taxes, assessments, expenses, indebtedness,
obligations or liabilities of any character, foreseen or unforeseen, and
whether or not valid, incurred by or against any Person, or any claims,
demands, charges or Liens of any nature, foreseen or unforeseen, incurred
by any Person, or against any sums payable hereunder or under any other
Financing Document, so that such sums would be rendered inadequate or would
be unavailable to make the payments herein provided;
(g) any order, judgment, decree, law, ruling or regulation (whether or not
valid) of any court of any nation or of any political subdivision thereof
or any body, agency, department, official or administrative or regulatory
agency of any thereof or any other action, happening, event or reason
whatsoever which shall delay, interfere with, hinder or prevent, or in any
way adversely affect, the performance by any party of its respective
obligations under any instruments; or
(h) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, any Guarantor in respect of the
obligations of such Guarantor under this Guarantee.
23.9 Election to Perform Obligations.
Any election by any Guarantor to pay or otherwise perform any of the obligations
of the Company under this Agreement or the other Financing Documents, whether
pursuant to this Section 23 or otherwise, shall not release the Company or any
other Guarantor from such obligations or any of such Person's other obligations
under this Agreement and the other Financing Documents.
23.10 No Election.
Each holder of Notes shall have the right to seek recourse against each of the
Guarantors to the fullest extent provided for in this Section 23 and elsewhere
as provided in this Agreement and the other Financing Documents, and against the
Company, to the full extent provided for in this Agreement and the other
Financing Documents. No election to proceed in one form of action or proceeding,
or against any party, or on any obligation, shall constitute a waiver of the
right of such holder of Notes to proceed in any other form of action or
proceeding or against other parties unless such holder of Notes has expressly
waived such right in writing. Specifically, but without limiting the generality
of the foregoing, no action or proceeding by any holder of Notes against the
Company or any Guarantor under any document or instrument evidencing obligations
of the Company or such Guarantor to such holder of Notes shall serve to diminish
the liability of any Guarantor under this Agreement (including, without
limitation, this Section 23) except to the extent that such holder of Notes
finally and unconditionally shall have realized payment by such action or
proceeding, notwithstanding the effect of any such action or proceeding upon
such Guarantor's right of subrogation against the Company.
23.11 Severability.
Subject to Section 13 hereof, each of the rights and remedies granted under this
Section 23 to the holder of Notes in respect of the Notes held by such holder
may be exercised by such holder without notice by such holder to, or the consent
of or any other action by, any other holder of Notes.
23.12 Other Enforcement Rights.
Each holder of Notes may proceed to protect and enforce the Guarantee under this
Section 23 by suit or suits or proceedings in equity, at law or in bankruptcy,
and whether for the specific performance of any covenant or agreement contained
in this Section 23 or in execution or aid of any power herein granted or for the
recovery of judgment for or in respect of the Guaranteed Obligations or for the
enforcement of any other proper, legal or equitable remedy available under
applicable law.
23.13 Delay or Omission; No Waiver.
<PAGE>
No course of dealing on the part of any holder of Notes and no delay or failure
on the part of such holder to exercise any right under this Agreement (including
this Section 23) or the other Financing Documents shall impair such right or
operate as a waiver of such right or otherwise prejudice such holder's rights,
powers and remedies hereunder. Every right and remedy given in or by this
Section 23 or by law to any holder of Notes may be exercised from time to time
as often as may be deemed expedient by such Person.
23.14 Restoration of Rights and Remedies.
If any holder of Notes shall have instituted any proceeding to enforce any right
or remedy in this Section 23, under this Agreement or any other Financing
Document and such proceeding shall have been discontinued or abandoned for any
reason, or shall have been determined adversely to such holder, then and in
every such case each such holder, the Company and each of the Guarantors shall,
except as may be limited or affected by any determination in such proceeding, be
restored severally and respectively to its respective former positions hereunder
and thereunder, and thereafter the rights and remedies of such holder shall
continue as though no such proceeding had been instituted.
23.15 Cumulative Remedies.
No remedy under this Agreement (including, without limitation, this Section 23)
or the other Financing Documents is intended to be exclusive of any other
remedy, but each and every remedy shall be cumulative and in addition to any and
every other remedy given pursuant to this Agreement (including, without
limitation, this Section 23) and the other Financing Documents.
23.16 Survival.
So long as the Guaranteed Obligations shall not have been fully and finally
performed and indefeasibly paid, the obligations of each Guarantor under this
Section 23 shall survive the transfer and payment of any Note and the payment in
full of all the Notes.
23.17 Miscellaneous.
If an Event of Default exists, then the holders of Notes (as provided in Section
13) shall have the right to declare all of the Guaranteed Obligations to be, and
such Guaranteed Obligations shall thereupon become, forthwith due and payable,
without any presentment, demand, protest or other notice of any kind, all of
which have been expressly waived by the Company and the Guarantors, and
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such Guaranteed Obligations from becoming automatically due and
payable) as against the Company. In any such event, the holders of Notes shall
have immediate recourse to each of the Guarantors to the fullest extent set
forth herein.
Notwithstanding any other provision of this Section 23, the Guaranteed
Obligations of each Guarantor under this Section 23 shall be limited to the
extent, if any, required so that its obligations under this Section 23 shall not
be subject to avoidance under Section 548 of the Bankruptcy Code or to being set
aside or annulled under any applicable state law relating to fraud on creditors.
In determining the limitations, if any, on the amount of any Guarantor's
obligations under this Section 23 pursuant to the preceding sentence, any rights
of subrogation or contribution which such Guarantor may have under this Section
23 or applicable law shall be taken into account.
Notwithstanding any provision in this Agreement or the Other Agreement to the
contrary, each Obligor agrees that any indebtedness of an Obligor owing to the
Company or another Obligor shall be subordinated in right of payment to the
Guaranteed Obligations of such Guarantor under this Section 23 owing to the
holders of Notes.
24. MISCELLANEOUS.
24.1 Successors and Assigns.
<PAGE>
All covenants and other agreements contained in this Agreement by or on behalf
of any of the parties hereto bind and inure to the benefit of their respective
successors and assigns (including, without limitation, any subsequent holder of
a Note) whether so expressed or not.
24.2 Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary notwithstanding, any
payment of principal of or Make-Whole Amount or interest on any Note that is due
on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.
24.3 Severability.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
24.4 Construction.
(a) Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not
(absent such an express contrary provision) be deemed to excuse compliance
with any other covenant. Where any provision herein refers to action to be
taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
(b) This Agreement and the wording contained herein have been arrived at by
mutual negotiation of the parties hereto, and no provision hereof shall be
interpreted or construed against one party in favor of the other party by
reason of draftsmanship.
24.5 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which together shall constitute one instrument.
Each counterpart may consist of a number of copies hereof, each signed by less
than all, but together signed by all, of the parties hereto.
24.6 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
25. COLLATERAL AGENT
25.1 Appointment.
(a) Appointment. You hereby join the Other Purchaser in appointing Phoenix
Home Life Mutual Insurance Company as the Collateral Agent (the "Collateral
Agent") under each of the Security Agreements and the Pledge Agreements.
The Collateral Agent, by executing and delivering a copy of the Note
Purchase Agreement accepts such appointment. Upon 30 days prior written
notice to the holders of Notes, the Collateral Agent may resign from its
position and responsibilities hereunder and under the Security Agreements
and Pledge Agreements. Upon any such notice of resignation, the Required
Holders shall appoint a successor Collateral Agent or an institutional
trustee under Section 25.4. If a successor collateral Agent or
institutional trustee under Section 25.4 shall not have been appointed
within said 30 day period, the resigning collateral Agent's resignation
<PAGE>
shall be postponed until the Required Holders shall have appointed a
successor Collateral Agent or institutional trustee under Section 25.4. the
resigning Collateral Agent shall, upon receipt of written instructions from
the Required Holders, promptly deliver all collateral and Pledged Stock
Collateral then in its possession to such successor Collateral Agent or
such institutional trustee and shall execute and deliver any and all such
further instruments and documents and take such further actions as may be
reasonably required by the Required Holders to effect such transfer and
shall thereafter be discharged from all of its obligations hereunder and
under the other Financing Documents. The collateral Agent shall not be
obligated to take any action hereunder, under the Security Agreements,
under the Pledge Agreements, under the Intercreditor Agreement or under the
other Financing Documents unless directed in writing by the Required
Holders and the Collateral Agent may require that a satisfactory indemnity
bond be furnished for the reimbursement o fall expenses which it incurs and
to protect it against all liability by reason of any action so taken,
except liability which is adjudicated to have resulted from its gross
negligence or willful misconduct. The Collateral Agent shall not be
obligated to follow any such written instructions or to take any such
action to the extent that such instructions or actions are, in the good
faith judgment of the Collateral Agent, in conflict with any provision of
law, this Agreement or the other Financing Documents. The Collateral Agent
may execute any of the rights or powers and perform any duty hereunder
either directly or through agents or attorney-in-fact. The collateral Agent
shall not be responsible for the negligence or misconduct of any Agent or
attorney-in-fact selected by it without gross negligence or willful
misconduct. The Collateral Agent shall have no duties or responsibilities
except those expressly set forth in the Financial Documents to which it is
a party. The duties of the Collateral Agent shall be mechanical and
administrative in nature and the Collateral Agent shall not have, by reason
of this Agreement or any other Financing Agreement to which it is a party,
a fiduciary relationship in respect of any holder of Notes. The Collateral
Agent shall not be responsible to any holder of Notes for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement, any other Financing document or any document
or instrument related hereto (individually, a "Related Document" and,
collectively, the "Related Documents"). Neither the Collateral Agent nor
any of its officers, directors, employees, agents, investigators,
consultants, attorneys-in-fact or affiliates shall be liable to any holder
of Notes for any action taken or omitted hereunder or under any Related
Document or in connection herewith or hereunder unless, but only to the
extent, caused by its or their gross negligence or willful misconduct. If
the Collateral Agent shall reject instructions from the holders of Notes
with respect to any act or action (including the failure to take an action)
in connection with this Agreement or any Related Document, the Collateral
Agent shall be entitled to refrain from such act or taking such action
unless and until the Collateral Agent shall have received instructions from
the Required Holders and the other conditions set forth in this paragraph
in respect thereof have been satisfied. Without limiting the generality of
the foregoing, the Collateral Agent:
(a) may consult with legal counsel, independent public accountants,
appraisers, and other experts and shall not be liable for any action
taken or omitted to be taken in good faith in accordance with the
advice of such counsel, accountants, appraisers, or experts and
(b) shall incur no liability under or in respect of this Agreement
(i) by acting or relying upon any recital, statement,
communication, certificate, representation or warranty of any
Obligor, HIL or any holder of Notes made in connection herewith
or with any Related Document,
(ii) by relying upon any written information supplied by any
predecessor Collateral Agent, or
<PAGE>
(iii) by acting or relying upon any notice, instruction, consent,
certificate or other instrument, writing or communication (which
may be by telegram, cable, telex, telecopier or telephone) in
good faith believed by it to be genuine and to have been signed,
sent or made by the proper party or parties.
The agency hereby created shall in no way impair or affect any of the rights and
powers of, or impose any duties or obligations upon, the Collateral Agent, in
its individual capacity as a holder of Notes hereunder, if such Collateral Agent
shall at any time be a holder of Notes hereunder.
25.2 Distribution. All cash proceeds received by the Collateral Agent in respect
of the Collateral and the Pledged Stock Collateral, whether by foreclosure or
otherwise, shall, to the extent payable to the holders of Notes in accordance
with the terms hereof and of the lntercreditor Agreement, be reasonably promptly
distributed to the holders of Notes ratably in accordance with the terms and
provisions of the Security Agreements, the Pledge Agreements and/or
lntercreditor Agreement, as the case may be.
25.3 Indemnification. Each holder of Notes agrees to protect, indemnify and hold
harmless any Collateral Agent from and against all suits, penalties, claims,
demands, judgments, taxes, liabilities, obligations, costs and expenses of any
kind or nature whatsoever (including, without limitation, reasonable counsel
fees and disbursements) which may at any time be imposed on, incurred by, or
asserted against, such Collateral Agent in connection with, or arising out of,
its duties and actions as a Collateral Agent hereunder; provided, however, that
no holders of Notes shall be liable (a) for any of the foregoing arising
directly from such Collateral Agent's gross negligence or willful misconduct or
(b) in excess of its ratable portion of the aggregate amounts owed under this
Section 25.3 to such Collateral Agent (such ratable portion to be determined in
accordance with such holder's share of the total principal amount of the Notes
outstanding at the time of the determination of such holder's obligations under
this Section 25.3). If any indemnity furnished to the Collateral Agent for any
purpose hereunder shall, in the opinion of such Collateral Agent, be
insufficient or become impaired, such Collateral Agent may request additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished. The agreements in this Section 25.3
shall survive the payment of the Notes and all other amounts payable hereunder.
25.4 Trustee. The Required Holders may direct, at any time, the Collateral Agent
to deliver all Collateral and Pledged Stock Collateral then in its possession to
an institutional trustee selected by such Required Holders, and the Collateral
Agent shall, upon receipt of such direction, promptly deliver all of such
Collateral and Pledged Stock Collateral to such institutional trustee and shall
thereafter be discharged from all of its obligations hereunder and under the
other Financing Documents to which it is a party. The Obligors shall execute and
deliver any and all such further instruments and documents and take such further
actions as may be reasonably required to put into effect a trust indenture
whereby the Collateral and Pledged Stock Collateral is to be held in trust by
the aforesaid institutional trustee on behalf of the holders of Notes. All costs
and expenses incurred in connection with the appointment of such institutional
trustee (including, without limitation, the fees of any institutional trustee
and all attorneys' fees and disbursements of such institutional trustee) and all
other annual fees, renewal fees or other similar fees of such institutional
trustee shall be for the account of the Obligors and shall be payable upon
demand. In any such case, all references herein and in the other Financing
Documents to "Collateral Agent" shall be deemed to be a reference to such
institutional trustee.
If you are in agreement with the foregoing, please sign the form of agreement on
the accompanying counterpart of this Agreement and return it to the Company,
whereupon the foregoing shall become a binding agreement between you and the
Obligors and HIL.
<PAGE>
Very truly yours,
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
HAMPSHIRE INVESTMENTS, LIMITED
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
SEGUE (AMERICA) LIMITED
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
GLAMOURETTE FASHION MILLS, INC.
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
SAN FRANCISCO KNITWORKS, INC.
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
The foregoing is hereby agreed to as of the date thereof.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
/s/ John H. Beera
Title: Vice President
The foregoing is hereby agreed to as of the date thereof.
THE OHIO NATIONAL LIFE INSURANCE COMPANY
/s/ Michael A. Boedeker
Title: Vice President, Fixed Income Securities
<PAGE>
SCHEDULE A-1
Purchaser Name PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
Name in Which Note is Registered Phoenix Home Life Mutual Insurance Company
Note Registration Number;
Principal Amount R-1; $10,000,000
Payment on Account of Note
Method Federal Funds Wire Transfer
Account Information Chase Manhattan Bank, N.A
New York, NY
ABA No.: 021 000 021
For the Account of: Income Processing
Account No.: 900 9000 200
For further credit to:
Phoenix Home Life Acct. #G05143
Re: See "Accompanying Information" below
Accompanying Information Name of company: Hampshire Group, Limited
Description of
Security: 7.05% Senior Secured Note due
January 2, 2008
PPN: 408859 A* 7
Due Date and Application (as among
principal, Make-Whole Amount and
interest) of the payment being made:
Address for Notices
Related to Payments Phoenix Home Life Mutual Insurance Company
c/o Phoenix Investment Partners, Ltd.
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
Attention: Private Placements Division
Telecopier Number: (860) 403-5451
Address for all other Notices Phoenix Home Life Mutual Insurance Company
c/o Phoenix Investment Partners, Ltd.
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
Attention: Private Placements Division
Telecopier Number: (860) 403-5451
Other Instructions PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By
Name:
Title:
Instructions re Delivery of Notes Law Department of Purchaser
Tax Identification Number 06-0493340
<PAGE>
SCHEDULE A-2
Purchaser Name THE OHIO NATIONAL LIFE INSURANCE COMPANY
Name in Which Note is Registered The Ohio National Life Insurance Company
Note Registration Number;
Principal Amount R-2; $5,000,000
Payment on Account of Note
Method Federal Funds Wire Transfer
Account Information Star Bank, N.A.
5th & Walnut Streets
Cincinnati, OH 45202
ABA #: 042-000013
For credit to: The Ohio National Life
Insurance Company
Account No.: 910-275-7
Re:See "Accompanying Information" below
Accompanying Information Name of Company: Hampshire Group, Limited
Description of
Security:7.05% Senior Secured Note due
January 2, 2008
PPN: 408859 A* 7
Due Date and Application (as among
principal, Make-Whole Amount and
interest) of the payment being made:
Address for Notices
Related to Payments The Ohio National Life Insurance Company
Post Office Box 237
Cincinnati, OH 45201
Attn: Investment Department
Telecopier No.: 513-794-4506
Address for all other Notices The Ohio National Life Insurance Company
Post Office Box 237
Cincinnati, OH 45201
Attn: Investment Department
Telecopier No.: 513-794-4506
Other Instructions THE OHIO NATIONAL LIFE INSURANCE COMPANY
By
Name:
Title:
Instructions re Delivery of Note Mr. Jed Martin
Ohio National Financial Services
One Financial Way
Cincinnati, OH 45242
Tax Identification Number 31-0397080
<PAGE>
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings set forth below
or set forth in the Section hereof following such term:
Acceptable Control Persons - means and includes (i) any Kuttner Family Member,
(ii) any trust established by any Kuttner Family Member, at least a majority of
the beneficial interests in which are reserved to one or more Kuttner Family
Members, (iii) any Subsidiary of a Kuttner Family Member, (iv) any charitable
foundation or trust to which a Kuttner Family Member may transfer Voting Stock
of the Company, at least one of the directors or trustees of which is a Kuttner
Family Member, and (v) any banks, trust companies, brokerage firms, nominees,
securities intermediaries and clearing corporations that hold Voting Stock of
the Company for the benefit of any of the foregoing, but only to the extent of
the Voting Stock so held.
Affiliate - means, at any time, and with respect to any Person,
(a) any other Person that at such time directly or indirectly through one
or more intermediaries Controls, or is Controlled by, or is under common
Control with, such first Person, and
(b) any Person beneficially owning or holding, directly or indirectly, 5%
or more of any class of voting or equity interests of the Company or any
Subsidiary or any corporation, company, partnership or other entity of
which the Company and its Subsidiaries beneficially own or hold, in the
aggregate, directly or indirectly, 5% or more of any class of voting or
equity interests.
As used in this definition, "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.
Agreement, this - is defined in Section 18.3.
Average Current Ratio -- means, at any time, the quotient that results from (a)
adding to g ether the Current Ratios for each fiscal quarter in respect of the
then most recently ended four consecutive fiscal quarters of the Company (the
Current Ratio for each such fiscal quarter being determined as of the last
Business Day of each such fiscal quarter) and dividing such sum by (b) 4.
Bankruptcy Code -- means the Bankruptcy Reform Act of 1978, as heretofore and
hereafter amended, and codified as 11 U.S.C. Sec. 101 et seq.
Basket Transfer -- is defined in Section 11 .9(a)(iv).
Board of Directors -- means, the board of directors of the Company or any
committee thereof which, in the instance, shall have the lawful power to
exercise the power and authority of such board of directors.
Business Day -- means any day other than a Saturday, Sunday or other day on
which commercial banks in Hartford, Connecticut, New York, New York or Anderson,
South Carolina are authorized or required to close under the laws of the State
of Connecticut or the State of South Carolina (other than a general banking
moratorium or holiday for a period exceeding 4 consecutive days).
Capital Lease -- means, at any time, a lease with respect to which the lessee is
required to recognize the acquisition of an asset and the incurrence of a
liability at such time in accordance with GAAP.
Capital Lease Obligation -- means, with respect to the Company or any Restricted
Subsidiary and a Capital Lease, the amount of the obligation of such Person as
the lessee under such Capital Lease which would, in accordance with GAAP, appear
as a liability on a balance sheet of such Person.
<PAGE>
Change in Control -- means any of the following events or circumstances:
(a) any Person or Persons acting in concert or constituting a group (as
such term is used in Rule 1 3d-5 under the Exchange Act) (other than
Acceptable Control Persons), together with Affiliates thereof, shall in the
aggregate, directly or indirectly, control or own (beneficially or
otherwise) more than 49% (by number of shares) of the issued and
outstanding Voting Stock of the Company;
(b) Ludwig Kuttner shall cease to hold the position of or perform the
duties of President or Chief Executive Officer of the Company (other than
by reason of death or his physical or mental disability or incapacity as
described in clause (c) below); and
(c) Ludwig Kuttner shall cease to hold the position of President or Chief
Executive Officer of the Company by reason of his death or shall fail to
fully perform and discharge his duties as President and Chief Executive
Officer of the Company for any period of not less than six consecutive
months by reason of his physical or mental disability or incapacity.
The disability or incapacity of Mr. Kuttner to fully perform and discharge his
duties as President and Chief Executive Officer of the Company shall be
determined by the Board of Directors in good faith and upon consultation with
one or more medical physicians, provided that Mr. Kuttner's inability to be
physically present and active in his office at the Company's headquarters for at
least 30 full Business Days of the aforesaid six consecutive month period shall
be deemed to be a determination and confirmation of his disability or incapacity
to fully perform and discharge his duties as President and Chief Executive
Officer for purposes of this definition.
Closing -- is defined in Section 3.
Code -- means the Internal Revenue Code of 1986, as amended from time to time,
and the rules and regulations promulgated thereunder from time to time.
Collateral-- has the collective meaning ascribed to such term in the Security
Agreements.
Collateral Agent-- Section 25.1.
Company -- is defined in the introductory sentence of this Agreement.
Company's Pledge Agreement--Section 4.11.
Company's Security Agreement -- Section 4.11.
Confidential Information -- is defined in Section 21.
Consolidated Current Assets -- means, at any time, the total current assets of
the Company and the Restricted Subsidiaries determined at such time on a
consolidated basis in accordance with GMP.
Consolidated Current Debt -- means, at any time, the aggregate amount of all
Current Debt of the Company and the Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP.
Consolidated Current Liabilities -- means, at any time, the total current
liabilities of the Company and the Restricted Subsidiaries determined at such
time on a consolidated basis in accordance with GAAP.
Consolidated Debt -- means, at any time, the aggregate amount of all Debt of the
Company and the Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP.
Consolidated Fixed Charges -- means, for any period, the sum of
(a) Consolidated Interest Expense for such period, plus
<PAGE>
(b) the amount payable in respect of such period with respect to Operating
Rentals payable by the Company and the Restricted Subsidiaries determined
on a consolidated basis in accordance with GAAP.
Consolidated Funded Debt -- means, at any time, the aggregate amount of all
Funded Debt of the Company and the Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP.
Consolidated Interest Expense -- means, for any period, the aggregate amount of
interest accrued or capitalized on, or with respect to, Consolidated Debt for
such period, determined in accordance with GAAP.
Consolidated Income Available for Fixed Charges -- means, for any period, the
sum of
(a) Consolidated Operating Net Income, plus
(b) the aggregate amount of
(i) income taxes and
(ii) Consolidated Fixed Charges,
(to the extent, and only to the extent, that such aggregate amount was
reflected in the computation of Consolidated Operating Net Income for such
period), in each case accrued for such period by the Company and the
Restricted Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
Consolidated Liabilities -- means, at any time, the aggregate amount of all
liabilities of the Company and the Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP.
Consolidated Net Income -- means, with respect to any period, the net income (or
loss) of the Company and the Restricted Subsidiaries for such period, as
determined on a consolidated basis in accordance with GAAP.
Consolidated Net Worth -- means, at any time, shareholders' equity of the
Company and the Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP.
Consolidated Operating Net Income -- means, for any period, Consolidated Net
Income for such period, but excluding to the extent included in the computation
thereof:
(a) net earnings (or net loss) of any Restricted Subsidiary accrued prior
to the date it became a Restricted Subsidiary;
(b) any gain or loss (net of tax effects applicable thereto) resulting from
the sale, conversion or other disposition of capital assets other than in
the ordinary course of business;
(c) any extraordinary, unusual or nonrecurring gains or losses;
(d) any gain arising from any reappraisal or write-up of assets;
(e) any gain or loss (net of tax effects applicable thereto) during such
period resulting from the receipt of any proceeds of any insurance policy;
(f) any earnings of any Person acquired by the Company or any Restricted
Subsidiary through purchase, merger or consolidation or otherwise, or
earnings of any Person substantially all of whose assets have been acquired
by the Company or any Restricted Subsidiary, for any period prior to the
date of acquisition; and
(g) net earnings (or net non-cash loss) of any Person (other than a
Restricted Subsidiary) in which the Company or any Restricted Subsidiary
shall have an ownership interest unless, in the case of such net earnings,
such net earnings shall have actually been received by the Company or such
Restricted Subsidiary in the form of cash distributions.
<PAGE>
Consolidated Tangible Net Assets -- means, at any time:
(a) Consolidated Total Assets (net of all depreciation and amortization in
respect thereof), minus
(b) the sum of (i) all Intangible Assets (net of all depreciation and
amortization in respect thereof) to the extent included in clause (a)
above, plus (ii) any write-ups in valuation of the Consolidated Total
Assets, plus (iii) all Restricted Investments to the extent included in
clause (a) above, in each case determined at such time in accordance with
GAAP.
Consolidated Tangible Net Worth -- means, at any time, the difference of
(a) Consolidated Total Assets (net of all depreciation and amortization in
respect thereof) minus
(b) the sum of (i) all Intangible Assets (net of all depreciation and
amortization in respect thereof) to the extent included in clause (a)
above, plus (ii) Consolidated Liabilities, plus (iii) all Restricted
Investments to the extent included in clause (a) above, plus (iv) any
write-up's in valuation of the Consolidated Total Assets, determined in
each case at such time in accordance with GAAP.
Consolidated Total Assets -- means, at any time, the total assets of the Company
and the Restricted Subsidiaries determined on a consolidated basis at such time
in accordance with GAAP.
Consolidated Total Capitalization -- means, at anytime, the sum of Consolidated
Funded Debt at such time plus Consolidated Tangible Net Worth at such time.
Control Event means:
(a) the execution by the Company or any Subsidiary or Affiliate of any
agreement or letter of intent with respect to any proposed transaction or
event or series of transactions or events that, individually or in the
aggregate, may reasonably be expected to result in a Change in Control;
(b) the execution of any written agreement that, when fully performed by
the parties thereto, would result in a Change in Control; or
(c) the making of any written offer by any "person" (as such term is used
in section 13(d) and section 1 4(d)(2) of the Exchange Act as in effect on
the date of the Closing) or related persons constituting a "group" (as such
term is used in Rule 1 3d-5 under the Exchange Act as in effect on the date
of the Closing) to the holders of the Voting Stock of the Company, which
offer, if accepted by the requisite number of holders, would result in a
Change in Control.
Credit Agreement-- means that certain Credit Agreement and Guaranty, dated as of
May 28,1998, among the Company, the Guarantors, The Chase Manhattan Bank,
Republic National Bank of New York, NationsBank, N.A., as Banks and The Chase
Manhattan Bank, as Agent, together with any related documents thereto, in each
case as such agreement may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including
without limitation any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring all or any portion of the Debt under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders, provided that lenders in connection
with any such refinancing, replacing or otherwise restructuring and the agent in
respect thereof shall have become a party to the lntercreditor Agreement.
Current Debt -- means, with respect to any Person, at any time, all Debt of such
Person other than Funded Debt. With respect to the Company and the Restricted
Subsidiaries, Debt of Restricted Subsidiaries described in clause (e) of the
definition of "Permitted Restricted Subsidiary Debt" shall be, without regard to
the limitations as to amount contained in such definition, deemed to be Current
Debt.
<PAGE>
Current Maturities of Funded Debt -- means, at any time and with respect to any
item of Funded Debt, the portion of such Funded Debt outstanding at such time
which by the terms of such Funded Debt or the terms of any instrument or
agreement relating thereto is due on demand or within one year from such time
(whether by sinking fund, other required prepayment or final payment at
maturity) and is not directly or indirectly renewable, extendible or refundable
at the option of the obligor under an agreement or firm commitment in effect at
such time to a date one year or more from such time.
Current Ratio -- means, at any time, the quotient resulting from (a)
Consolidated Current Assets determined at such time divided by (b) Consolidated
Current Liabilities determined at such time (excluding from such Consolidated
Current Liabilities Current Debt other than Debt described in cause (a) of the
definition of "Debt" with respect to the Company and the Restricted
Subsidiaries).
Debt -- means, with respect to the Company or any Subsidiary, without
duplication,
(a) its liabilities for borrowed money and its redemption obligations in
respect of mandatorily redeemable preferred stock;
(b) its liabilities for the deferred purchase price of property acquired by
such Person (including, without limitation, all liabilities created or
arising under any conditional sale or other title retention agreement with
respect to any such property but excluding accounts payable arising in the
ordinary course of business);
(c) its Capital Lease Obligations;
(d) all liabilities for borrowed money secured by any Lien with respect to
any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);
(e) any reimbursement obligation in respect of any letter of credit issued
for the account of such Person (to the extent not prepaid);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
For purposes of the foregoing, (i) the amount of any Debt described in clause
(g) shall be equal to the lesser of the amount of the primary obligation in
respect of which such Guaranty is issued and the maximum liability amount under
the terms of such Guaranty.
Default -- means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
Default Rate -- means the lesser of
(a) the maximum rate of interest allowed by applicable law, and
(b) the greater of (i) 9.05% per annum and (ii) 2% per annum over the rate
of interest publicly announced from time to time by Morgan Guaranty Trust
Company of New York (or its successors) in New York, New York as its "base"
or "prime" rate.
Environmental Laws -- means any and all applicable Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
ERISA -- means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time in effect.
<PAGE>
ERISA Affiliate -- means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
Event of Default -- is defined in Section 12.
Exchange Act -- means the Securities Exchange Act of 1934, as amended from time
to time.
Exempt Preferred Stock -- means not more than 1,000 shares of Preferred Stock,
$200 stated value, of Glamourette, with an annual dividend rate not in excess of
$62 per share.
Fair Market Value -- means, at any time and with respect to any property, the
sale value of such property that would be realized in an arm's-length sale at
such time between an informed and willing buyer and an informed and willing
seller (neither being under a compulsion to buy or sell).
Financing Documents -- means the Note Purchase Agreements, the Notes, the
lntercreditor Agreement, the Security Agreements, the Pledge Agreements and the
documents, instruments and certificates executed and delivered in connection
with each, as each may be amended from time to time.
Fiscal Year Net Worth Increase Amount -- Section 11.3.
Full Consolidated Net Income -- means, with respect to any period, the net
income (or loss) of the Company and the Subsidiaries for such period, as
determined on a consolidated basis in accordance with GAAP.
Funded Debt -- means, with respect to the Company or any Restricted Subsidiary,
all Debt of such Person which by its terms or by the terms of any instrument or
agreement relating thereto matures, or which is otherwise payable or unpaid, one
year or more from, or is directly or indirectly renewable or extendible at the
option of such Person to a date one year or more (including, without limitation,
an option of such Person under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or
more) from, the date of the creation thereof, but excludes any Current
Maturities of Funded Debt. For purposes of this definition, any minority
interest that would be shown on a consolidated balance sheet of the Company and
the Restricted Subsidiaries prepared in accordance with GAAP at such time shall
be deemed to be Funded Debt.
GAAP -- means generally accepted accounting principles as in effect from time to
time in the United States of America.
Glamourette -- is defined in the introductory sentence of this Agreement.
Governmental Authority -- means
(a) the government of
(i) the United States of America or any state or other political
subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary conducts
all or any part of its business, or that asserts jurisdiction over any
properties of any such Person, or
(b) any entity exercising executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, any such government.
Guarantee -- is defined in Section 23.1.
Guaranteed Obligations -- is defined in Section 23.1.
Guarantor -- is defined in the introductory sentence of this Agreement, and
shall include each such other Person that shall have become a party to this
Agreement as provided for in Section 10.7.
<PAGE>
Guarantor's Pledge Agreement -- Section 4.11.
Guarantor's Security Agreement -- Section 4.11.
Guaranty -- means, with respect to any Person (for the purposes of this
definition, the "guarantor"), any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by the guarantor:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds
(i) for the purchase or payment of such indebtedness, dividend or
obligation, or
(ii) to maintain working capital or other balance sheet condition or
any income statement condition of the primary obligor or otherwise to
advance or make available funds for the purchase or payment of such
indebtedness, dividend or obligation;
(c) to lease property or to purchase securities or other property or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the primary obligor to make
payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or obligation of the
primary obligor against loss in respect thereof.
For purposes of computing the amount of any guaranty in connection with any
computation of indebtedness or other liability, it shall be assumed that the
indebtedness or other liabilities that are the subject of such Guaranty are
direct obligations of the issuer of such Guaranty.
Hazardous Material -- means any and all pollutants, toxic or hazardous wastes or
any other substances that might pose a hazard to health or safety, the removal
of which may be required or the generation, manufacture, refining, production,
processing, treatment, storage, handling, transportation, transfer, use,
disposal, release, discharge, spillage, seepage, or filtration of which is or
shall be restricted, prohibited or penalized by any applicable law (including,
without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
HDI -- is defined in the introductory sentence of this Agreement.
HIL -- is defined in the introductory sentence of this Agreement.
HIL Note -- means the $5,000,000 unsecured promissory note of HIL, dated May
28,1998, in favor of the Company.
Holder -- means, with respect to any Note, the Person in whose name such Note is
registered in the register maintained by the Company pursuant to Section 14.1.
Institutional Investor -- means (a) any original purchaser of a Note, (b) any
holder of a Note holding more than 10% of the aggregate principal amount of the
Notes then outstanding and (c) any bank, trust company, savings and loan
association or other financial institution, any fund, any foundation, any
pension plan, any investment company, any insurance company, any broker or
dealer, or any other similar financial institution or entity, regardless of
legal form.
Intangible Assets -- means, with respect to any Person, all deferred assets and
other intangible assets (including, without limitation, all patents, copyrights,
trademarks, trade names, franchises, goodwill, organizational expense and
experimental expense, but excluding any deferred tax assets) of such Person, as
determined by GAAP.
<PAGE>
Intercreditor Agreement -- Section 4.16.
Investment -- means any investment, made in cash or by delivery of property by
the Company or any Restricted Subsidiary (a) in any Person, whether by
acquisition of stock, partnership interest, indebtedness or other obligation or
security, or by loan, Guaranty, advance, capital contribution or otherwise or
(b) in any property.
Keynote -- means Keynote Services, Limited, a Hong Kong corporation and a
Subsidiary of the Company.
Key-Person Policy -- Section 10.2.
Kuttner Family Member -- means and includes (i) Ludwig Kuttner, (ii) Beatrice
Kuttner, (iii) any descendant of Ludwig Kuttner or Beatrice Kuttner, whether by
birth or adoption, (iv) any spouse or former spouse of any of the foregoing, (v)
any conservator or custodian for the person or property of any Person described
in clauses (i) through (iv) inclusive, and (v) the estate of any Person
described in clauses (i) through (iv) inclusive.
Lien -- means, with respect to the Company or any Subsidiary, any mortgage,
lien, pledge, charge, security interest or other encumbrance, or any interest or
title of any vendor, lessor, lender or other secured party to or of such Person
under any conditional sale or other title retention agreement or Capital Lease,
upon or with respect to any property or asset of such Person. The term "Lien"
shall not include any so-called "negative pledge" provisions in agreements
covering the incurrence of Debt.
Make-Whole Amount -- is defined in Section 8.7.
Material -- means material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Company or any
Restricted Subsidiary.
Material Adverse Effect -- means a material adverse effect on (a) the business,
operations, affairs, financial condition, assets or properties of the Company
and its Restricted Subsidiaries, taken as a whole, or (b) the ability of any of
the Obligors to perform its obligations under this Agreement, the Other
Agreement, the Notes or the other Financing Documents, or (c) the validity or
enforceability of this Agreement, the Other Agreement, the Notes or the other
Financing Documents. For the avoidance of doubt, no matter affecting the
business, operations, affairs, financial condition, assets or properties of any
Unrestricted Subsidiary shall be deemed to have a material adverse effect on the
business, operations, affairs, financial condition, assets or properties of the
Company and its Restricted Subsidiaries, taken as a whole.
Moody's -- means Moody's Investors Service, Inc.
Multiemployer Plan -- means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001 (a)(3) of ERISA).
Notes -- is defined in Section 1.
Obligor -- is defined in the introductory sentence of this Agreement.
Officer's Certificate -- means a certificate of a Senior Financial Officer or of
any other officer of an Obligor or HIL whose responsibilities extend to the
subject matter of such certificate
Operating Income Contribution Percentage -- means, in respect of any property of
the Company or any Restricted Subsidiary that is the subject of a Basket
Transfer or proposed Basket Transfer, the percentage of Consolidated Operating
Net Income contributed by such property during the period of 12 consecutive
fiscal months of the Company most recently ended prior to the Transfer or
proposed Transfer of such property.
Operating Lease -- means, with respect to any Person, any lease other than a
Capital Lease.
Operating Rentals -- means all fixed payments that the lessee is required to
make by the terms of any Operating Lease, but shall not include amounts required
to be paid in respect of maintenance, repairs, utilities, income taxes, property
taxes, insurance, assessments or other similar charges or additional rentals (in
excess of fixed minimums) based upon a percentage of gross receipts.
<PAGE>
Other Agreement -- is defined in Section 2.
Other Purchaser -- is defined in Section 2.
PBGC -- means the Pension Benefit Guaranty Corporation referred to and defined
in ERISA or any successor thereto.
Permitted Restricted Subsidiary Debt -- means
(a) Debt obligations of each Restricted Subsidiary in respect of the
Guarantee;
(b) Debt obligations of each Restricted Subsidiary in respect of the
Company's obligations under the Credit Agreement;
(c) obligations of each Restricted Subsidiary in respect of Debt owed to
the Company or a Wholly-Owned Restricted Subsidiary;
(d) Debt obligations of HDI in respect of a mortgage loan in favor of
Merchants National Bank in an outstanding principal amount not in excess of
$1,000,000, provided that any refinancing of such mortgage loan that
(i) does not increase the principal amount outstanding thereunder at
the time of such refinancing,
(ii) does not result in the increase of any scheduled payment amounts
of principal and/or interest,
(iii) does not result in the shortening of the maturity of such loan,
(iv) does not cause or create any Default or Event of Default and
(v) is not effected during the existence of any Default or Event of
Default (whether or not it shall have caused the same) shall be deemed
to be included within this clause (d); and
(e) Debt obligations of any Restricted Subsidiary in respect of
(i) one or more unsecured lines of credit incurred in the ordinary
course of business in an aggregate maximum principal amount not in
excess of $2,500,000 and/or
(ii) one or more letter of credit facilities having a maximum stated
liability of not more than $6,000,000, provided that (1) not more than
$500,000 in aggregate principal amount of unpaid letter of credit
reimbursement obligations (or loans or advances in respect thereof
under said letter of credit facility or facilities or under said line
or lines of credit) remain outstanding and (2) such outstanding
obligations (or loans or advances in respect thereof) have not
remained unpaid for more than 10 days.
Person -- means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
Plan -- means an "employee benefit plan" (as defined in section 3(3) of ERISA)
that is or, within the preceding five years, has been established or maintained,
or to which contributions are or, within the preceding five years, have been
made or required to be made, by the Company or any ERISA Affiliate or with
respect to which the Company or any ERISA Affiliate may have any liability.
Pledge Agreement -- means the Company's Pledge Agreement and each Guarantor's
Pledge Agreement.
Pledged Stock Collateral-- has the collective meaning ascribed to such term in
the Pledge Agreements.
Preferred Stock -- means any class of capital stock of a Person that is
preferred over any other class of capital stock of such Person as to the payment
of dividends or other equity distributions or the payment of any amount upon
liquidation or dissolution of such Person.
Property or properties -- means, unless otherwise specifically limited, real or
personal property of any kind, tangible or intangible, choate or inchoate.
<PAGE>
Proposed Prepayment Date -- is defined in Section 8.4(c).
PTE -- is defined in Section 6.2.
QPAM Exemption -- means Prohibited Transaction Class Exemption 84-14 issued by
the United States Department of Labor.
Related Document -- Section 25.1.
Required Holders -- means, at any time, the holders of at least 66 and 2/3% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any Affiliate thereof).
Responsible Officer-- means any Senior Financial Officer of the Company and any
other officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
Restricted Investment -- means, at any time, all Investments except the
following:
(a) Investments in property to be used in the ordinary course of business
of the Company and the Restricted Subsidiaries;
(b) Investments in current assets arising from the sale of goods and
services in the ordinary course of business of the Company and the
Restricted Subsidiaries;
(c) Investments in one or more Restricted Subsidiaries or any corporation
that concurrently with such Investment becomes a Restricted Subsidiary;
(d) Investments in direct obligations of the United States of America, or
any agency or instrumentality thereof, or obligations guaranteed by the
United States of America, provided that such obligations mature within one
(1) year from the date of acquisition thereof;
(e) Investments in (i) certificates of deposit issued by an Acceptable
Bank, provided that such obligations mature within one (1) year from the
date of acquisition thereof, (ii) demand deposit accounts in an Acceptable
Bank and (iii) time or saving deposit accounts in an Acceptable Bank,
provided that moneys in such deposit accounts are withdrawable with not
more than 30 days prior notice; and
(f) Investments in commercial paper rated "A-i" (or higher) by Standard &
Poor's or "P-i" (or higher) by Moody's (or any future comparable ratings
issued by Standard & Poor's or Moody's), provided that such obligations
mature within two hundred seventy (270) days from the date of creation
thereof.
Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon.
As used in this definition:
Acceptable Bank -- means, at any time, any commercial bank:
(a) that at such time has capital, surplus and undivided profits
aggregating at least Two Hundred Fifty Million Dollars ($250,000,000); and
(b) whose long-term unsecured debt obligations (or the long-term unsecured
debt obligations of the bank holding company owning all of the capital
stock of such bank) shall at such time be rated "A" or higher by Standard &
Poor's or "A2" or higher by Moody's (or any future comparable ratings
issued by Standard & Poor's or Moody's).
Restricted Payment -- means:
(a) any dividend or other distribution, direct or indirect, on account of
any shares of capital stock of the Company or any Restricted Subsidiary
(other than on account of capital stock of a Restricted Subsidiary owned
legally and beneficially by the Company or a Wholly-Owned Restricted
Subsidiary) now or hereafter outstanding, whether in cash or other
property, except a dividend or other distribution payable solely in shares
of common stock of such Person;
<PAGE>
(b) any redemption, retirement, purchase or other acquisition, direct or
indirect, of any shares of capital stock of the Company or any Restricted
Subsidiary (other than on account of capital stock of a Restricted
Subsidiary owned legally and beneficially by the Company or a Wholly-Owned
Restricted Subsidiary) now or hereafter outstanding, or of any warrants,
rights or options to acquire any shares of such stock, provided that any
such redemption, retirement, purchase or other such acquisition that
involves only the exchange of securities to be issued by the Company or any
Restricted Subsidiary for other outstanding securities of such Person
(which exchanged and outstanding securities shall be of equivalent value)
shall not be deemed to be a "Restricted Payment;" and
(c) any repayment, defeasance, redemption, retirement, repurchase or other
acquisition, direct or indirect, of any installment of Subordinated Debt
prior to the regularly scheduled payment or maturity date of such
installment, provided that any refinancing of Subordinated Debt that
(i) is funded with the proceeds of equity issued by the obligor in
respect of such Subordinated Debt to Persons other than the Company or
a Subsidiary; or
(ii) funded with the proceeds of new Subordinated Debt that
(1) does not increase the principal amount outstanding thereunder
at the time of such refinancing,
(2) does not result in the increase of any scheduled payment
amounts of principal and/or interest,
(3) does not result in the shortening of the maturity of such
Subordinated Debt,
(4) does not cause or create any Default or Event of Default and
(5) is not effected during the existence of any Default or Event
of Default (whether or not it shall have caused the same)
shall not be deemed to be a "Restricted Payment."
Restricted Subsidiary -- means all Subsidiaries other than the Unrestricted
Subsidiaries.
Restricted Subsidiary Stock -- Section 11.9(b).
Securities Act -- means the Securities Act of 1933, as amended from time to
time.
Security Agreement -- means the Company's Security Agreement and each
Guarantor's Security Agreement.
Senior Debt -- any unsecured Debt of any one or more of the Obligors that is not
in any manner subordinated in right of payment to the Notes or to any other Debt
of such Persons.
Senior Financial Officer-- means, with respect to the Company, the chief
financial officer, principal accounting officer, treasurer or comptroller of the
Company, or any other officer of the Company with responsibility for the
administration of the relevant portion of this Agreement and, with respect to
any Guarantor, any officer of such Guarantor.
Segue -- is defined in the introductory sentence of this Agreement.
SF Knitworks -- is defined in the introductory sentence of this Agreement.
Source -- is defined in Section 6.2.
Standard & Poor's -- means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc.
Subordinated Debt -- means any Debt of the Company or any Guarantor that is in
any respect subordinate or junior in right of payment or otherwise to the Debt
evidenced by the Notes or to the Guarantee.
<PAGE>
Subsidiary -- means, as to any Person, any corporation, association, limited
liability company or other similar business entity in which such Person or one
or more of its Subsidiaries or such Person and one or more of its Subsidiaries
owns sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries (unless such partnership can and
does ordinarily take major business actions without the prior approval of such
Person or one or more of its Subsidiaries). Unless the context otherwise clearly
requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the
Company or another Obligor.
Swaps -- means, with respect to any Person, payment obligations with respect to
interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency. For the purposes of this Agreement, the amount of the obligation
under any Swap shall be the amount determined in respect thereof as of the end
of the then most recently ended fiscal quarter of such Person, based on the
assumption that such Swap had terminated at the end of such fiscal quarter, and
in making such determination, if any agreement relating to such Swap provides
for the netting of amounts payable by and to such Person thereunder or if any
such agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the net
amount so determined. For purposes of this Agreement, any such interest rate
swap, currency swap or other similar obligation which was entered into and is
being used by such Person in the ordinary course of its business to hedge an
existing or future risk or exposure of such Person in respect of its liabilities
or assets shall not be deemed a "Swap."
Successor Company -- Section 11.2.
Transfer -- means, with respect to the Company or any Restricted Subsidiary, any
transaction in which such Person sells, conveys, transfers or leases (as lessor)
any of its assets. The verb "Transfer" has the meaning correlative to the
meaning of the noun. Transfer shall not include a transaction or part of a
transaction because the Company or a Restricted Subsidiary uses assets
constituting cash or money to consummate such transaction or part thereof and to
thereby purchase, acquire, receive or lease assets in consideration of the
payment of such cash or money.
Unrestricted Subsidiary -- means (a) HIL so long as it is a Subsidiary of the
Company and (b) any Subsidiary directly owned by HIL or indirectly owned by HIL
and/or any Subsidiary of HIL so long as, in any such case, such Subsidiary
continues to be a Subsidiary of HIL. It is the intention of this definition to
include as Unrestricted Subsidiaries only Subsidiaries of HIL that are owned
directly or indirectly by HIL and other Subsidiaries of HIL and Persons other
than Obligors. If any percentage of the capital equity of an Unrestricted
Subsidiary is owned, directly or indirectly, by any Obligor (other than by or
through HIL), then such Unrestricted Subsidiary shall be deemed to be a
Restricted Subsidiary for purposes of this Agreement
Voting Stock -- means capital stock or other equity interests or capital of any
class or classes of a corporation, partnership, association or other business
entity, the holders of which are ordinarily, in the absence of contingencies,
entitled to elect the directors (or Persons performing similar functions) of
such entity.
Wholly-Owned Restricted Subsidiary -- means, at any time, any Restricted
Subsidiary 100% of all of the equity interests and voting interests of which
(other than directors' qualifying shares and, in the case of Subsidiaries
organized under the laws of a jurisdiction other than a State of the United
States of America, any shares required by applicable law to be owned by
nationals of such jurisdiction (not in excess of 5% of the total equity thereof)
are owned by any one or more of the Company and the other Wholly-Owned
Restricted Subsidiaries at such time.
Wholly-Owned Subsidiary -- means, at any time, any Subsidiary 100% of all of the
equity interests and voting interests of which are owned by any one or more of
the Company and the other Wholly-Owned Subsidiaries at such time.
<PAGE>
EXHIBIT 4.11 -(CSA)
FORM OF COMPANY'S SECURITY AGREEMENT
SECURITY AGREEMENT
This Agreement made as of May 15, 1998 between HAMPSHIRE GROUP, LIMITED, a
Delaware corporation (the "Debtor"), and PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY, a New York Mutual Insurance Company, having an office at One American
Row, Hartford, Connecticut 06115, as collateral agent for itself and for The
Ohio National Life Insurance Company (the "Collateral Agent;" Phoenix Home Life
Mutual Insurance Company and The Ohio National Life Insurance Company are
referred to herein as the "Lenders;" and the Collateral Agent is sometimes
referred to herein as the "Secured Party").
WHEREAS, The Lenders have extended loans to Debtor pursuant to those certain
separate Note Purchase Agreements each dated as of May 15,1998 among Debtor,
Hampshire Designers, Inc., Glamourette Fashion Mills, Inc., San Francisco
Knitworks, Inc. and Segue (America), Limited and each of the Lenders, (together
with the other documents and agreements executed in connection therewith,
collectively, the "Note Purchase Agreement;" Hampshire Designers, Inc.,
Hampshire Investments, Limited, Glamourette Fashion Mills, Inc., San Francisco
Knitworks, Inc., and Segue (America), Limited are referred to herein,
collectively, as the "Guarantors"). The loans arising under the Note Purchase
Agreement are evidenced by the notes issued by the Debtor to the Lenders
thereunder and outstanding from time to time (collectively, the "Notes"). Debtor
desires to secure the performance of its obligations to pay, duly and
punctually, the principal of and interest on the Notes and to perform, duly and
punctually, all other obligations and indebtedness owing to the Secured Party
and the Lenders, including those arising under the Notes, the Note Purchase
Agreement, this Security Agreement and otherwise.
WHEREAS, capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Note Purchase Agreement.
NOW, THEREFORE, for and in consideration of the sum of Ten ($10.00) Dollars and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Debtor and Secured Party, intending to be legally
bound, hereby agree as follows:
1. SECURITY INTEREST
To secure the Obligations (as hereafter defined), Debtor hereby grants to
Secured Party a continuing security interest in and to all of the following
described property and interest in such property (the "Collateral"), now owned
or hereafter acquired by Debtor:
A. All now owned and hereafter acquired right, title and interest of Debtor
in, to and in respect of all: accounts, interests in goods represented by
accounts, returned, reclaimed or repossessed goods with respect thereto and
rights as an unpaid vendor; contract rights, chattel paper relating to
goods sold; documents; instruments; letters of credit, bankers' acceptances
or guaranties securing any of the foregoing (the "Accounts");
B. All right, title and interest of Debtor in, to and in respect of the
following:
All inventory imported into the United States or purchased pursuant to
letters of credit of whatever kind, nature or description, including all
raw materials, work-in-process, finished goods, and materials to be used or
consumed in Debtor's business; and all names or marks affixed to or to be
affixed thereto for purposes of selling same by the seller, manufacturer,
lessor or licenser thereof ("Inventory");
All warehouse receipts, bills of lading, shipping documents and other
instruments or documents relating to such Inventory; and
C. All present and future books and records, including, without limitation,
all computer programs, printed output and computer readable data in the
possession or control of the Debtor, any computer service bureau or other
third party, all computer disks, hard drives and other computer related
hardware and software, relating to Accounts and Inventory; and
<PAGE>
D. All cash and non-cash proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and
all claims against third parties for loss or destruction of or damage to
any of the foregoing.
Except as defined herein, all terms used above shall have the meaning provided
in the New York Uniform Commercial Code.
2. OBLIGATIONS DEFINED
The term "Obligations" shall mean all payment and other obligations of the
Debtor under, or in respect of, this Agreement, the Note Purchase Agreement, the
Notes and the other Financing Documents to which the Debtor is a party.
3. WARRANTIES AND COVENANTS
Debtor warrants and agrees that:
A. Debtor will pay and perform all of the Obligations according to their
terms.
B. All of the Collateral is and will at all times be owned by Debtor free
and clear of all tax liens and other liens and security interests, except
the liens and security interests permitted in the Note Purchase Agreement
or by Secured Party in writing.
C. The Collateral shall be kept at the principal place of business of
Debtor set forth below or at the locations set forth in Schedule A hereto
and none of the Collateral will be removed from such locations without the
prior written consent of Secured Party except for Debtor's sales to its
customers in the ordinary course of Debtor's business.
D. Debtor will insure the Collateral at all times against all hazards,
including but not limited to fire, theft and risks covered by extended
coverage insurance, and such policies shall be payable to Secured Party as
its interest may appear. Said policies of insurance shall be satisfactory
to Secured Party as to form, amount and insurer. Debtor shall furnish
certificates, policies or endorsements to Secured Party as proof of such
insurance, and, if Debtor fails to do so, Secured Party is authorized but
not required to obtain such insurance at Debtor's expense. All policies
shall provide for at least thirty (30) days' prior written notice to
Secured Party of cancellation or non-renewal. Secured Party may act as
attorney-in-fact for Debtor in making, adjusting and settling any claims
under any such insurance policies. Subject to the lntercreditor Agreement,
Debtor hereby assigns to Secured Party all of its right, title and interest
to any insurance policies insuring the Collateral, including all rights to
receive the proceeds of insurance, and directs all insurers to pay all such
proceeds directly to Secured Party and authorizes Secured Party to endorse
Debtor's name on any instrument of such payment.
E. Debtor will keep the Collateral in good condition and repair, reasonable
wear and tear excepted, and will immediately notify Secured Party of any
destruction of or any damage to any of the Collateral.
F. Debtor will not sell, transfer or otherwise dispose of any of the
Collateral except (i) Inventory to buyers in the ordinary course of
business and (ii) as otherwise permitted under the Note Purchase Agreement.
G. Intentionally Omitted.
H. Debtor will advise Secured Party in writing of any changes in any of the
Debtor's places of business or the opening of any new place of business
five (5) business days prior to the occurrence thereof.
I. Debtor will pay when due all taxes (unless such taxes are being
contested in good faith and adequate reserves have been provided and all
other conditions required by Section 10.4 of the Note Purchase Agreement
have been satisfied), license fees and assessments relating to the
Collateral.
<PAGE>
J. Debtor will be liable to Secured Party for any expenditures by Secured
Party in connection with the preparation, execution, delivery,
administration and enforcement of this Security Agreement and for the
maintenance and preservation of the Collateral, including but not limited
to taxes, appraisal fees, certificate of title charges, recording and
filing fees (including Uniform Commercial Code financing statement fees and
search fees), the fees and disbursements of Secured Party's in-house and
outside counsel, levies, insurance and repairs, and for the repossession,
holding, preparation for sale, and the sale of the Collateral (including
attorneys' and accountants' fees and expenses), as well as all damages for
breach of warranty, misrepresentation, or breach of covenant by Debtor, and
all such liabilities shall be included in the definition of Obligations
herein, shall be secured by the security interest granted herein, and shall
be payable upon demand.
K. Debtor will execute financing statements pursuant to the Uniform
Commercial Code, as enacted in the states where such financing statements
are required, or are deemed by Secured Party as desirable, and any other
documents required by Secured Party, to perfect or maintain the security
interest granted herein or to effect the purposes of this Agreement. Debtor
hereby authorizes Secured Party to execute and file any financing
statements covering the Collateral without Debtor's signature or if Secured
Party so elects signed in Debtor's name by Secured Party and Secured Party
is hereby appointed attorney-in-fact to do so.
L. Debtor will at all times during normal business hours allow Secured
Party or its agents to examine and inspect the Collateral, as well as
Debtor's books and records relating thereto, and to make extracts and
copies of them.
M. Debtor will report, in form satisfactory to Secured Party, such
information as Secured Party may reasonably request regarding the
Collateral; such reports shall be for such periods shall reflect Debtor's
records as at such time and shall be rendered with such frequency as
Secured Party may reasonably designate. All information heretofore or
hereafter furnished by Debtor to Secured Party is or will be true and
correct in all material respects as of the date with respect to which such
information is or will be furnished.
N. Debtor shall not become a party to any restructuring of its form of
business or participate in any consolidation, merger, liquidation or
dissolution without Secured Party's prior written consent, except as
permitted in the Note Purchase Agreement.
O. Debtor will notify Secured Party of any intended change of Debtor's
name, or the use of any trade name or style, and will notify Secured Party
when such change or use becomes effective Debtor represents that it uses
only the trade name and styles listed on schedule B annexed hereto.
P. Debtor has the right and power and is duly authorized to enter into and
perform its Obligations hereunder, and Debtor's execution, performance and
delivery of this Agreement does not and will not conflict with the
provisions of any statute, regulation, ordinance or rule of law, or with
the provisions of any agreement, contract or other document which may now
or hereafter be binding on Debtor.
Q. There are no actions or proceedings which are pending or threatened
against Debtor which might result in any material and adverse change in its
financial condition or materially affect the Collateral pledged hereunder.
R. Debtor is not in violation of any applicable federal, state, municipal
or county statute, regulation or ordinance which may materially and
adversely affect its business, property, assets, operations or conditions,
financial or otherwise and Debtor has obtained and shall maintain in effect
all federal state and local licenses and permits necessary to conduct its
business, including, but not limited to any environmental matters relating
to the remediation of contaminated property and/or the removal of hazardous
materials or otherwise, except where the failure to maintain the same would
not materially and adversely affect its business, property, assets,
operations or conditions, financial or otherwise.
<PAGE>
S. Debtor hereby irrevocably appoints Secured Party as Debtor's true and
lawful attorney-in-fact, with full power and authority and in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time
while an Event of Default under, and as defined in, the Note Purchase
Agreement shall have occurred and be continuing in Secured Party's
discretion, to take any action and to execute any instrument which Secured
Party may deem necessary or desirable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Debtor representing any
distribution in respect of the Collateral or any part thereof and to give
full discharge far the same; to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipt for monies due and to
become due under or in connection with the Collateral; to obtain and adjust
insurance covering the Collateral; to receive, endorse and collect any
drafts or other instruments and documents in connection therewith; and to
file any claims or take any action or institute any proceedings which
Secured Party may deem to be necessary or desirable for the collection
thereof, provided, however, that Secured Party may act as such
attorney-in-fact at any time with respect to signing and recording
financing statements under the Uniform Commercial Code.
4. EVENTS OF DEFAULT
All Obligations shall become due and payable upon the occurrence of any Event of
Default under, and as defined in, the Note Purchase Agreement in accordance with
the terms and provisions thereof.
5. RIGHTS AND REMEDIES
Upon the occurrence and continuance of any Event of Default, Secured Party shall
have all rights and remedies provided by law, including but not limited to those
of a secured party under the Uniform Commercial Code of New York, in addition to
the rights and remedies provided herein or in the Note Purchase Agreement.
Secured Party may require Debtor to assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to Debtor and Secured Party. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Secured Party to
Debtor designating the time and place of any public sale or the time after which
any private sale or other intended disposition of Collateral is to be made shall
be deemed to be reasonable notice thereof and Debtor waives any other notice. In
the event Secured Party institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy in an action against
Debtor, Debtor waives the posting of any bond which might otherwise be required.
All Secured Party's rights and remedies shall be cumulative and none are
exclusive. Whether or not default has occurred, all payments made by or on
behalf of Debtor and all credits due Debtor under this Agreement and under any
other agreement between Debtor and Secured Party may be applied to the
Obligations in whatever order and amounts Secured Party chooses.
6. MISCELLANEOUS
A. Any failure or delay by Secured Party to require strict performance by
Debtor of any of the provisions, warranties, terms and conditions contained
herein or in any other agreement, document or instrument shall not affect
Secured Party's right to demand strict compliance and performance
therewith, and any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto, and whether of the same
or of a different type. None of the warranties, conditions, provisions and
terms contained herein or in any other agreement, document or instrument
<PAGE>
shall be deemed to leave been waived by any act or knowledge of Secured
Party, its agents, officers or employees, but only by an instrument in
writing, signed by an officer of Secured Party, directed to Debtor and
specifying such waiver.
B. Any notice under this Agreement shall be in writing, and deemed to have
been given or made: if by hand, immediately upon delivery; if by
telecopier, immediately upon receipt; if by overnight courier, one (1) day
after dispatch; and if by first class or certified mail three (3) days
after the mailing. All such notices shall be addressed to the parties at
their respective addresses set forth below.
C. In the event that any provision hereof shall be deemed to be invalid by
any court, such invalidity shall not affect the remainder of this
Agreement.
D. This Agreement shall be binding upon and for the benefit of the parties
hereto and their respective successors and assigns.
E. Wherever the context requires, the singular form of any word shall
include the plural, and the neuter form of any word shall include the
masculine and feminine forms, and vice verse.
F. Debtor hereby irrevocably submits and consents to the jurisdiction of
any New York State or United States Federal court sitting in New York City
over any action or proceeding arising out of or relating to this Agreement,
and the Debtor hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such New York State or
Federal court. The Debtor irrevocably consents to the service of any and
all process in any such action or proceeding by the mailing of copies of
such process to the Debtor at its address specified in the Note Purchase
Agreement. The Debtor agrees that a final non-appealable judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law. The Debtor further waives any objection to venue in such State and any
objection to an action or proceeding in such State on the basis of forum
non conveniens. The Debtor agrees that any action or proceeding brought
against the Secured Party or any holder of Notes shall be brought only in
New York State or United States Federal Court sitting in New York City.
Nothing contained in this paragraph shall affect the right of the Secured
Party or any holder of Notes to serve legal process in any other manner
permitted by law or affect the right of the Secured Party or any holder of
Notes to bring any action or proceeding against Debtor or its property in
the courts of any other jurisdiction
To the extent that the Debtor has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether from
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
the Debtor hereby irrevocably waives such immunity in respect of its
obligations under this Agreement.
G. This Agreement together with the Note Purchase Agreement and the other
agreements executed in connection therewith, constitutes the entire
agreement among the parties with respect to the subject matter hereof, and
supersedes all prior written or oral understandings with respect thereto.
This Agreement may be amended only by mutual agreement of the parties
evidenced in writing and signed by the party to be charged therewith.
H. This Agreement is subject to the terms and provisions of the
Intercreditor Agreement (as such term is defined in the Note Purchase
Agreement).
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement
on the date written above.
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
Address: 215 Commerce Blvd., Anderson, SC 29625
Telephone No. (864) 225-6232
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, as Collateral Agent
By: /s/ John H. Beera
Address:
Street
c/o Phoenix Investment Partners, Ltd.
56 Prospect
P.O. Box 150480
Hartford, Connecticut 06115-0480
Telephone No: 860-403-5758
<PAGE>
SCHEDULE A
Locations of Collateral
Hampshire Group, Limited County:
215 Commerce Boulevard Anderson
Anderson, SC 29621
Natalie Knitting Mills County:
Rose Industrial Park #15 Smythe
Chilhowie, VA 24319
Designers Knitting Mills County:
305 New Court Road Anderson
Anderson, SC 29621
Winona Knitting Mills County:
902 East Second St. Winona
Winona, MN 55987
Winona Knitting Mills County:
109 Main Street Houston
LaCrescent, MN 55947
Hampshire Hosiery - Plant No. 2 County
103 Cross Street Mitchell
Spruce Pine, NC 28777
Hampshire Hosiery - Plant No. 1 County
US Hwy. 19E Mitchell
Spruce Pine, NC 28777
Hampshire Brands County:
1705 Wilkie Drive Winona
Winona, MN 55987
<PAGE>
SCHEDULE B
Tradestyle and Brand Names
Tradestvles:
Designers Knitting Mills
Hampshire Brands
Winona Knitting Mills
Hampshire Brands
Hampshire Hosiery
Natalie Knitting Mills
Brand Names/Licenses:
Designers Originals
Designers Originals Studio
Moving Bleu
Plant & Co.
American Portrait
Landscape
San Francisco Knitworks
SFK
<PAGE>
EXHIBIT 4.11 -(CPA)
FORM OF COMPANY'S PLEDGE AGREEMENT
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of May 15, 1998, made by HAMPSHIRE GROUP, LIMITED, a
Delaware corporation, whose address is 215 Commerce Boulevard, Anderson, South
Carolina 29621 (the "Pledgor"), in favor of PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY, a New York mutual insurance company, having an office at One American
Row, Hartford, Connecticut 06102, as collateral agent for itself and for The
Ohio National Life Insurance Company (the "Collateral Agent;" Phoenix Home Life
Mutual Insurance Company and The Ohio National Life Insurance Company are
referred to herein as the "Lenders").
The Lenders have extended loans to Pledgor pursuant to those certain separate
Note Purchase Agreements each dated as of May 15, 1998 among Pledgor, Hampshire
Designers, Inc., Hampshire Investments, Limited, Glamourette Fashion Mills,
Inc., San Francisco Knitworks, Inc., and Segue (America), Limited and each of
the Lenders, (together with the other documents and agreements executed in
connection therewith, collectively, the "Note Purchase Agreement;" Hampshire
Designers, Inc., Hampshire Investments, Limited, Glamourette Fashion Mills,
Inc., San Francisco Knitworks, Inc., Limited and Segue (America), Limited are
referred to herein, collectively, as the "Guarantors"). The Pledgor is the owner
and holder of the shares of stock of those certain Guarantors as more
particularly described in the Schedule attached hereto and of the $5,000,000
promissory note described in such Schedule (the "Pledged Securities").
It is a condition to the making of the loans by the Lenders that the Pledgor
shall have made the pledge contemplated by this Agreement. In consideration of
the premises, the Pledgor hereby agrees as follows:
1. THE PLEDGE
A. Pledge.
The Pledgor hereby pledges to the Collateral Agent and grants to the
Collateral Agent a security interest in the following (the "Pledged
Collateral"):
(a) the Pledged Securities and the certificates and instruments
representing the Pledged Securities, and all interest, dividends,
cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Securities; and
(b) all additional shares of stock of the issuers of the Pledged
Securities, and the certificates representing such additional shares,
and all interest, dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of the Pledged Securities.
B. Security for Obligations.
This Agreement secures the payment of all obligations (the "Obligations")
of the Pledgor, as provided for in the Note Purchase Agreement, in the
Notes, in this Agreement and in the other Financing Documents (as such term
is defined in the Note Purchase Agreement) to which the Pledgor is a party.
C. Delivery of Pledged Collateral.
<PAGE>
All certificates or instruments representing or evidencing the Pledged
Collateral shall be delivered to and held by the Collateral Agent on behalf
of the Lenders pursuant hereto and shall be in suitable form for transfer
by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
the Collateral Agent. The Collateral Agent shall have the right, at any
time in its discretion and without notice to the Pledgor, to transfer to or
to register in the name of the Collateral Agent or any of its nominees any
or all of the Pledged Collateral, subject only to the revocable rights
specified in Section 5A(a). In addition, the Collateral Agent shall have
the right at any time to exchange certificates or instruments representing
or evidencing Pledged Collateral for certificates or instruments of smaller
or larger denominations.
D. Continuing Agreement.
This Agreement shall create a continuing security interest in the Pledged
Collateral and shall remain in full force and effect until payment in full
of the Obligations, provided, that, on the second anniversary of the date
of Closing (as defined in the Note Purchase Agreement), the Pledged
Securities constituting the shares of stock of Hampshire Investments,
Limited (as described on the Schedule attached hereto), that certain
promissory note in the original principal amount of $5,000,000 made by
Hampshire Investments, Limited to the Pledgor (as described on the schedule
attached hereto) and all other Pledged Collateral hereunder shall be
released from being pledged hereunder and being subject to any lien or
security interest created hereby and this Agreement shall be terminated, if
but only if, at such time (a) no Default or Event of Default shall have
occurred and be continuing and (b) the Credit Agreement provides for a
similar release of the pledge provided therein in respect of such shares
and promissory note and such release shall have been effected previously or
simultaneously with the release provided for in this clause.
2. REPRESENTATIONS AND WARRANTIES
The Pledgor represents and warrants as follows:
A. Ownership and Liens.
The Pledgor is the legal and beneficial owner of the Pledged Collateral
free and clear of any Lien, except for the security interest created by
this Agreement and except as provided for in the Credit Agreement (as such
term is defined in the Note Purchase Agreement) and the pledge agreements
executed in connection therewith (collectively, as amended from time to
time, the "Bank Pledge Agreement").
B. Perfection.
The pledge of the Pledged Securities pursuant to this Agreement and the
delivery thereof to Collateral Agent creates a valid and perfected first
priority security interest in the Pledged Collateral, securing the payment
of the Obligations, subject only to the pari passu security interest of the
Bank Pledge Agreement.
C. No Authorization Required.
No authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required either (a)
for the pledge by the Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement
by the Pledgor or (b) for the exercise by the Collateral Agent of the
voting or other rights provided for in this Agreement (except as may be
required in connection with such disposition by laws affecting the offering
and sale of securities generally and except for the filing of financing
and/or continuation statements).
<PAGE>
3. COVENANTS
A. Further Assurances.
The Pledgor agrees that at any time and from time to time, at the expense
of the Pledgor, the Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that the Collateral
Agent may request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral Agent
to exercise and enforce its rights and remedies hereunder with respect to
any Pledged Collateral.
B. Transfers and Other Liens; Additional Shares.
The Pledgor agrees that it will not (i) hereafter sell or otherwise dispose
of, or grant any option with respect to, any of the Pledged Collateral, or
(ii) create or permit to exist any lien or security interest upon or with
respect to any of the Pledged Collateral, except for (1) the security
interest under this Agreement and under the Bank Pledge Agreement and (2)
as otherwise permitted under the Note Purchase Agreement.
4. THE COLLATERAL AGENT
A. Collateral Agent Appointed Attorney-in-Fact.
The Pledgor hereby irrevocably appoints the Collateral Agent as the
Pledgor's attorney-in-fact, with full authority in the place and stead of
the Pledgor and in the name of the Pledgor or otherwise, from time to time,
following the occurrence and during the continuance of an Event of Default
(as defined in the Note Purchase Agreement), in the Collateral Agent's
discretion to take any action and to execute any instrument which the
Collateral Agent may deem necessary or advisable to accomplish the purposes
of this Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same,
provided, however, that the Collateral Agent may act as such
attorney-in-fact at any time with respect to signing and recording
financing statements under the Uniform Commercial Code.
B. Collateral Agent May Perform.
If the Pledgor fails to perform any agreement contained herein, the
Collateral Agent may itself perform, or cause performance of such
agreement, and the expenses of the Collateral Agent incurred in connection
therewith shall be payable by the Pledgor under Section 6B.
C. Reasonable Care.
The Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of the Pledged Collateral in its possession if
the Pledged Collateral is accorded treatment substantially equal to that
which it accords its own property, it being understood that the Collateral
Agent shall not have responsibility for (a) ascertaining or taking action
with respect to calls, conversations, exchanges, maturities, tenders or
other matters relative to any Pledged Collateral, whether or not the
Collateral Agent has or is deemed to have knowledge of such matters, or (b)
taking any necessary steps to preserve rights against any other parties
with respect to any Pledged Collateral.
5. DEFAULT
A. Voting Rights; Dividends; Etc.
<PAGE>
(a) So long as no Event of Default (as defined in the Note Purchase
Agreement) shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Collateral
or any part thereof for any purpose not inconsistent with the
terms of this Agreement, provided, however, that the Pledgor
shall provide (within five (5) days after the date of such
meeting) the Collateral Agent with a copy of any minutes of a
meeting of shareholders evidencing the exercise of any and all
voting and other consensual rights by Pledgor.
(ii) The Collateral Agent shall execute and deliver (or cause to
be executed and delivered) to the Pledgor all such proxies and
other instruments as the Pledgor may reasonably request for the
purpose of enabling the Pledgor to exercise the voting and other
rights which it is entitled to exercise pursuant to paragraph (i)
above.
(b) Upon the occurrence and during the continuance of an Event of
Default (as defined in the Note Purchase Agreement):
(i) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to
exercise pursuant to Section 5A(a)(i) shall cease, and all such
rights shall thereupon become vested in the Collateral Agent who
shall thereupon have the sole right to exercise such voting and
other consensual rights and to receive and hold the Pledged
Collateral.
(ii) All dividends and interest payments, which are received by
the Pledgor, shall be received in trust for the benefit of the
Collateral Agent, shall be segregated from other funds of the
Pledgor and shall be forthwith paid over to the Collateral Agent
as Pledged Collateral in the same form as so received (with any
necessary indorsement).
B. Remedies upon Default.
If an Event of Default has occurred and is continuing:
(a) The Collateral Agent may exercise in respect of the Pledged Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code (the "UCC") in effect in the State of New
York at that time, and the Collateral Agent may also, without notice except
as specified below, sell the Pledged Collateral or any part thereof in one
or more parcels at public or private sale, at any exchange, broker's board
or at any of the Collateral Agent's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such
other terms as the Collateral Agent may deem commercially reasonable. The
Pledgor agrees that, to the extent notice of sale shall be required by law,
at least ten (10) days' notice to the Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. The Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) Any cash held by the Collateral Agent as Pledged Collateral and all
cash proceeds received by the Collateral Agent in respect of any sale or
collection from or other realization upon all or any part of the Pledged
<PAGE>
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Collateral Agent
pursuant to Section 6B) in whole or in part by the Collateral Agent
against, all or any part of the Obligations in such order as the Collateral
Agent shall elect. Any surplus of such cash or cash proceeds held by the
Collateral Agent and remaining after payment in full of all the Obligations
shall be paid over to the Pledgor or to whomever may be lawfully entitled
to receive such surplus.
6. MISCELLANEOUS
A. Amendments, Etc.
No amendment or waiver of any provision of this Agreement nor consent to
any departure by the Pledgor therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Collateral Agent, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
B. Expenses.
The Pledgor will upon demand pay to the Collateral Agent the amount of any
and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which the Collateral Agent may
incur in connection with (a) the administration of this Agreement, (b) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Collateral, (c) the exercise or
enforcement of any of the rights of the Collateral Agent hereunder or (d)
the failure by the Pledgor to perform or observe any of the provisions
hereof.
C. Notices.
Unless the party to be notified otherwise notifies the other party in
writing, notices shall be given by ordinary mail or telecopier, addressed
to such party at its address on the signature page hereof.
D. Transfer of Loan Documents.
This Agreement shall (a) be binding upon the Pledgor, its successors and
assigns, and (b) inure, together with the rights and remedies of the
Collateral Agent hereunder, to the benefit of the Collateral Agent on
behalf of the Lenders and their respective successors, transferees and
assigns.
E. Governing Law; Terms.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
F Intercreditor Agreement.
This Agreement is subject to the terms and provisions of the lntercreditor
Agreement (as such term is defined in the Note Purchase Agreement).
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed
and delivered by all of its members as of the date first above written.
<PAGE>
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
Title: Vice President
Address for Notices to Pledgor:
215 Commerce Boulevard
Anderson, South Carolina 29621
PHOENIX HOME MUTUAL LIFE INSURANCE COMPANY,
as Collateral Agent
By: /s/ John H. Beera
Title: Vice President
Address for Notices to the Collateral Agent:
c/o Phoenix Investment Partners, Ltd.
56 Prospect Street
P.O. Box 150480
Hartford, Connecticut 06115-0480
<PAGE>
SCHEDULE TO PLEDGE AGREEMENT OF
HAMPSHIRE GROUP, LIMITED
Description of Collateral
COMPANY CERTIFICATE NO. NUMBER OF SHARES
Hampshire Designers, Inc. #100 1,000
Hampshire Investments, Limited #2 200
#3 50
#4 125
#5 125
$5,000,000 unsecured promissory note of HIL, dated May 28,1998, in favor of the
Company.
This Schedule shall be deemed automatically and immediately amended and replaced
upon each addition to or substitution or replacement of any of the Pledged
Securities.
<PAGE>
EXHIBIT 4.11 -(GSA)
FORM OF GUARANTOR'S SECURITY AGREEMENT
SECURITY AGREEMENT
This Agreement made as of May 15,1998 between ___________, a _______________
corporation (the "Debtor") and PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, a New
York mutual insurance company, having an office at One American Row, Hartford,
Connecticut 06115, as collateral agent for itself and for The Ohio National Life
Insurance Company (the "Collateral Agent;" Phoenix Home Life Mutual Insurance
Company and The Ohio National Life Insurance Company are referred to herein as
the "Lenders;" and the Collateral Agent is sometimes referred to herein as the
"Secured Party").
WHEREAS, The Lenders have extended loans to Hampshire Group, Limited, a Delaware
corporation (the "Company") pursuant to those certain separate Note Purchase
Agreements each dated as of May 15,1998 among Debtor, the Company, Hampshire
Designers, Inc., Hampshire Investments, Limited, Glamourette Fashion Mills,
Inc., San Francisco Knitworks, Inc., and Segue (America), Limited and each of
the Lenders, (together with the other documents and agreements executed in
connection therewith, the "Note Purchase Agreement;" Hampshire Designers, Inc.,
Hampshire Investments, Limited, Glamourette Fashion Mills, Inc., San Francisco
Knitworks, Inc., and Segue (America), Limited are referred to herein,
collectively, as the "Other Guarantors"). The Debtor has guaranteed the
borrowings of the Company pursuant to the Note Purchase Agreement. The
indebtedness of Debtor arising under the Note Purchase Agreement is guaranteed
by the Debtor, as provided for in the Note Purchase Agreement (the "Guarantee").
Debtor desires to secure the performance of its obligations to pay, duly and
punctually, its obligations in respect of the Guarantee and to perform, duly and
punctually, all other obligations and indebtedness owing to the Secured Party
and the Lenders, including those arising under the Notes, the Note Purchase
Agreement, this Security Agreement and otherwise.
WHEREAS, capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Note Purchase Agreement.
NOW, THEREFORE, for and in consideration of the sum of Ten ($10.00) Dollars and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Debtor and Secured Party, intending to be legally
bound, hereby agree as follows:
1. SECURITY INTEREST
To secure the Obligations (as hereafter defined), Debtor hereby grants to
Secured Party a continuing security interest in and to all of the following
described property and interest in such property (the "Collateral"), now owned
or hereafter acquired by Debtor:
A. All now owned and hereafter acquired right, title and interest of Debtor
in, to and in respect of all: accounts, interests in goods represented by
accounts, returned, reclaimed or repossessed goods with respect thereto and
rights as an unpaid vendor; contract rights, chattel paper relating to
goods sold; documents; instruments; letters of credit, bankers' acceptances
or guaranties securing any of the foregoing (the "Accounts");
B. All right, title and interest of Debtor in, to and in respect of the
following:
All inventory imported into the United States or purchased pursuant to
letters of credit of whatever kind, nature or description, including all
raw materials, work-in-process, finished goods, and materials to be used or
consumed in Debtor's business; and all names or marks affixed to or to be
affixed thereto for purposes of selling same by the seller, manufacturer,
lessor or licenser thereof ("Inventory");
<PAGE>
All warehouse receipts, bills of lading, shipping documents and other
instruments or documents relating to such Inventory; and
C. All present and future books and records, including, without limitation,
all computer programs, printed output and computer readable data in the
possession or control of the Debtor, any computer service bureau or other
third party, all computer disks, hard drives and other computer related
hardware and software, relating to Accounts and Inventory; and
D. All cash and non-cash proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds and
all claims against third parties for loss or destruction of or damage to
any of the foregoing.
Except as defined herein, all terms used above shall have the meaning
provided in the New York Uniform Commercial Code.
2. OBLIGATIONS DEFINED
The term "Obligations" shall mean all payment and other obligations of the
Debtor under, or in respect of, this Agreement, the Note Purchase Agreement, the
Guarantee and the other Financing Documents to which the Debtor is a party.
3. WARRANTIES AND COVENANTS
Debtor warrants and agrees that:
A. Debtor will pay and perform all of the Obligations according to their
terms.
B. All of the Collateral is and will at all times be owned by Debtor free
and clear of all tax liens and other liens and security interests, except
the liens and security interests permitted in the Note Purchase Agreement
or by Secured Party in writing.
C. The Collateral shall be kept at the principal place of business of
Debtor set forth below or at the locations set forth in Schedule A hereto
and none of the Collateral will be removed from such locations without the
prior written consent of Secured Party except for Debtor's sales to its
customers in the ordinary course of Debtor's business.
D. Debtor will insure the Collateral at all times against all hazards,
including but not limited to fire, theft and risks covered by extended
coverage insurance, and such policies shall be payable to Secured Party as
its interest may appear. Said policies of insurance shall be satisfactory
to Secured Party as to form, amount and insurer. Debtor shall furnish
certificates, policies or endorsements to Secured Party as proof of such
insurance, and, if Debtor fails to do so, Secured Party is authorized but
not required to obtain such insurance at Debtor's expense. All policies
shall provide for at least thirty (30) days' prior written notice to
Secured Party of cancellation or non-renewal. Secured Party may act as
attorney-in-fact for Debtor in making, adjusting and settling any claims
under any such insurance policies. Subject to the lntercreditor Agreement,
Debtor hereby assigns to Secured Party all of its right, title and interest
to any insurance policies insuring the Collateral, including all rights to
receive the proceeds of insurance, and directs all insurers to pay all such
proceeds directly to Secured Party and authorizes Secured Party to endorse
Debtor's name on any instrument of such payment.
E. Debtor will keep the Collateral in good condition and repair, reasonable
wear and tear excepted, and will immediately notify Secured Party of any
destruction of or any damage to any of the Collateral.
F. Debtor will not sell, transfer or otherwise dispose of any of the
Collateral except Inventory to buyers in the ordinary course of business
and except as otherwise permitted under the Note Purchase Agreement.
<PAGE>
G. Intentionally omitted.
H. Debtor will advise Secured Party in writing of any changes in any of the
Debtor's places of business or the opening of any new place of business
five (5) business days prior to the occurrence thereof.
I. Debtor will pay when due all taxes (unless such taxes are being
contested in good faith and adequate reserves have been provided and all
other conditions required by Section 10.4 of the Note Purchase Agreement
have been satisfied), license fees and assessments relating to the
Collateral
J. Debtor will be liable to Secured Party for any expenditures by Secured
Party in connection with the preparation, execution, delivery,
administration and enforcement of this Security Agreement and for the
maintenance and preservation of the Collateral, including but not limited
to taxes, appraisal fees, certificate of title charges, recording and
filing fees (including Uniform Commercial Code financing statement fees and
search fees), the fees and disbursements of Secured Party's in-house and
outside counsel, levies, insurance and repairs, and for the repossession,
holding, preparation for sale, and the sale of the Collateral (including
attorneys' and accountants' fees and expenses), as well as all damages for
breach of warranty, misrepresentation, or breach of covenant by Debtor, and
all such liabilities shall be included in the definition of Obligations
herein, shall be secured by the security interest granted herein, and shall
be payable upon demand.
K. Debtor will execute financing statements pursuant to the Uniform
Commercial Code, as enacted in the states where such financing statements
are required, or are deemed by Secured Party as desirable, and any other
documents required by Secured Party, to perfect or maintain the security
interest granted herein or to effect the purposes of this Agreement. Debtor
hereby authorizes Secured Party to execute and file any financing
statements covering the Collateral without Debtor's signature or if Secured
Party so elects signed in Debtor's name by Secured Party and Secured Party
is hereby appointed attorney-in-fact to do so.
L. Debtor will at all times during normal business hours allow Secured
Party or its agents to examine and inspect the Collateral, as well as
Debtor's books and records relating thereto, and to make extracts and
copies of them.
M. Debtor will report, in form satisfactory to Secured Party, such
information as Secured Party may reasonably request regarding the
Collateral; such reports shall be for such periods shall reflect Debtor's
records as at such time and shall be rendered with such frequency as
Secured Party may reasonably designate. All information heretofore or
hereafter furnished by Debtor to Secured Party is or will be true and
correct in all material respects as of the date with respect to which such
information is or will be furnished.
N. Debtor shall not become a party to any restructuring of its form of
business or participate in any consolidation, merger, liquidation or
dissolution without Secured Party's prior written consent, except as
permitted in the Note Purchase Agreement.
O. Debtor will notify Secured Party of any intended change of Debtor's
name, or the use of any trade name or style, and will notify Secured Party
when such change or use becomes effective Debtor represents that it uses
only the trade names and styles listed on Schedule B annexed hereto.
P. Debtor has the right and power and is duly authorized to enter into and
perform its Obligations hereunder, and Debtor's execution, performance and
delivery of this Agreement does not and will not conflict with the
<PAGE>
provisions of any statute, regulation, ordinance or rule of law, or with
the provisions of any agreement, contract or other document which may now
or hereafter be binding on Debtor.
Q. There are no actions or proceedings which are pending or threatened
against Debtor which might result in any material and adverse change in its
financial condition or materially affect the Collateral pledged hereunder.
R. Debtor is not in violation of any applicable federal, state, municipal
or county statute, regulation or ordinance which may materially and
adversely affect its business, property, assets, operations or conditions,
financial or otherwise and Debtor has obtained and shall maintain in effect
all federal state and local licenses and permits necessary to conduct its
business, including, but not limited to any environmental matters relating
to the remediation of contaminated property and/or the removal of hazardous
materials or otherwise, except where the failure to maintain the same would
not materially and adversely affect its business, property, assets,
operations or conditions, financial or otherwise.
S. Debtor hereby irrevocably appoints Secured Party as Debtor's true and
lawful attorney-in-fact, with full power and authority and in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time
while an Event of Default under, and as defined in, the Note Purchase
Agreement shall have occurred and be continuing in Secured Party's
discretion, to take any action and to execute any instrument which Secured
Party may deem necessary or desirable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Debtor representing any
distribution in respect of the Collateral or any part thereof and to give
full discharge far the same; to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipt for monies due and to
become due under or in connection with the Collateral; to obtain and adjust
insurance covering the Collateral; to receive, endorse and collect any
drafts or other instruments and documents in connection therewith; and to
file any claims or take any action or institute any proceedings which
Secured Party may deem to be necessary or desirable for the collection
thereof, provided, however, that Secured Party may act as such
attorney-in-fact at any time with respect to signing and recording
financing statements under the Uniform Commercial Code.
4. EVENTS OF DEFAULT
All Obligations shall become due and payable upon the occurrence of any Event of
Default under, and as defined in, the Note Purchase Agreement in accordance with
the terms and provisions thereof.
5. RIGHTS AND REMEDIES
Upon the occurrence and continuance of any Event of Default, Secured Party shall
have all rights and remedies provided by law, including but not limited to those
of a secured party under the Uniform Commercial Code of New York, in addition to
the rights and remedies provided herein or in the Note Purchase Agreement.
Secured Party may require Debtor to assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to Debtor and Secured Party. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Secured Party to
Debtor designating the time and place of any public sale or the time after which
any private sale or other intended disposition of Collateral is to be made shall
be deemed to be reasonable notice thereof and Debtor waives any other notice. In
the event Secured Party institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy in an action against
Debtor, Debtor waives the posting of any bond which might otherwise be required.
All Secured Party's rights and remedies shall be cumulative and none are
exclusive. Whether or not default has occurred, all payments made by or on
behalf of Debtor and all credits due Debtor under this Agreement and under any
other agreement between Debtor and Secured Party may be applied to the
Obligations in whatever order and amounts Secured Party chooses.
<PAGE>
6. MISCELLANEOUS
A. Any failure or delay by Secured Party to require strict performance by
Debtor of any of the provisions, warranties, terms and conditions contained
herein or in any other agreement, document or instrument shall not affect
Secured Party's right to demand strict compliance and performance
therewith, and any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto, and whether of the same
or of a different type. None of the warranties, conditions, provisions and
terms contained herein or in any other agreement, document or instrument
shall be deemed to leave been waived by any act or knowledge of Secured
Party, its agents, officers or employees, but only by an instrument in
writing, signed by an officer of Secured Party, directed to Debtor and
specifying such waiver.
B. Any notice under this Agreement shall be in writing, and deemed to have
been given or made: if by hand, immediately upon delivery; if by
telecopier, immediately upon receipt; if by overnight courier, one (1) day
after dispatch; and if by first class or certified mail three (3) days
after the mailing. All such notices shall be addressed 10 the parties at
their respective addresses set forth below.
C. In the event that any provision hereof shall be deemed to be invalid by
any court, such invalidity shall not affect the remainder of this
Agreement.
D. This Agreement shall be binding upon and for the benefit of the parties
hereto and their respective successors and assigns.
E. Wherever the context requires, the singular form of any word shall
include the plural, and the neuter form of any word shall include the
masculine and feminine forms, and vice verse.
F. Debtor hereby irrevocably submits and consents to the jurisdiction of
any New York State or United States Federal court sitting in New York City
over any action or proceeding arising out of or relating to this Agreement,
and the Debtor hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such New York State or
Federal court. The Debtor irrevocably consents to the service of any and
all process in any such action or proceeding by the mailing of copies of
such process to the Debtor at its address specified in the Note Purchase
Agreement. The Debtor agrees that a final non-appealable judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law. The Debtor further waives any objection to venue in such State and any
objection to an action or proceeding in such State on the basis of forum
non conveniens. The Debtor agrees that any action or proceeding brought
against the Secured Party or any holder of Notes shall be brought only in
New York State or United States Federal Court sitting in New York City.
Nothing contained in this paragraph shall affect the right of the Secured
Party or any holder of Notes to serve legal process in any other manner
permitted by law or affect the right of the Secured Party or any holder of
Notes to bring any action or proceeding against Debtor or its property in
the courts of any other jurisdiction.
To the extent that the Debtor has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether from
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
the Debtor hereby irrevocably waives such immunity in respect of its
obligations under this Agreement.
G. This Agreement together with the Note Purchase Agreement and the other
agreements executed in connection therewith, constitutes the entire
agreement among the parties with respect to the subject matter hereof, and
supersedes all prior written or oral understandings with respect thereto.
This Agreement may be amended only by mutual agreement of the parties
evidenced in writing and signed by the party to be charged therewith.
<PAGE>
H. This Agreement is subject to the terms and provisions of the
lntercreditor Agreement (as such term is defined in the Note Purchase
Agreement).
IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement
on the date written above.
By: /s/ Charles W. Clayton
Its: Vice President
Address: 215 Commerce Blvd., Anderson, SC 29625
Telephone No. (864) 225-6232
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, as Collateral Agent
By: /s/ John H. Beera
Its: c/o Phoenix Investments Partners, Ltd.
56 Prospect Street
P.O. Box 150480
Hartford, Connecticut 06115-0480
Telephone No: 860-403-5758
<PAGE>
SCHEDULE A
Locations of Collateral
For Hampshire Designers, Inc.:
Hampshire Designers, Inc. County:
215 Commerce Boulevard Anderson
Anderson, SC 29621
Hampshire Designers, Inc. County:
119 West 40th Street New York
New York, New York 10018
Natalie Knitting Mills County:
Rouse Industrial Park #15 Smythe
Chilhowie, VA 24319
Designers Knitting Mills County:
305 New Court Road Anderson
Anderson, SC 29621
Winona Knitting Mills County:
902 East Second St. Winona
Winona, MN 55987
Winona Knitting Mills County:
109 Main Street Houston
LaCrescent, MN 55947
Hampshire Hosiery - Plant No. 2 County:
103 Cross Street Mitchell
Spruce Pine, NC 28777
Hampshire Hosiery - Plant No. 1 County:
US Hwy. 1 9E Mitchell
Spruce Pine, NC 28777
Hampshire Brands County:
1705 Wilkie Drive Winona
Winona, MN 55987
For Glamourette Fashions Mills, Inc:
Glamourette Fashion Mills - Plant No. 1
113 KM 10.9
Quebradillas, PR 00678
Glamourette Fashion Mills - Plant No. 2
Road No. 2 KM 100.9
Quebradillas, PR 00678
For Segue (America) Limited
Segue (America) Limited
119 West 40th Street
New York, NY 10018
Segue (America) Limited County:
c/o Gilbert West, Inc. Los
4940 Triggs Street Angeles
Commerce, CA 90022
Segue (America) Limited County:
215 Commerce Boulevard Anderson
Anderson, SC 29621
For San Francisco Knitworks, Inc:
San Francisco Knitworks County:
375 Alabama Street San Francisco
San Francisco, CA 94110
<PAGE>
SCHEDULE B
Tradestyle and Brand Names
For Hampshire Designers, Inc.:
Tradestvles:
Designers Knitting Mills
Hampshire Brands
Winona Knitting Mills
Hampshire Brands
Hampshire Hosiery
Natalie Knitting Mills
Brand Names/Licenses:
Designers Originals Sport
Hampshire Studio
Luxalon
Geoffrey Beene
Jantzen
Ron Chereskin
Robert Stock
Mary Jane Marcasiano
Charles Jordan (pending)
Diahann Carroll (pending)
Berwick (pending)
Lake Harmony Rowing Club (pending)
Silk Impressions (pending)
Step Ahead (pending)
Healthy Feet (pending)
Flash Legs (pending)
<PAGE>
EXHIBIT 4.11 -(GPA)
FORM OF GUARANTOR'S PLEDGE AGREEMENT
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of May 15, 1998, made by HAMPSHIRE DESIGNERS, INC., a
Delaware corporation, whose address is 215 Commerce Boulevard, Anderson, South
Carolina 29621 (the "Pledgor"), in favor of PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY, a New York mutual insurance company, having an office at One American
Row, Hartford, Connecticut 06102, as collateral agent for itself and for The
Ohio National Life Insurance Company (the "Collateral Agent;" Phoenix Home Life
Mutual Insurance Company and The Ohio National Life Insurance Company are
referred to herein as the "Lenders").
The Lenders have extended loans to Hampshire Group, Limited, a Delaware
corporation (the "Company") pursuant to those certain separate Note Purchase
Agreements each dated as of May 15, 1998 among Pledgor, the Company, Hampshire
Investments, Limited, Glamourette Fashion Mills, Inc., San Francisco Knitworks,
Inc., and Segue (America), Limited and each of the Lenders, (together with the
other documents and agreements executed in connection therewith, the "Note
Purchase Agreement;" Hampshire Investments, Limited, Glamourette Fashion Mills,
Inc., San Francisco Knitworks, Inc., and Segue (America), Limited are referred
to herein, collectively, as the "Other Guarantors"). The Pledgor has guaranteed
the borrowings of the Company pursuant to the Note Purchase Agreement. The
Pledgor is the owner and holder of the shares of stock of those certain Other
Guarantors as more particularly described in the Schedule attached hereto (the
"Pledged Securities").
It is a condition to the making of the loans by the Lenders that the Pledgor
shall have made the pledge contemplated by this Agreement. In consideration of
the premises, the Pledgor hereby agrees as follows:
1. THE PLEDGE
A. Pledge.
The Pledgor hereby pledges to the Collateral Agent and grants to the
Collateral Agent a security interest in the following (the "Pledged
Collateral"):
(a) the Pledged Securities and the certificates and instruments
representing the Pledged Securities, and all interest, dividends,
cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Securities; and
(b) all additional shares of stock of the issuers of the Pledged
Securities, and the certificates representing such additional shares,
and all interest, dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of the Pledged Securities.
B. Security for Obligations.
This Agreement secures the payment of all obligations (the "Obligations")
of the Pledgor, as provided for in the Note Purchase Agreement and in this
Agreement.
C. Delivery of Pledged Collateral.
All certificates or instruments representing or evidencing the Pledged
Collateral shall be delivered to and held by the Collateral Agent on behalf
<PAGE>
of the Lenders pursuant hereto and shall be in suitable form for transfer
by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
the Collateral Agent. The Collateral Agent shall have the right, at any
time in its discretion and without notice to the Pledgor, to transfer to or
to register in the name of the Collateral Agent or any of its nominees any
or all of the Pledged Collateral, subject only to the revocable rights
specified in Section 5A(a). In addition, the Collateral Agent shall have
the right at any time to exchange certificates or instruments representing
or evidencing Pledged Collateral for certificates or instruments of smaller
or larger denominations.
D. Continuing Agreement.
This Agreement shall create a continuing security interest in the Pledged
Collateral and shall remain in full force and effect until payment in full
of the Obligations.
2. REPRESENTATIONS AND WARRANTIES
The Pledgor represents and warrants as follows:
A. Ownership and Liens.
The Pledgor is the legal and beneficial owner of the Pledged Collateral
free and clear of any Lien, except for the security interest created by
this Agreement and except as provided for in the Credit Agreement (as such
term is defined in the Note Purchase Agreement) and the pledge agreements
executed in connection therewith (collectively, as amended from time to
time, the "Bank Pledge Agreement").
B. Perfection.
The pledge of the Pledged Securities pursuant to this Agreement and the
delivery thereof to Collateral Agent creates a valid and perfected first
priority security interest in the Pledged Collateral, securing the payment
of the Obligations, subject only to the pari passu security interest of the
Bank Pledge Agreement.
C. No Authorization Required.
No authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required either (a)
for the pledge by the Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement
by the Pledgor or (b) for the exercise by the Collateral Agent of the
voting or other rights provided for in this Agreement (except as may be
required in connection with such disposition by laws affecting the offering
and sale of securities generally and except for the filing of financing
and/or continuation statements).
3. COVENANTS
A. Further Assurances.
The Pledgor agrees that at any time and from time to time, at the expense
of the Pledgor, the Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that the Collateral
Agent may request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral Agent
to exercise and enforce its rights and remedies hereunder with respect to
any Pledged Collateral.
B. Transfers and Other Liens; Additional Shares.
The Pledgor agrees that it will not (i) hereafter sell or otherwise dispose
of, or grant any option with respect to, any of the Pledged Collateral, or
(ii) create or permit to exist any lien or security interest upon or with
respect to any of the Pledged Collateral, except (1) for the security
<PAGE>
interest under this Agreement and under the Bank Pledge Agreement and (2)
as otherwise permitted under the Note Purchase Agreement.
4. THE COLLATERAL AGENT
A. Collateral Agent Appointed Attorney-in-Fact.
The Pledgor hereby irrevocably appoints the Collateral Agent as the
Pledgor's attorney-in-fact, with full authority in the place and stead of
the Pledgor and in the name of the Pledgor or otherwise, from time to time,
following the occurrence and during the continuance of an Event of Default
(as defined in the Note Purchase Agreement), in the Collateral Agent's
discretion to take any action and to execute any instrument which the
Collateral Agent may deem necessary or advisable to accomplish the purposes
of this Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same,
provided, however, that the Collateral Agent may act as such
attorney-in-fact at any time with respect to signing and recording
financing statements under the Uniform Commercial Code.
B. Collateral Agent May Perform.
If the Pledgor fails to perform any agreement contained herein, the
Collateral Agent may itself perform, or cause performance of such
agreement, and the expenses of the Collateral Agent incurred in connection
therewith shall be payable by the Pledgor under Section 6B.
C. Reasonable Care.
The Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of the Pledged Collateral in its possession if
the Pledged Collateral is accorded treatment substantially equal to that
which it accords its own property, it being understood that the Collateral
Agent shall not have responsibility for (a) ascertaining or taking action
with respect to calls, conversations, exchanges, maturities, tenders or
other matters relative to any Pledged Collateral, whether or not the
Collateral Agent has or is deemed to have knowledge of such matters, or (b)
taking any necessary steps to preserve rights against any other parties
with respect to any Pledged Collateral.
5. DEFAULT
A. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default (as defined in the Note Purchase
Agreement) shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Collateral
or any part thereof for any purpose not inconsistent with the
terms of this Agreement, provided, however, that the Pledgor
shall provide (within five (5) days after the date of such
meeting) the Collateral Agent with a copy of any minutes of a
meeting of shareholders evidencing the exercise of any and all
voting and other consensual rights by Pledgor.
(ii) The Collateral Agent shall execute and deliver (or cause to
be executed and delivered) to the Pledgor all such proxies and
other instruments as the Pledgor may reasonably request for the
purpose of enabling the Pledgor to exercise the voting and other
rights which it is entitled to exercise pursuant to paragraph (i)
above.
<PAGE>
(b) Upon the occurrence and during the continuance of an Event of
Default (as defined in the Note Purchase Agreement):
(i) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to
exercise pursuant to Section 5A(a)(i) shall cease, and all such
rights shall thereupon become vested in the Collateral Agent who
shall thereupon have the sole right to exercise such voting and
other consensual rights and to receive and hold the Pledged
Collateral.
(ii) All dividends and interest payments, which are received by
the Pledgor, shall be received in trust for the benefit of the
Collateral Agent, shall be segregated from other funds of the
Pledgor and shall be forthwith paid over to the Collateral Agent
as Pledged Collateral in the same form as so received (with any
necessary indorsement).
B. Remedies upon Default.
If an Event of Default has occurred and is continuing:
(a) The Collateral Agent may exercise in respect of the Pledged Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code (the "UCC") in effect in the State of New
York at that time, and the Collateral Agent may also, without notice except
as specified below, sell the Pledged Collateral or any part thereof in one
or more parcels at public or private sale, at any exchange, broker's board
or at any of the Collateral Agent's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such
other terms as the Collateral Agent may deem commercially reasonable. The
Pledgor agrees that, to the extent notice of sale shall be required by law,
at least ten (10) days' notice to the Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. The Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) Any cash held by the Collateral Agent as Pledged Collateral and all
cash proceeds received by the Collateral Agent in respect of any sale or
collection from or other realization upon all or any part of the Pledged
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Collateral Agent
pursuant to Section 6.2) in whole or in part by the Collateral Agent
against, all or any part of the Obligations in such order as the Collateral
Agent shall elect. Any surplus of such cash or cash proceeds held by the
Collateral Agent and remaining after payment in full of all the Obligations
shall be paid over to the Pledgor or to whomever may be lawfully entitled
to receive such surplus.
6. MISCELLANEOUS
A. Amendments, Etc.
No amendment or waiver of any provision of this Agreement nor consent to
any departure by the Pledgor therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Collateral Agent, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
<PAGE>
B. Expenses.
The Pledgor will upon demand pay to the Collateral Agent the amount of any
and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which the Collateral Agent may
incur in connection with (a) the administration of this Agreement, (b) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Collateral, (c) the exercise or
enforcement of any of the rights of the Collateral Agent hereunder or (d)
the failure by the Pledgor to perform or observe any of the provisions
hereof.
C. Notices.
Unless the party to be notified otherwise notifies the other party in
writing, notices shall be given by ordinary mail or telecopier, addressed
to such party at its address on the signature page hereof.
D. Transfer of Loan Documents.
This Agreement shall (a) be binding upon the Pledgor, its successors and
assigns, and (b) inure, together with the rights and remedies of the
Collateral Agent hereunder, to the benefit of the Collateral Agent on
behalf of the Lenders and their respective successors, transferees and
assigns.
E. Governing Law; Terms.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
F. lntercreditor Agreement.
This Agreement is subject to the terms and provisions of the lntercreditor
Agreement (as such term is defined in the Note Purchase Agreement).
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed
and delivered by all of its members as of the date first above written.
HAMPSHIRE DESIGNERS, INC.
By: /s/ Charles W. Clayton
Title: Vice President
Address for Notices to Pledgor:
215 Commerce Boulevard
Anderson, South Carolina 29621
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, as Collateral Agent
Investment
c/o Phoenix Partners, Ltd.
56 Prospect Street
P.O. Box 150480
Hartford, Connecticut 06115-0480
By: /s/ John H. Beera
Its: Vice President
Address:
<PAGE>
SCHEDULE TO PLEDGE AGREEMENT OF
Description of Collateral
COMPANY CERTIFICATE NO. NUMBER OF SHARES
Glamourette Fashion Mills, Inc. #100 1,000
Segue (America) Limited #100 400
San Francisco Knitworks, Inc. #100 1,000
This Schedule shall be deemed automatically and immediately amended and replaced
upon each addition to or substitution or replacement of any of the Pledged
Securities.
<PAGE>
EXHIBIT 4.16
FORM OF INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT is made as of the 15th day of May, 1998 by and
among EACH OF THE PERSONS LISTED ON SCHEDULE 1 ATTACHED HERETO.
RECITALS
WHEREAS, the capitalized terms used herein have the respective meanings set
forth in Schedule 2 attached hereto;
WHEREAS, HGL has entered into the Note Purchase Agreements with each of the
original Noteholders, pursuant to which HGL has issued and sold the Notes;
WHEREAS, HGL has also entered into the Credit Agreement with the Bank Agent and
the Banks, as lenders, pursuant to which the Banks have agreed to extend loans
and other financial accommodations to HGL;
WHEREAS, HGL has pledged to the Bank Agent on behalf of the Banks, and has
granted a security interest and lien to the Bank Agent on behalf of the Banks in
and to, all of its now existing and hereafter acquired HGL Subsidiary Pledged
Stock and certain other collateral as security for its obligations under the
Credit Agreement and under the HGL Bank Security Documents;
WHEREAS, HGL has pledged to the Noteholder Agent on behalf of the Noteholders,
and has granted a security interest and lien to the Noteholder Agent on behalf
of the Noteholders in and to, all of its now existing and hereafter acquired HGL
Subsidiary Pledged Stock and certain other collateral as security for its
obligations under the Note Purchase Agreements, the HGL Note Security Documents
and the Notes;
WHEREAS, HDI has pledged to the Bank Agent on behalf of the Banks, and has
granted a security interest and lien to the Bank Agent on behalf of the Banks in
and to, all of its now existing and hereafter acquired HDI Subsidiary Pledged
Stock and certain other collateral as security for its obligations under the HDI
Bank Guaranty and the HDI Bank Security Documents;
WHEREAS, HDI has pledged to the Noteholder Agent on behalf of the Noteholders,
and has granted a security interest and lien to the Noteholder Agent on behalf
of the Noteholders in and to, all of its now existing and hereafter acquired HDI
Subsidiary Pledged Stock and certain other collateral as security for its
obligations under the HDI Note Guaranty and the HDI Note Security Documents;
WHEREAS, Segue has pledged to the Bank Agent on behalf of the Banks, and has
granted a security interest and lien to the Bank Agent on behalf of the Banks in
and to, all of its now existing and hereafter acquired Segue Subsidiary Pledged
Stock and certain other collateral as security for its obligations under the
Segue Bank Guaranty and the Segue Bank Security Documents;
WHEREAS, Segue has pledged to the Noteholder Agent on behalf of the Noteholders,
and has granted a security interest and lien to the Noteholder Agent on behalf
of the Noteholders in and to, all of its now existing and hereafter acquired
Segue Subsidiary Pledged Stock and certain other collateral as security for its
obligations under the Segue Note Guaranty and the Segue Note Security Documents;
<PAGE>
WHEREAS, Glamourette has granted a security interest and lien to the Bank Agent
on behalf of the Banks in and to certain collateral as security for its
obligations under the Glamourette Bank Guaranty and the Glamourette Bank
Security Documents;
WHEREAS, Glamourette has granted a security interest and lien to the Noteholder
Agent on behalf of the Noteholders in and to certain collateral as security for
its obligations under the Glamourette Note Guaranty and the Glamourette Note
Security Documents;
WHEREAS, SF Knitworks has granted a security interest and lien to the Bank Agent
on behalf of the Banks in and to certain collateral as security for its
obligations under the SF Knitworks Bank Guaranty and the SF Knitworks Bank
Security Documents;
WHEREAS, SF Knitworks has granted a security interest and lien to the Noteholder
Agent on behalf of the Noteholders in and to certain collateral as security for
its obligations under the SF Knitworks Note Guaranty and the SF Knitworks Note
Security Documents;
WHEREAS, the Bank Agent, the Banks, the Noteholder Agent and the Noteholders
desire to set forth their respective rights and remedies in and to the
Collateral and various other related matters;
NOW THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00) now paid by
each party hereto to the other parties hereto (the receipt and sufficiency of
which is hereby acknowledged by each party hereto), and for other good and
valuable consideration, the parties hereto agree as follows:
1. HAMPSHIRE DEBT AND LIEN PRIORITIES.
1.1 All Bank Debt and Noteholder Debt to Rank Equally. Subject to the terms
of this Agreement, all Bank Debt and Noteholder Debt shall be of equal
priority and none shall have priority of payment over or be subordinate to
the other.
1.2 Lien Priorities to Rank Equally. Notwithstanding the date, manner or
order of perfection of the security interests and liens granted to the Bank
Agent on behalf of the Banks in and to the Bank Collateral or the date,
manner or order of perfection of the security interests and liens granted
to the Noteholder Agent on behalf of the Noteholders in and to the
Noteholder Collateral, and notwithstanding any provisions of the applicable
Uniform Commercial Code or any other applicable law or judicial decision or
whether either of the Bank Agent or the Noteholder Agent holds possession
of all or any part of the Collateral, as among the Bank Agent, the
Noteholder Agent, the Banks and the Noteholders, the Bank Agent on behalf
of the Banks and the Noteholder Agent on behalf of the Noteholders shall
each have security interests and liens of equal priority and without
preference or distinction in and to the Collateral. The shared priority
provided for in this Section 1.2 and any sharing of proceeds in respect
thereof provided for in Section 3.1 hereof is expressly conditioned upon
the nonavoidability and perfection of the security interest and liens to
which it applies and, if a security interest or lien in favor of the Bank
Agent or the Noteholder Agent, as the case may be, is not perfected or is
avoidable or has been discharged, terminated or released for any reason,
then the priority arrangements provided for in this Section 1.2 and the
allocation of proceeds under Section 3.1 hereof shall be ineffective as to
the particular Collateral which is the subject of the unperfected or
avoidable or discharged, terminated or released security interest or lien.
Anything contained in this Section 2.1 to the contrary notwithstanding, the
<PAGE>
assignment of the Key-Person Policy to the Noteholder Agent is and shall be
for the benefit of all holders of Hampshire Debt, as hereinafter described.
1.3 Attachment and Perfection. For the avoidance of doubt, the Bank Agent,
the Banks, the Noteholder Agent and the Noteholders agree that their
respective rights set forth herein shall exist and be enforceable
independent of the time or order of attachment or perfection of the
respective security interests, chattel mortgage liens or other liens, or
the time or order of filing of financing statements, chattel mortgages or
other recordations and registrations, or the time or sequence in which any
Bank Document or Note Document is executed or delivered, the time or
sequence in which any Bank Debt or Noteholder Debt becomes due (whether at
its stated maturity, by acceleration or otherwise) or is incurred, or the
time or sequence of commencement or completion of any proceedings to
enforce or collect any Bank Debt or Noteholder Debt, to enforce or realize
on any Bank Collateral or Noteholder Collateral or the time or sequence in
which any order or judgment in respect thereof is made or entered or any
execution is obtained or registered or any other proceeding is commenced or
completed or any other factor of legal relevance, whether similar or
dissimilar to any of the foregoing, other than this Agreement, establishing
the priority or ranking or relative rights of enforcement among the Bank
Agent, the Noteholder Agent, the Banks and the Noteholders.
1.4 No Contest of Liens or Ranking in Respect of Collateral. Each of the
Bank Agent, the Noteholder Agent, the Banks and the Noteholders agrees that
it will not dispute or contest (a) the validity, enforceability or
perfection of any security interest or lien in and to the Collateral
securing any Bank Debt or Noteholder Debt, or (b) the pari passu ranking of
Bank Debt, Noteholder Debt and the security interests and liens in and to
the Collateral as provided in this Section 1. Nothing in this clause 1.4
shall reduce the scope of the last sentence of Section 1.2 hereof.
1.5 Amount of Hampshire Debt Discharged; Application to Hampshire Debt. Any
proceeds realized from the enforcement or realization upon the Collateral
or otherwise under this Agreement shall constitute a discharge of Bank Debt
or the Noteholder Debt only to the extent of the amount of such proceeds
actually received by the holder thereof in accordance with this Agreement.
Any moneys received by a Bank or Noteholder as aforesaid shall be applied
or reapplied from time to time to the Bank Debt or Noteholder Debt held by
such Person as the relevant Bank Documents or Noteholder Documents, as the
case may be, require.
2. ENFORCEMENT.
2.1 Enforcement of Security Interests and Liens in Collateral.
(a) Enforcement Actions. The Bank Agent, the Noteholder Agent, the
Banks and the Noteholders agree that the security interests and liens
in and to the Collateral provided for in the Bank Documents and the
Note Documents, as the case may be, shall not be enforced as against
any or all of the Collateral except at the direction of the
Super-Majority Debt Holders upon the existence of one or more
Actionable Events of Default and in compliance with the provisions
hereof. Such direction shall state whether one Agent shall act in
commencing any enforcement or foreclosure of the security interests or
liens in and to the Collateral, or any portion thereof, or whether
both Agents shall act, as herein after set forth, provided that an
Agent shall not be obligated to act hereunder unless instructed by the
appropriate majority of the holders of Hampshire Debt that may so
instruct it. If only one Agent is instructed to act by the
Super-Majority Debt Holders, such agent, prior to commencing any
enforcement or foreclosure of the security interests or liens in and
to the Collateral, or any portion thereof, shall notify, in writing,
the other Agent of the nature and scope of the enforcement or
foreclosure action to be taken; such notification shall be delivered
not less than 15 days prior to the taking of such action.
<PAGE>
(b) Proceeds from Enforcement Actions. In the event one Agent or both
of the Agents, pursuant to clause (a) above, commence to enforce or
foreclose their respective security interests or liens in and to the
Collateral, or any portion thereof, any net proceeds from such action
shall be shared among the Agents, the Banks and the Noteholders as
provided in Section 3.1 hereof.
(c) Joint Enforcement; Separate Enforcement. In the event that both
Agents, pursuant to clause (a) above, shall have been directed to act
in connection with the enforcement or foreclosure of their respective
security interests or liens in and to the Collateral, or any portion
thereof, such Agents (and the holders of Hampshire Debt represented by
such Agents) shall cooperate with each other in connection with the
exercise of their enforcement and foreclosure rights in respect of
such Collateral so that such Collateral may be sold free and clear of
any security interests and liens in favor of such Agents or such
holders; in connection therewith, any instructions to be given to the
Agents shall be approved by the Super-Majority Debt Holders.
(d) Coordination of Collateral Agents. If both Agents, pursuant to
clause (a) above , shall have been directed to act in the enforcement
or foreclosure of their respective rights in and to the Collateral,
the Majority Banks, Majority Noteholders and the Agents, acting
together, may agree to substitute the Bank Agent for the Noteholder
Agent or the Noteholder Agent for the Bank Agent, as the case may be,
for the sole purpose of creating a single collateral agent under the
Bank Documents and Note Documents to facilitate the enforcement and
foreclosure of the rights of the Agents under such documents and in
respect of the Collateral. If only one Agent, pursuant to clause (a)
above, shall have been directed to act in the enforcement or
foreclosure of its rights in and to the Collateral, the acting Agent
and the holders of Hampshire Debt represented thereby shall indemnify
and hold harmless the nonacting Agent and the holders of Hampshire
Debt represented thereby from and against any and all liabilities,
obligations, claims, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against
such nonacting Agent and/or such holders of Hampshire Debt and that in
any way relate to or arise out of the enforcement action or
foreclosure undertaken by such acting Agent. If only one Agent,
pursuant to clause (a) above, shall have been directed to act in the
enforcement or foreclosure of its rights in and to the Collateral, the
nonacting Agent shall, to the extent that its liens and security
interests are superior of record to those of the acting Agent,
promptly subordinate its security interests and liens in and to the
Collateral then subject to the enforcement action or foreclosure of
such acting Agent for purposes of enabling the acting Agent to pass
title to such Collateral pursuant to such enforcement action or
foreclosure free and clear of such liens and security interests.
2.2 Possession of Collateral. If any Agent shall be in possession of any
Collateral and such Agent has not been directed pursuant to Section 2.1(a)
hereof, to be the acting Agent in respect of the exercise of any right of
enforcement or foreclosure in respect thereof, such Agent shall deliver
such Collateral to the acting Agent and the acting Agent shall hold such
Collateral subject to the provisions of Section 5 hereof.
2.3 Noncollateral Enforcement Rights Permitted. Except as provided in
Sections 2.1, 2.5 and 2.6 hereof, no Agent or holder of Hampshire Debt
shall exercise any right of enforcement or foreclosure in respect of any
Collateral or appoint a receiver or trustee in respect thereof or exercise
or take any other remedy or proceedings in or out of court in respect
thereof, provided that, other than as provided in said Sections, nothing in
this Section 2 shall limit or restrict, or be construed as limiting or
restricting, (a) the ability of any Agent to take any action provided for
<PAGE>
in the Bank Documents or the Noteholder Documents, as the case may be, to
preserve or protect all or any of the Collateral, (b) the ability of any
holder of Hampshire Debt from exercising any of its other rights and
remedies under the Bank Documents or the Noteholder Documents, as the case
may be (including, without limitation, amending or modifying any of such
Documents, waiving any obligations or responsibilities of any Hampshire
Entity under any of such Documents, increasing the amount of indebtedness
under any of such Documents or accelerating the maturity of any
indebtedness under any of such Documents).
2.4 No Marshaling. Each of the Bank Agent, Noteholder Agent, Banks and
Noteholders hereby waives any right to require the other party to marshal
any of the Collateral or any other collateral or security or otherwise
compel any other party to seek recourse against or satisfaction of any
Hampshire Debt owed to it from one source before seeking recourse or
satisfaction from another source.
2.5 Insurance. Subject to the shared priority and respective rights of the
Bank Agent, the Banks, the Noteholder Agent and the Noteholders provided
for herein, each of the Bank Agent and the Noteholder Agent shall be
entitled to be designated secured parties and to obtain loss payee
endorsements and additional insured status with respect to any policies of
insurance now or hereafter obtained by any Hampshire Entity insuring
against casualty or other loss to any property constituting Collateral.
Each of the Bank Agent and the Noteholder Agent agrees to coordinate their
respective activities with respect to filing claims, settling disputes,
making adjustments and taking any and all other action with regard to such
insurance. For the avoidance of doubt, the provisions of this Agreement
shall govern the respective rights of the Bank Agent, the Noteholder Agent,
the Banks and the Noteholders to insurance proceeds despite any
inconsistent provisions or any inconsistent designation of rights or
priorities among secured creditors in any insurance policy or endorsement
thereof.
Subject to Section 2.1 and the shared priority and respective rights of the Bank
Agent, the Banks, the Noteholder Agent and the Noteholders provided for herein,
the Noteholder Agent shall be entitled to receive a collateral assignment of the
Key-Person Policy (acknowledged by the insurer in respect thereof) and shall
have the right (a) to collect from the insurer under the Key-Person Policy the
proceeds of such policy upon the death of Mr. Kuttner, (b) to surrender said
policy and receive the surrender value thereof, (c) to collect and receive all
distributions, shares of surplus, dividends, deposits or other similar payments
in respect of the Key-Person Policy, and (d) to elect any optional mode of
settlement permitted by the Key-Person Policy. If, at the time of receipt of
proceeds in respect of the Key-Person Policy, an Actionable Event of Default
shall exist and enforcement and/or foreclosure actions are being or will be
undertaken in respect of the Collateral, the proceeds of the Key-Person Policy
shall be paid and distributed by the Noteholder Agent as provided for in Section
3 hereof. If, at the time of receipt of proceeds in respect of the Key-Person
Policy, there shall be in existence no Actionable Event of Default in respect of
which enforcement and/or foreclosure actions are being or will be undertaken
with respect to the Collateral, the proceeds of the Key-Person Policy shall be
paid by the Noteholder Agent (or, if for any reason whatsoever, received by the
Company or any other Obligor, by the Company or such Obligor) to the Bank Agent
on behalf of the Banks and the holders of Notes as follows:
(1) in the case of each Bank, the portion of such proceeds equal to the ratio
that the aggregate principal amount outstanding at such time under the Credit
Agreement and owing to such bank bears to the total of the aggregate principal
amount outstanding at such time and owing to all Banks plus the aggregate
principal amount of all Notes then outstanding, or
(2) in the case of each holder of Notes that shall have exercised its rights
under Section 8.4 of the Note Purchase Agreements in respect of the death of Mr.
Kuttner prior to the receipt of such proceeds or after the receipt of such
proceeds if such exercise after such receipt is in accordance with the
requirements set forth in Section 8.4 of the Note Purchase Agreements, the
<PAGE>
lesser of (i) the amount otherwise payable to such holder under Section 8.4 of
the Note Purchase Agreements and (ii) the portion of such proceeds equal to the
ratio that the aggregate principal amount outstanding at such time of the Notes
of such holder bears to the total of the aggregate principal amount outstanding
at such time and owing to all Banks under the Credit Agreement plus the
aggregate principal amount of all Notes then outstanding.
The Company shall cooperate with the Noteholder Agent in connection with any
payments owing to the Banks and/or the holders of Notes under this Section 2.5.
To the extent that proceeds from the Key-Person Policy shall not have been paid
to the Banks and/or any one or more Noteholders and Section 3 would not
otherwise apply, they shall be paid by the Noteholder Agent to the Company free
and clear of any liens or security interests created by any Document.
2.6 Offsets. Neither the Bank Agent, the Noteholder Agent, any Bank nor any
Noteholder having any right of offset in respect of, or banker's lien in
and to, any moneys, instruments or deposit accounts of HGL, HDI,
Glamourette, Segue, SF Knitworks or any other Hampshire Entity shall
exercise any such right or such lien except in connection with the exercise
of rights and remedies under this Section 2, and the allocation and
distribution of net proceeds in respect thereof shall be as provided for in
Section 3.1(a) hereof.
2.7 Books and Records. If the Agents shall jointly act in the exercise of
their enforcement and foreclosure rights in respect of the Collateral, or
any portion thereof, they shall jointly take possession of the books and
records of the Hampshire Entities. To the extent either of the Agents takes
possession of the books and records of any Hampshire Entity, such Agent
will notify the other Agent thereof and provide the other Agent with
reasonable access to inspect and copy and use such books and records for
purposes of preserving, collecting and/or disposing of accounts and other
Collateral.
2.8 Foreclosure Sales. To the extent that any acting Agent shall hold a
public or private foreclosure sale in respect of all or any of the
Collateral, such acting Agent shall give written notice thereof to the
other nonacting Agent not less than 10 Business Days prior to such sale.
The holders of Hampshire Debt agree that each of them may attend and bid at
any such public sale but may not pay for any such bid that is successful by
applying all or any of the indebtedness then owing to such Person from any
Hampshire Entity in whole or partial satisfaction of such successful bid
other than the amount of cash proceeds that such Person would be entitled
to receive from such sale as provided for hereunder and under the Bank
Documents or the Noteholder Documents, as the case may be.
3. APPLICATION AND ALLOCATION OF PROCEEDS.
3.1 Application and Allocation of Net Proceeds.
(a) Allocation and Distribution of Net Proceeds. Cash proceeds in
respect of (i) the enforcement or other realization of any security
interest or lien in and to any of the Collateral, (ii) the exercise of
the other rights and remedies of either of the Agents under the Bank
Documents or the Noteholder Documents in respect of the Collateral
(including, without limitation, the receipt of any proceeds in respect
of the collection of any accounts), (iii) the effecting by any holder
of Hampshire Debt of any offset in respect of, or realizing by any
such holder upon any banker's lien in and to, any moneys, instruments
or deposit accounts of any Hampshire Entity, in each case, net of all
Recovery Costs in respect thereof (collectively, the "Net Proceeds")
shall be allocated, subject to Section 1.2 hereof, among the holders
of Hampshire Debt in respect thereof as follows:
(1) first, to all accrued and unpaid interest in respect of
Hampshire Debt; to the extent that Net Proceeds allocated to this
paragraph (1) are insufficient to pay all such accrued and unpaid
interest, such Net Proceeds shall be shared ratably among the
holders of Hampshire Debt in accordance with the ratio that the
aggregate amount of such accrued and unpaid interest owing to
each such holder bears to the total amount of such accrued and
unpaid interest;
(2) second, to the outstanding principal of all Hampshire Debt
until all such outstanding principal has been fully repaid (and
for purposes of this paragraph (2) only, outstanding banker's
acceptances and issued but undrawn and unexpired letters of
credit shall be deemed to be outstanding principal, provided that
<PAGE>
any payments of proceeds in respect of any such banker's
acceptance or any such letter of credit shall not be paid to the
holder of Hampshire Debt that shall have created such banker's
acceptance or shall have issued such letter of credit but rather
shall be held in trust by the Agent for such holder until such
time as such holder shall have certified to both Agents, in
writing, the amount and time of the payment it has actually made
in respect of any such banker's acceptance or letter of credit;
upon receipt of such certification, the amount held in trust by
such Agent corresponding to such banker's acceptance or letter of
credit (which would have been paid directly to such holder if
such banker's acceptance or such letter of credit, as the case
may be, had been paid at the time of the original distribution of
Net Proceeds under this Paragraph (2)) shall be paid to such
holder; if any such letter of credit shall have expired or
otherwise become void without having been drawn upon, the portion
of the amount held in trust in respect thereof shall be released
by such Agent and distributed at such time to the holders of
Hampshire Debt as provided in paragraphs (1) through (5) of this
Section 3.1(a); to the extent that Net Proceeds allocated to this
paragraph (2) are insufficient to pay all outstanding principal
of all Hampshire Debt, such Net Proceeds shall be shared ratably
among the holders of Hampshire Debt in accordance with the ratio
that the aggregate outstanding principal balance of Hampshire
Debt held by each such holder bears to the total outstanding
principal balance of all Hampshire Debt;
(3) third, to all prepayment premiums due and owing in respect of
any Hampshire Debt (prepayment premiums shall include any
Make-Whole Amounts) and to all commitment fees, utilization fees,
letter of credit issuance fees, banker's acceptance fees or other
similar fees owing in respect of any Hampshire Debt or the Bank
Documents or Noteholder Documents relating thereto; to the extent
that Net Proceeds allocated to this paragraph (3) are
insufficient to pay all prepayment premiums, such Net Proceeds
shall be shared ratably among the holders of Hampshire Debt in
accordance with the ratio that the aggregate amount of such
prepayment premiums, commitment fees, utilization fees, letter of
credit issuance fees, banker's acceptance fees and other similar
fees owing to each such holder bears to the total amount of such
prepayment premiums, commitment fees, utilization fees, letter of
credit issuance fees, banker's acceptance fees and other similar
fees;
(4) fourth, to all Hedging Transaction Breakage Costs; to the
extent that Net Proceeds allocated to this paragraph (4) are
insufficient to pay all Hedging Transaction Breakage Costs, such
Net Proceeds shall be shared ratably among the holders of
Hampshire Debt in accordance with the ratio that the aggregate
amount of such Hedging Transaction Breakage Costs owing to each
such holder bears to the total amount of such Hedging Transaction
Breakage Costs; and
(5) fifth, to all other amounts (including, without limitation,
any costs, fees, expenses and indemnities) owing by any Hampshire
Entity to holders of Hampshire Debt to the extent not included in
paragraphs (1) through (4), inclusive, above (collectively, the
"Remainder Obligations"); to the extent that Net Proceeds
allocated to this paragraph (5) are insufficient to pay all
Remainder Obligations, such Net Proceeds shall be shared ratably
among the holders of Hampshire Debt in accordance with the ratio
that the aggregate amount of such Remainder Obligations owing to
each such holder bears to the total amount of such Remainder
Obligations.
(b) Realization of Cash. To the extent that the proceeds of Collateral are
not cash or cash equivalents, the Agents, Banks and Noteholders agree to
cooperate with each other in establishing a fair and reasonable value for
such proceeds and determining how such proceeds should be distributed and
allocated under this Section 3 or otherwise turned into cash.
<PAGE>
(c) Certain Banker's Acceptances and Letters of Credit. Anything contained
in Section 3.1(a) hereof notwithstanding, if any holder of Hampshire Debt,
pursuant to the Bank Documents or Noteholder Documents, as the case may be,
created banker's acceptances and/or issued letters of credit for the
benefit or account of any Hampshire Entity after such holder shall have
actual knowledge of the existence of any Actionable Event of Default or any
default under the Bank Documents or Noteholder Documents (other than in
connection with rolling over or reissuing a letter of credit that was
outstanding prior to the existence of such Actionable Event of Default or
other default), any amounts that may become due and payable thereunder and
any acceptance fees in connection therewith shall be treated for purposes
of Section 3.1(a) hereof as Remainder Obligations.
(d) Acceleration. Each holder of Hampshire Debt, as a condition to
receiving any distributions under Section 3.1(a) hereof, shall have
accelerated all payments in respect thereof or otherwise made demand, or
caused demand to be made, for the same. If Net Proceeds are held by an
Agent on behalf of holders of Hampshire Debt represented by it pursuant to
Section 3.1 (a)(2) hereof, any delayed distributions of such Net Proceeds
shall be made as if such delayed distribution took place at the time of the
original distribution of such Net Proceeds and without taking into
consideration any further or additional exercise of enforcement or
foreclosure rights being pursued by any Agent at the time of such delayed
distribution.
3.2 Turnover of Proceeds. To the extent that any holder of Hampshire Debt
obtains proceeds in respect of any of the Collateral or pursuant to the
exercise of any of its rights of offset or any of its banker's liens other
than as provided for in Section 3.1 hereof, it shall take such actions as
may be necessary (including, without limitation, turning over such proceeds
to an Agent) in order to comply with the requirements of this Agreement in
respect of such proceeds (including, without limitation, the allocation,
distribution and sharing provisions of Section 3.1 hereof). Nothing in this
Section 3.2 shall prohibit or prevent any Hampshire Entity from making any
payment to an Agent or a holder of Hampshire Debt that is a scheduled
payment under the Bank Documents or the Noteholder Documents, as the case
may be, or, if unscheduled and if proceeds of Collateral have been used to
fund such payment, has not occurred during the existence of any default or
event of default under the Bank Documents or the Noteholder Documents or
pursuant to any exercise of a right or remedy in respect of the Collateral.
Any turnover of proceeds to an Agent effected under this Section 3.2 shall
be distributed by such Agent to the holders of Hampshire Debt so as to give
effect to how such proceeds would have been so distributed under Section
3.1 hereof if originally distributed pursuant to such Section.
4. LOANS AND OTHER BANKING ACTIVITIES; ADDITIONAL COLLATERAL
4.1 Loans and Other Banking Activities. Nothing contained in this Agreement
shall be construed to restrict or limit the ability of any Bank to make
loans and extend other credit (including, without limitation, banker's
acceptances and the issuance of letters of credit) to or for the benefit of
any Hampshire Entity under the Credit Agreement or otherwise, to enter into
Hedging Transactions with any Hampshire Entity, to provide deposit accounts
for any Hampshire Entity and to provide such other customary banking
services for any Hampshire Entity as such Bank and such Hampshire Entity
deem appropriate. Nothing contained in this Agreement shall be construed to
restrict or limit the ability of any Noteholder to make loans and extend
other credit to or for the benefit of any Hampshire Entity under the Note
Purchase Agreements or otherwise or to offer to provide to any Hampshire
Entity insurance and/or investment products or services.
<PAGE>
4.2 Additional Collateral. Neither the Agents nor any holder of Hampshire
Debt shall accept any additional property as security with respect to such
Hampshire Debt unless such additional property is simultaneously made a
part of the Collateral and made subject to this Agreement for the equal and
ratable benefit of all holders of Hampshire Debt.
4.3 Additional Guarantees. Neither the Agents nor any holder of Hampshire
Debt shall accept any additional guarantees in respect of Hampshire Debt
unless the entity issuing such guarantee becomes a "Hampshire Entity" and
any collateral pledged with respect thereto is made subject to this
Agreement and made part of the Collateral.
5. CONTROL OF SUBSIDIARY PLEDGED STOCK AND OTHER COLLATERAL
5.1 Subsidiary Pledged Stock. To the extent that the Bank Agent, as secured
party on behalf of the Banks, shall hold any Subsidiary Pledged Stock in
its possession, the Bank Agent acknowledges and agrees that, for purposes
of establishing control over such Subsidiary Pledged Stock for the benefit
of the Noteholder Agent and the Noteholders, the Bank Agent, subject to the
terms hereof and its rights hereunder, is acting as the agent of the
Noteholder Agent in holding such Subsidiary Pledged Stock and that, as such
agent, its sole duty shall be to deliver such Subsidiary Pledged Stock to
the Noteholder Agent as required under Section 2.2 and in accordance with
this Section 5.1; except in connection with the exercise of any enforcement
or foreclosure rights by the Bank Agent, as provided for herein, the Bank
Agent shall not deliver such Subsidiary Pledged Stock to any other Person
without the prior written consent of the Noteholder Agent. To the extent
that the Noteholder Agent, as a secured party on behalf of the Noteholders,
shall hold any Subsidiary Pledged Stock in its possession, the Noteholder
Agent acknowledges and agrees that, for purposes of establishing control
over the Subsidiary Pledged Stock for the benefit of the Bank Agent and the
Banks, the Noteholder Agent, subject to the terms hereof and its rights
hereunder, is acting as the agent of the Bank Agent in holding such
Subsidiary Pledged Stock and that, as such agent, its sole duty shall be to
deliver such Subsidiary Pledged Stock to the Bank Agent as required under
Section 2.2 and in accordance with this Section 5.1; except in connection
with the exercise of any enforcement or foreclosure rights by the
Noteholder Agent, as provided for herein, the Noteholder Agent shall not
deliver such Subsidiary Pledged Stock to any other Person without the prior
written consent of the Bank Agent. Both Agents agree to obtain and maintain
appropriate executed and undated stock powers in respect of all Subsidiary
Pledged Stock.
5.2 Other Collateral. To the extent that the Bank Agent, as secured party
on behalf of the Banks, shall hold any goods, instruments, money,
negotiable documents or chattel paper as Collateral in its possession, the
Bank Agent acknowledges and agrees that, for purposes of establishing
perfection of the security interest or lien of the Noteholder Agent
therein, the Bank Agent, subject to the terms hereof and its rights
hereunder, is acting as the agent of the Noteholder Agent and as a bailee
under notification and, as such agent, its sole duty shall be to deliver
such Collateral to the Noteholder Agent as required under Section 2.2 and
in accordance with this Section 5.2; except in connection with the exercise
of any enforcement or foreclosure rights by the Bank Agent, as provided for
herein, the Bank Agent shall not deliver such Collateral to any other
Person without the prior written consent of the Noteholder Agent. To the
extent that the Noteholder Agent, as secured party on behalf of the
Noteholders, shall hold any goods, instruments, money, negotiable documents
or chattel paper as Collateral in its possession, the Noteholder Agent
acknowledges and agrees that, for purposes of establishing perfection of
the security interest or lien of the Bank Agent therein, the Noteholder
Agent, subject to the terms hereof and its rights hereunder, is acting as
the agent of the Bank Agent and as a bailee under notification and, as such
agent, its sole duty shall be to deliver such Collateral to the Bank Agent
as required by Section 2.2 and in accordance with this Section 5.2; except
in connection with the exercise of any enforcement or foreclosure rights by
the Noteholder Agent, as provided for herein, the Noteholder Agent shall
not deliver such Collateral to any other Person without the prior written
consent of the Bank Agent.
<PAGE>
5.3 HIL Collateral To the extent that HIL Collateral is to be released
pursuant to the Documents, the Bank Agent and the Noteholder Agent shall
effect such release, as provided for in the Documents to which they are
parties.
6. PROVISION OF INFORMATION.
6.1 Information Regarding Bank Documents or Noteholder Documents. Upon
request, each holder of Hampshire Debt shall furnish any other holder of
Hampshire Debt with full information and particulars relating to the Bank
Documents or Noteholder Documents, as the case may be, of such holder,
including, if so requested, photocopies of the same.
6.2 Notice of Certain Events. Each holder of Hampshire Debt, promptly and
in any event within three Business Days of:
(a) obtaining knowledge of the occurrence of a default or event of
default under its respective Bank Documents or Noteholder Documents,
or
(b) receipt of any proceeds of Collateral by such holder other than as
expressly provided for herein, shall use its best efforts to give
written notice thereof, in accordance with Section 7.2 hereof, to the
other holders of Hampshire Debt, setting forth in such notice the
details thereof, including with respect to clause (b) above, the
amount of proceeds received; provided that the failure of any holder
of Hampshire Debt to provide such notice shall not adversely affect
such holder's rights and benefits under this Agreement.
7. MISCELLANEOUS.
7.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
7.2 Notices. All notices and communications provided for hereunder shall be
in writing and sent (a) by facsimile transmission (or electronic mail) if
the sender on the same day sends a confirming copy of such notice by a
recognized overnight delivery service (with charges prepaid), (b) by first
class United States mail (with charges prepaid) or (c) by a recognized
overnight delivery service (with charges prepaid). Any such notice shall be
addressed as set forth on Schedule 1 attached hereto or at such other
address as the Bank Agent, the Noteholder Agent, the Banks or the
Noteholders shall have specified to the other parties by notice duly given
in accordance with this Section 7.2. Notices under this Section 7.2 will be
deemed given only when actually received.
7.3 Amendments. This Agreement may not be amended or modified, and no
provision of this Agreement may be waived, except by an agreement in
writing signed by each of the holders of Hampshire Debt. The agreements and
priorities set forth in this Agreement shall remain in full force and
effect regardless of whether any holder of Hampshire Debt or any Agent
rescinds, amends, terminates or reforms, by liquidation or otherwise, any
one or more of the Bank Documents or Noteholder Documents, as the case may
be.
7.4 Transfer of Obligations. Each holder of Hampshire Debt agrees that it
shall not transfer or assign its interest in any of such Hampshire Debt or
any instrument evidencing such Hampshire Debt unless the transferee agrees
in writing that it shall be bound by this Agreement.
7.5 Primary Obligor. Anything contained herein to the contrary
notwithstanding, the Banks and the Noteholders agree that credit shall be
extended and loans made only to HGL and not any other Hampshire Entity,
provided that such other Hampshire Entities may provide guarantees in
support of such credit extension and such loans.
7.6 Benefits of Agreement Restricted. Nothing herein expressed or implied
is intended or shall be construed to give anyone other than the Agents and
holders of Hampshire Debt and their successors and assigns any legal or
equitable right, remedy or claim under or in respect hereof or any
<PAGE>
covenant, condition or provision contained herein; and all such covenants,
conditions and provisions are and shall be held to be for the sole and
exclusive benefit of the Agents and holders of Hampshire Debt and their
successors and assigns. Subject to the preceding sentence, this Agreement
shall inure to the benefit of and be binding upon the parties hereto and
their respective successors and assigns. For the avoidance of doubt,
nothing contained in this Agreement is or is intended to be for the benefit
of HGL, HDI, Glamourette, Segue, SF Knitworks or any other Hampshire Entity
and nothing contained herein shall limit or in any way modify any of the
obligations of such Persons to the holders of Hampshire Debt.
7.7 Relations Among Holders of Hampshire Debt. This Agreement is entered
into solely for the purposes set forth herein, and no holder of Hampshire
Debt nor any Agent assumes any responsibility to any other party hereto to
advise such Person of information known to such Person regarding the
financial condition of any Hampshire Entity or of any other circumstance
bearing upon the risk of nonpayment of any Hampshire Debt. Except as
provided in and as limited by Section 5, neither Agent and no holder of
Hampshire Debt shall be deemed to the agent of the other party.
7.8 Severability. Should any part of this Agreement for any reason be
declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining
portion shall remain in force and effect as if this Agreement had been
executed with the invalid or unenforceable portion hereof eliminated.
7.9 Duplicate Originals; Execution in Counterpart. This Agreement may be
executed in any number of counterparts, each of which shall be an original
but all of which together shall constitute one instrument. Each counterpart
may consist of a number of copies hereof, each signed by less than all, but
together signed by all, of the parties hereto.
7.10 Term of the Agreement. This Agreement shall remain in force and effect
until there is no longer any Hampshire Debt outstanding, all such Hampshire
Debt (including, without limitation, all interest, prepayment premiums,
fees, costs and expenses in respect thereof) having been fully, finally and
indefeasibility paid.
7.11 Entire Agreement. This Agreement, including the Annex and the
Schedules hereto, constitutes the entire agreement between the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
THE CHASE MANHATTAN BANK, for itself and as
Bank Agent
By: /s/ Abby Parsonnet
Name: Abby Parsonnet
Title: Vice President
REPUBLIC NATIONAL BANK OF NEW YORK
By: /s/ George Commander
Name: George Commander
Title: Vice President
NATIONSBANK N.A.
By: /s/ Rick Stanland
Name: Rick Stanland
Title: Vice President
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, for itself and as Noteholder Agent
By: /s/ John H. Beera
Name: John H. Beera
Title: Vice President
<PAGE>
OHIO NATIONAL LIFE INSURANCE COMPANY
By: /s/ Michael A. Boedeker
Name: Michael A. Boedeker
Title: Vice President
The undersigned Hampshire Entities hereby acknowledge and agree to the foregoing
Intercreditor Agreement. Nothing herein shall be deemed to amend, modify or
supersede or otherwise alter the terms of the Bank Documents and/or the
Noteholder Documents as to such Hampshire Entities and, in the event of any
inconsistency or conflict between the terms of such Documents and this
lntercreditor Agreement, such Documents shall govern as between each of such
Hampshire Entities and the relevant Agent and/or holders of Hampshire Debt. The
undersigned Hampshire Entities agree that each Agent holding Collateral may
serve as bailee for the other Agent and each Agent is authorized to turn such
Collateral over to such other Agent as provided for in this lntercreditor
Agreement. The undersigned Hampshire Entities further agree that this
lntercreditor Agreement is solely for the benefit of the Agents and the holders
of Hampshire Debt and shall not give any of such Hampshire Entities any rights
or benefits thereunder:
HAMPSHIRE GROUP, LIMITED
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
HAMPSHIRE DESIGNERS, INC.
By: Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
SEGUE (AMERICA) LIMITED
By: Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
GLAMOURETTE FASHION MILLS, INC.
By: Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
SAN FRANCISCO KNITWORKS, INC.
By: Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
<PAGE>
SCHEDULE I
Noteholders. Noteholder Agent and Addresses
Phoenix Home Life Mutual Insurance Company
c/o Phoenix Duff & Phelps Corporation
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
Attention: Private Placements Division
Telecopier Number: (860) 403-5451
The Ohio National Life Insurance Company
Post Office Box 237
Cincinnati, OH 45201
Attn: Investment Department
Telecopier Number: (513) 794-4506
Banks. Bank Agent and Addresses
The Chase Manhattan Bank
Republic National Bank of New York
NationsBank N.A.
<PAGE>
SCHEDULE II
Defined Terms
As used in this Agreement, the following terms have the respective meanings set
forth below or set forth in the Section of this Agreement following such term:
"Actionable Event of Default" shall mean any event of default under, and as
defined in, (with respect to the Banks) the Bank Documents and (with respect to
the Noteholders) the Noteholder Documents, in either case, after all required
notices have been given and grace periods and cure periods have elapsed or run
with respect thereto and after the Bank Debt or Noteholder Debt, as the case may
be, has been declared or otherwise has become immediately due and payable prior
to its scheduled maturity.
"Agents" shall mean the Bank Agent and the Noteholder Agent.
"Agreement, this" means this lntercreditor Agreement as it may from time to time
be amended or modified.
"Bank Agent" means The Chase Manhattan Bank and any successor facility agent
under, and as provided for in, the Credit Agreement.
"Bank Collateral" means all of the collateral provided for in the Bank
Documents.
"Bank Debt" means, without duplication, at any time all indebtedness and other
payment obligations of HGL, HIL, HDI, Glamourette, Segue, SF Knitworks and/or
any other Hampshire Entity owing to the Banks and/or Bank Agent at such time
under or in respect of the Bank Documents (including, without limitation, all
outstanding loans under the Credit Agreement).
"Bank Documents" means all of the HGL Bank Security Documents, HDI Bank Security
Documents, Glamourette Bank Security Documents, Segue Bank Security Documents,
SF Knitworks Bank Security Document, the Credit Agreement and any other security
document or guarantee executed in favor of the Bank Agent and/or the Banks by a
Hampshire Entity.
"Banks" means each of the banks that are parties to the Credit Agreement and all
assignees (if any) of any such bank's interest therein.
"Business Day" means any day, other than a Saturday, Sunday or any other day on
which commercial banks are generally not open for business in Hartford,
Connecticut, Anderson, South Carolina or New York, New York.
"Collateral" means the Bank Collateral and the Noteholder Collateral.
"Credit Agreement" means that certain Credit Agreement and Guaranty, dated as of
May 28, 1998, among the Company, the Guarantors, The Chase Manhattan Bank,
Republic National Bank of New York, NationsBank, N.A., as Banks and The Chase
Manhattan Bank, as Agent, together with any related documents thereto, in each
case as such agreement may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including
without limitation any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring all or any portion of the Debt under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders, provided that lenders in connection
with any such refinancing, replacing or otherwise restructuring and the agent in
respect thereof shall have become a party to this Agreement.
"Documents" means the Bank Documents and the Noteholder Documents.
"Dollars or $" means lawful money of the United States from time to time.
"Glamourette" means Glamourette Fashion Mills, Inc., a Delaware corporation.
"Glamourette Bank Guaranty" means that certain guaranty and the obligations in
respect thereof of Glamourette, as set forth in the Credit Agreement.
<PAGE>
"Glamourette Bank Security Documents" means each of the documents set forth on
Schedule 3 hereto, as amended or modified from time to time.
"Glamourette Note Guaranty" means that certain guaranty and the obligations in
respect thereof of Glamourette, as set forth in the Note Purchase Agreements.
"Glamourette Note Security Documents" means each of the documents set forth on
Schedule 4 hereto, as amended or modified from time to time.
"Hampshire Debt" means all Bank Debt and Noteholder Debt.
"Hampshire Entity" means HGL, HDI, Glamourette, Segue and any other, directly or
indirectly owned, Subsidiary of any such Person that shall have issued a
guarantee of indebtedness of HGL owing to the Banks and/or the Noteholders.
"HDI" means Hampshire Designers, Inc., a Delaware corporation.
"HDI Bank Guaranty" means that certain guaranty and the obligations in respect
thereof of HDI, as set forth in the Credit Agreement.
"HDI Bank Security Documents" means each of the documents set forth on Schedule
5 hereto, as amended or modified from time to time.
"HDI Note Guaranty" means that certain guaranty and the obligations in respect
thereof of HDI, as set forth in the Note Purchase Agreements.
"HDI Note Security Documents" means each of the documents set forth on Schedule
6 hereto, as amended or modified from time to time.
"HDI Subsidiary Pledged Stock" means, at any time, the capital stock of the
Subsidiaries of HGL that has been pledged to the Bank Agent on behalf of the
Banks and the Noteholder Agent on behalf of the Noteholders.
"Hedging Transactions" means transactions entered into by HGL, HDI, Glamourette,
Segue or any other Hampshire Entity with any holder of Hampshire Debt which are
designed to protect a Hampshire Entity against fluctuations in interest rates
and/or foreign exchange, including, without limitation, interest rate "swap,"
"cap" or "collar" agreements or similar arrangements between such Person and
such holder providing for the transfer or mitigation of interest and/or foreign
exchange risks either generally or under specific contingencies.
Hedging Transactions Breakage Costs" means the damages payable by any Hampshire
Entity to any holder of Hampshire Debt, as a counterparty to any Hedging
Transaction, arising from any early termination of such Hedging Transaction,
which damages shall be determined in accordance with the contractual terms to
which such Hedging Transaction is subject. "Hedging Transactions Breakage Costs"
shall include only liquidated contractual damages after giving effect to
reasonable mitigation efforts (consistent with the terms of any such Hedging
Transaction) undertaken by such holder of Hampshire Debt. If such holder shall
have failed to undertake such reasonable mitigation efforts, the "Hedging
Transactions Breakage Costs" shall be reduced by the amount such damages would
have been mitigated if such holder had reasonably undertaken such mitigation
(consistent with the terms of any such Hedging Transaction).
"HGL" means Hampshire Group, Limited, a Delaware corporation.
"HGL Bank Security Documents" means each of the collateral documents set forth
on Schedule 7 hereto, as amended or modified from time to time.
"UHOL Note Security Documents" means each of the collateral documents set forth
on Schedule 8 hereto, as amended or modified from time to time.
"HGL Subsidiary Pledged Stock" means, at anytime, the capital stock of the
Subsidiaries of HGL that has been pledged to the Bank Agent on behalf of the
Banks and the Noteholder Agent on behalf of the Noteholders.
"HIL" means Hampshire Investment, Limited, a Delaware corporation.
"HlL Collateral" means the pledged stock securities described on Schedule 9
hereto and the pledged promissory note described on Schedule 10 hereto.
<PAGE>
"Key-Person Policy" means a key-person life insurance policy in an amount not
less than $5,000,000 on the life of Mr. Ludwig Kuttner.
"Majority Banks" shall mean, at any time, Banks holding in the aggregate not
less than 51% of the principal amount of the Bank Debt outstanding at such time.
"Majority Noteholders" shall mean, at anytime, Noteholders holding in the
aggregate not less than 51% of the principal amount of the Noteholder Debt
outstanding at such time.
"Make-Whole Amount" has the meaning ascribed thereto in the Note Purchase
Agreements.
"Net Proceeds" shall have the meaning set forth in Section 3.1(a) hereof.
"Noteholder Collateral" means all of the collateral provided for in the
Noteholder Documents.
"Note Purchase Agreements" means each of those separate Note Purchase Agreements
dated as of May 15, 1998, between HGL and each of the original Noteholders, as
amended or modified from time to time.
"Noteholder Agent" means Phoenix Home Life Mutual Insurance Company and any
successor collateral agent under, and as provided for in, the Note Purchase
Agreements.
"Noteholder Debt" means, without duplication, at any time all indebtedness and
other payment obligations of HGL, HIL, HDI, Glamourette, Segue, SF Knitworks
and/or any other Hampshire Entity owing to the Noteholders and/or Noteholder
Agent at such time under or in respect of the Noteholder Documents (including,
without limitation, the Notes).
"Noteholder Documents" means all of the HGL Note Security Documents, HDI Note
Security Documents, Glamourette Note Security Documents, Segue Note Security
Documents, the SF Knitworks Note Security Documents, the Note Purchase
Agreements, the Notes and any other security document or guarantee executed in
favor of the Noteholder Agent and/or the Noteholders by a Hampshire Entity.
"Noteholders" means Phoenix Home Life Mutual Life Insurance Company and Ohio
National Life Insurance Company, and all assignees (if any) of any such Person's
interest as holder in respect of any of the Notes.
"Notes" means the 7.05% Senior Secured Notes due January 2, 2008 of HGL issued
in an original aggregate principal amount of $15,000,000.
"Person" means an individual, partnership, joint venture, corporation, limited
liability corporation or other incorporated entity, company, undertaking, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
"Recovery Costs" means (a) all costs, charges, expenses and advances properly
incurred by, and reasonable compensation of, any Agent in connection with its
execution of its collateral agency duties and other related activities
(including, without limitation, all such costs, charges and expenses incurred in
connection with the realization upon the Collateral then being realized upon)
and (b) all liens on the Collateral so sold or realized upon (except those
subject to which such sale or realization shall have been made) ranking in
priority to the security interests or liens of the Agents granted pursuant to
the Bank Documents or Noteholder Documents, as the case may be.
"Remainder Obligations" has the meaning set forth in Section 3.1(a).
"SF Knitworks" means San Francisco Knitworks, Inc., a Delaware corporation.
"SF Knitworks Bank Guaranty" means that certain guaranty and the obligations in
respect thereof of SF Knitworks, as set forth in the Credit Agreement.
<PAGE>
"SF Knitworks Bank Security Documents" means each of the documents set forth on
Schedule 11 hereto, as amended or modified from time to time.
"SF Knitworks Note Guaranty" means that certain guaranty and the obligations in
respect thereof of SF Knitworks, as set forth in the Note Purchase Agreements.
"SF Knitworks Note Security Documents" means each of the documents set forth on
Schedule 12 hereto, as amended or modified from time to time.
"Segue" means Segue (America) Limited, a Delaware corporation.
"Segue Bank Guaranty" means that certain guaranty and the obligations in respect
thereof of Segue, as set forth in the Credit Agreement.
"Segue Bank Security Documents" means each of the documents set forth on
Schedule 13 hereto, as amended or modified from time to time.
"Segue Note Guaranty" means that certain guaranty and the obligations in respect
thereof of Segue, as set forth in the Note Purchase Agreements.
"Segue Note Security Documents" means each of the documents set forth on
Schedule 14 hereto, as amended or modified from time to time.
"Subsidiary" means, with respect to any Person, any corporation, association,
limited liability company or other similar business entity in which such Person
owns sufficient equity or voting interests to enable it ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity.
"Subsidiary Pledged Stock" means HGL Subsidiary Pledged Stock, HDI Subsidiary
Pledged Stock, Glamourette Subsidiary Pledged Stock, Segue Subsidiary Pledged
Stock and the capital stock of any other Hampshire Entity that shall have been
pledged pursuant to the Bank Documents or the Noteholder Documents.
"Super-Majority Debt Holders" shall mean, at any time, holders of Hampshire Debt
the outstanding principal amount of which is not less than 66 2/3% of the
aggregate amount of all Hampshire Debt then outstanding, provided that among
such holders there shall be at least one Noteholder and one Bank. For purposes
of this definition, any outstanding banker's acceptances and issued but undrawn
and unexpired letters of credit shall be deemed to be outstanding principal in
respect of Hampshire Debt but that any unutilized commitment under the Credit
Agreement shall not be deemed to be outstanding principal in respect of
Hampshire Debt.
<PAGE>
SCHEDULE 3
Glamourette Bank Security Documents
Security Agreement dated as of May 28,1998 between Glamourette and the Bank
Agent.
<PAGE>
SCHEDULE 4
Glamourette Note Security Documents
Security Agreement dated as of May 15, 1998 between Glamourette and the
Noteholder Agent.
<PAGE>
SCHEDULE 5
HDI Bank Security Documents
Security Agreement dated as of May 28,1998 between HDI and the Bank Agent.
Pledge Agreement dated as of May 28,1998 between HDI and
the Bank Agent.
<PAGE>
SCHEDULE 6
HDI Note Security Documents
Security Agreement dated as of May 15, 1998 between HDI and the Noteholder
Agent. Pledge Agreement dated as of May 15,1998 between HDI and the Noteholder
Agent.
<PAGE>
SCHEDULE 7
HGL Bank Security Documents
Security Agreement dated as of May 28,1998 between HGL and the Bank Agent.
Pledge Agreement dated as of May 28,1998 between HGL and the Bank Agent
<PAGE>
SCHEDULE 8
HGL Note Security Documents
Security Agreement dated as of May 15,1998 between HGL and the Noteholder Agent.
Pledge Agreement dated as of May 15,1998 between HGL and the Noteholder Agent.
<PAGE>
SCHEDULE 9
HIL Pledged Stock
Hampshire Investments, Limited #2 200
#3 50
#4 125
#5 125
<PAGE>
SCHEDULE 10
HIL Pledged Promissory Note
$5,000,000 unsecured promissory note of HIL, dated May 28,1998, in favor of the
Company.
<PAGE>
SCHEDULE 11
SF Knitworks Bank Security Documents
Security Agreement dated as of May 28,1998 between SF Knitworks and the Bank
Agent.
<PAGE>
SCHEDULE 12
SF Knitworks Note Security Documents
Security Agreement dated as of May 15,1998 between SF Knitworks and the
Noteholder Agent.
<PAGE>
SCHEDULE 13
Segue Bank Security Documents
Security Agreement dated as of May 28,1998 between Segue and the Bank Agent.
<PAGE>
SCHEDULE 14
Segue Note Security Documents
Security Agreement dated as of May 15, 1998 between Segue and the Noteholder
Agent.
<PAGE>
EXHIBIT 10.7
GUARANTEE JOINDER AGREEMENT
Date:
Reference is made to
(a) the separate Note Purchase Agreements, each dated as of May 15, 1997
(as amended from time to time, collectively, the "Note Purchase Agreements"),
among Hampshire Group, Limited, a Delaware corporation (the "Company"),
Hampshire Designers, Inc., a Delaware corporation ("HDI"), Hampshire
Investments, Limited, a Delaware corporation ("HIL"), Segue (America) Limited, a
Delaware corporation ("Segue"), Glamourette Fashion Mills, Inc., a Delaware
corporation ("Glamourette)," San Francisco Knitworks, Inc., a Delaware
corporation (together with its permitted successors, "SF Knitworks);" SF
Knitworks together with HDI, HIL, Segue and Glamourette are referred to herein
individually as an "Original Guarantor" and collectively as the "Original
Guarantors") and each of the purchasers listed on Annex 1 attached thereto (the
"Purchasers"), pursuant to which the Company sold, and the Purchasers bought,
the Company's 7.05% Senior Secured Notes due January 2, 2008, in the original
aggregate principal amount of $15,000,000 (as amended, restated or otherwise
modified from time to time, collectively, the "Notes"); and
(b) the joinder agreements identified on Annex 1 hereto, pursuant to which
the persons identified on said Annex 1, prior to the execution and delivery of
this Joinder Agreement, joined and were made joint and several Guarantors under
the Note Purchase Agreements (such persons and the Original Guarantors (other
than any such persons that may have been released under Section 10.7(b) of the
Note Purchase Agreement) are herein referred to, collectively, as the
"Guarantors").
Capitalized terms used herein and not otherwise defined herein have the
meanings specified in the Note Purchase Agreements.
1. JOINDER OF ADDITIONAL DOMESTIC SUBSIDIARY GUARANTOR.
In accordance with the terms of Section 10.7 of the Note Purchase
Agreements, ________ a ________ corporation (the "Additional Subsidiary
Guarantor"), by the execution and delivery of this Joinder Agreement, does
hereby agree to become, and does hereby become, a "Guarantor" under and as
defined in the Note Purchase Agreements. Without limiting the foregoing or any
of the terms and provisions of the Note Purchase Agreements, the Additional
Subsidiary Guarantor, by the execution and delivery of this Joinder Agreement,
does hereby agree to become, and does hereby become, jointly and severally
liable with the Guarantors for (a) the Guaranteed Obligations and (b) for the
due and punctual performance and observance of all the covenants in the Notes
and the Note Purchase Agreements to be performed or observed by the Company, all
as more particularly provided for in Section 23 of the Note Purchase Agreements.
As provided in Section 10.7 of the Note Purchase Agreements, the Note
Purchase Agreements are hereby, without any further action, amended to add the
Additional Subsidiary Guarantor as a "Guarantor" and signatory to the Note
Purchase Agreements.
2. REPRESENTATIONS AND WARRANTIES OF THE ADDITIONAL SUBSIDIARY GUARANTOR.
The Additional Subsidiary Guarantor hereby makes and restates, as of the
date hereof and only as to itself in its capacity as a Guarantor under the Note
Purchase Agreements, each of the representations and warranties set forth in
Section 5 to the Note Purchase Agreements that are applicable to a Guarantor
(whether as a Obligor or Subsidiary), subject only to the exceptions in respect
thereof set forth on Annex 2 hereto.
3. MISCELLANEOUS.
3.1 Effective Date.
This Joinder Agreement shall become effective on the date on which all of
the conditions set forth in Section 10.7(a) with respect to such Additional
Subsidiary Obligor are satisfied, -provided that, unless the Required Holders
shall have otherwise informed the Company, the effective date of this Joinder
Agreement shall be the date first stated above.
<PAGE>
3.2 Expenses.
Without limiting the generality of Section 16 of the Note Purchase
Agreements, the Additional Subsidiary Guarantor agrees that it will pay, on the
date this Joinder Agreement becomes effective, the statement for the reasonable
fees and the disbursements of a single special counsel of the holders of Notes
presented on or about such date.
3.3 Section Headings, etc.
The titles of the Sections appear as a matter of convenience only, do not
constitute a part hereof and shall not affect the construction hereof. The words
"herein," "hereof," "hereunder" and "hereto" refer to this Joinder Agreement as
a whole and not to any particular Section or other subdivision.
3.4 Governing Law.
This Joinder Agreement shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of New
York excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.
3.5 Successors and Assigns.
This Joinder Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Additional Subsidiary Guarantor.
IN WITNESS WHEREOF, the Additional Subsidiary Guarantor has caused this
Joinder Agreement to be executed on its behalf by a duly authorized officer or
agent thereof as of the date first above written.
Very truly yours,
By: /s/ Charles W. Clayton
Name: Charles W. Clayton
Title: Vice President
Execution Copy
CREDIT AGREEMENT AND GUARANTY
dated as of May 28, 1998
among
HAMPSHIRE GROUP, LIMITED,
as Borrower,
HAMPSHIRE DESIGNERS, INC.,
HAMPSHIRE INVESTMENTS, LIMITED
GLAMOURETTE FASHION MILLS, INC.,
SAN FRANCISCO KNITWORKS, INC.,
and SEGUE (AMERICA), LIMITED
as
Guarantors
and
THE CHASE MANHATTAN BANK,
REPUBLIC NATIONAL BANK OF NEW YORK
and
NATIONSBANK, N.A.
as Banks,
and
THE CHASE MANHATTAN BANK
as
Agent
<PAGE>
ARTICLE I. DEFINITIONS, ACCOUNTING TERMS AND RULES OF CONSTRUCTION 1
Section 1.01 Definitions 1
Section 1.02 Accounting Terms 14
Section 1.03 Computation Of Time Periods 14
Section 1.04 Rules of Construction 14
ARTICLE II. REVOLVING CREDIT LOANS 15
Section 2.01 Revolving Credit 15
Section 2.02 Notice and Manner of Borrowing 15
Section 2.03 Conversions 16
Section 2.04 Non-Receipt of Funds by Agent 16
Section 2.05 Interest 16
Section 2.06 Notes 17
Section 2.07 Optional and Mandatory Prepayments 17
Section 2.08 Method of Payment 18
Section 2.09 Use of Proceeds 18
Section 2.10 Minimum Amounts 18
ARTICLE III. LETTERS OF CREDIT 18
Section 3.01 Trade Letters of Credit 18
Section 3.02 Reimbursement Obligation 19
Section 3.03 Payment of Commissions, Expenses and Interest 19
Section 3.04 Proper Drawing; Chase's Honoring 20
Section 3.05 Standby Letters of Credit 21
Section 3.06 Amendment, Change. Modification; No Waiver 21
Section 3.07 U.C.P.; Agreements and Acknowledgments; Indemnification 21
Section 3.08 Licenses; Insurance; Regulations 23
Section 3.09 Airway and Steamship Guaranties 23
Section 3.10 Additional Security 23
Section 3.11 Continuing Rights and Obligations 23
Section 3.12 Instructions; No Liability 24
Section 3.13 Steamship Guaranty 24
ARTICLE IV. PARTICIPATION 24
Section 4.01 Participating Banks' Pro Rata Shares 24
Section 4.02 Sale and Purchase of Participation 24
Section 4.03 Participation in Fees and Collateral; Relationship 25
Section 4.04 Procedures 25
Section 4.05 Collections and Remittances 25
Section 4.06 Sharing of Setoffs and Collections 26
Section 4.07 Indemnification; Costs and Expense 26
Section 4.08 Administration; Standard of Care 27
Section 4.09 Independent Investigation by the Participating Banks 28
Section 4.10 Participating Banks' Ownership of Interests in the
Participation; Repurchases by Chase 28
ARTICLE V. GUARANTY 29
Section 5.01 Guaranty 29
Section 5.02 Guarantor's Guaranty Obligations Unconditional 29
Section 5.03 Waivers 30
Section 5.04 Subrogation 30
Section 5.05 Limitation of Liability 31
ARTICLE VI. CONDITIONS PRECEDENT 31
Section 6.01 Conditions Precedent to Initial Use of a Credit
Facility on and after the Closing Date 31
Section 6.02 Conditions Precedent to All Credit Facilities 33
Section 6.03 Deemed Representation 34
ARTICLE VII. REPRESENTATIONS AND WARRANTIES 34
Section 7.01 Incorporation. Good Standing and Due Qualification 34
Section 7.02 Corporate Power and Authority; No Conflicts 34
Section 7.03 Legally Enforceable Agreements 35
Section 7.04 Litigation 35
Section 7.05 Financial Statements 35
Section 7.06 Ownership and Liens 36
<PAGE>
Section 7.07 Taxes 36
Section 7.08 ERISA 36
Section 7.09 Ownership of Guarantors; Investments 36
Section 7.10 Operation of Business 37
Section 7.11 No Default on Outstanding Judgments or Orders 37
Section 7.12 No Defaults on Other Agreements 37
Section 7.13 Labor Disputes and Acts of God 37
Section 7.14 Governmental Regulation 37
Section 7.15 Partnerships 37
Section 7.16 Environmental Protection 38
Section 7.17 Solvency 38
Section 7.18 Year 2000 38
ARTICLE VIII. AFFIRMATIVE COVENANTS 38
Section 8.01 Maintenance of Existence 38
Section 8.02 Conduct of Business 39
Section 8.03 Maintenance of Properties 39
Section 8.04 Maintenance of Records 39
Section 8.05 Maintenance of Insurance 39
Section 8.06 Compliance with Laws 39
Section 8.07 Right of Inspection 39
Section 8.08 Reporting Requirements 39
Section 8.09 Compliance With Environmental Laws 42
Section 8.10 Additional Guarantor 42
ARTICLE IX. NEGATIVE COVENANTS 42
Section 9.01 Debt 42
Section 9.02 Guaranties 43
Section 9.03 Liens 43
Section 9.04 Sale of Assets 44
Section 9.05 Transactions with Affiliates 46
Section 9.06 Investments 46
Section 9.07 Mergers 47
Section 9.08 Leases 47
Section 9.09 Dividends 47
Section 9.10 Restricted Payments 47
Section 9.11 Fiscal Year 48
Section 9.12 Changes, Amendments or Modification 48
ARTICLE X. FINANCIAL COVENANTS 48
Section 10.01 Consolidated Tangible Net Worth 48
Section 10.02 Consolidated Fixed Charge Coverage Ratio 48
Section 10.03 Consolidated Leverage Ratio 48
Section 10.04 Consolidated Capital Expenditures 48
ARTICLE XI. EVENTS OF DEFAULT 48
Section 11.01 Events of Default 49
Section 11.02 Remedies 51
ARTICLE XII. THE AGENT 51
Section 12.01 Appointment, Powers and Immunities of Agent 51
Section 12.02 Reliance by Agent 52
Section 12.03 Defaults 52
Section 12.04 Rights of Agents as a Bank 52
Section 12.05 Indemnification Of Agent 53
Section 12.06 Documents 53
Section 12.07 Non-Reliance on Agent and Other Banks 53
Section 12.08 Failure of Agent to Act 54
Section 12.09 Resignation or Removal of Agent 54
Section 12.10 Amendments Concerning Agency Function 54
Section 12.11 Liability of Agent 54
Section 12.12 Transfer of Agency Function 55
Section 12.13 Withholding Taxes 55
<PAGE>
ARTICLE XIII. YIELD PROTECTION 55
Section l3.01 Additional Costs 55
Section l3.02 Illegality 56
Section l3.03 Certain Compensation 57
ARTICLE XIV. MISCELLANEOUS 57
Section 14.01 Amendments and Waivers 57
Section 14.02 Usury 58
Section 14.03 Expenses; Indemnification 58
Section 14.04 Assignment; Participation; Additional Bank 58
Section 14.05 Notices 59
Section 14.06 Setoff 59
Section 14.07 Jurisdiction; Immunities 59
Section 14.08 Governing Law 60
Section 14.09 Counterparts 60
Section 14.10 Exhibits and Schedules 60
Section 14.11 Table of Contents; Headings 60
Section 14.12 Severability 61
Section 14.13 Integration 61
Section 14.14 Jury Trial Waiver 61
<PAGE>
CREDIT AGREEMENT AND GUARANTY dated as of May 28, 1998 among HAMPSHIRE GROUP,
LIMITED, ("Borrower"), HAMPSHIRE DESIGNERS, INC., ("Hampshire"), HAMPSHIRE
INVESTMENTS, LIMITED ("HIL"), GLAMOURETTE FASHION MILLS, INC., ("Glamourette")
SAN FRANCISCO KNITWORKS, INC. ("Knitworks") and SEGUE (AMERICA), LIMITED
("Segue"), The Chase Manhattan Bank ("Chase"), Republic National Bank of New
York ("Republic") and NationsBank, N.A. ("NationsBank") (Chase, Republic and
NationsBank individually a "Bank" and collectively the "Banks") and The Chase
Manhattan Bank as Agent for the Banks (in such capacity, together with any
successors in such capacity, the "Agent").
The parties hereto agree as follows:
ARTICLE I. DEFINITIONS, ACCOUNTING TERMS AND RULES OF CONSTRUCTION
Section 1.01. Definitions. As used in this Agreement the following terms have
the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"Accounts" means all of the accounts receivable as defined in the Borrower
Security Agreement and the Guarantors' Security Agreement of the Borrower and
the Consolidated Subsidiaries.
"Affiliate" means, as to any Person, any other Person: (1) which directly or
indirectly controls, or is controlled by, or is under common control with such
Person; (2) which directly or indirectly beneficially owns or holds five percent
(5%) or more of any class of voting stock of the such Person; or (3) five
percent (5%) or more of the voting stock of which is directly or indirectly
beneficially owned or held by such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Agent" means Chase, when acting in its capacity as the Agent under any of the
Loan Documents, and any successor thereto.
"Agent's Office" means the Agent's address as set forth on the signature page of
this Agreement, or such other address as the Agent may designate by written
notice to the Borrower, the Guarantors and the Banks.
"Agreement" means this Credit Agreement and Guaranty.
"Applicable Margin" means with respect to a Eurodollar Loan, one and one-half
percent (1.5%).
"Application" means the application by the Borrower for a Letter of Credit
"Assignee" has the meaning specified in Section 12.01.
"Authorization Letter" means the letter in the form of Exhibit __
"Authorized Person" means any officer or employee, or combination thereof of the
Borrower as authorized pursuant to the terms and conditions of the Authorization
Letter.
"Bank" or "Banks" has the meaning specified in the preamble to this Agreement.
"Bank Parties" means the Agent and each of the Banks.
"Banking Day" means any day on which commercial banks are not authorized or
required to close in London, England, New York City, New York or Anderson, South
Carolina. "Board of Governors" means the Board of Governors of the Federal
Reserve System or any successor.
"Borrower Pledge Agreement" means the Pledge Agreement substantially in the form
of Exhibit A hereto, to be delivered by Borrower under the terms of this
Agreement.
<PAGE>
"Borrowing Base" means eighty-five (85%) percent of the Eligible Accounts of the
Borrower and the Consolidated Subsidiaries, plus, from the period March 1
through October 31 of each year, an amount not to exceed the lesser of the
amount below or forty-five (45%) percent of the Eligible Inventory of the
Borrower and Consolidated Subsidiaries valued at the lower of cost or market
value.
From March 1 - May 31 $3,000,000.00
From June 1 - June 30 $6,000,000.00
From July 1 - July 31 $9,000,000.00
From August 1 - October 31 $12,000,000.00
"Borrowing Base Certificate" means the certificate substantially in the form of
Exhibit B annexed hereto.
"Borrower Security Agreement" means the Security Agreement substantially in the
form of Exhibit C-1 hereto, to be delivered by Borrower under the terms of this
Agreement.
"Borrowing Notice" has the meaning specified in Section 2.02.
"Consolidated Capital Expenditures" means the Dollar amount of gross
expenditures (including the principal portion of payments under Capital Leases)
made for real property, fixed assets, property, plant and equipment, and all
renewals, improvements and replacements thereto (including, but not limited to,
maintenance and repairs thereof but only to the extent required to be
capitalized in accordance with GAAP) incurred or paid by the Borrower and the
Consolidated Subsidiaries.
"Capital Lease" means any lease which has been or should be capitalized on the
books of the lessee in accordance with GAAP.
"Cash Collateral' means a deposit by the Borrower, made in immediately available
funds, to a savings, checking or time deposit account at the Agent or the
purchase by Borrower of a certificate of deposit issued by the Agent and the
execution of all documents and the taking of all steps required to give the
Agent a perfected security interest for the benefit of the Banks in such deposit
or certificate of deposit.
"Chase" means The Chase Manhattan Bank.
"Closing Date" means May 28, 1998.
"Code" means the Internal Revenue Code of 1986.
"Collateral" means any and all personal property subject to a Lien granted by
any of the Security Documents and this Agreement.
"Commitment" means, collectively, the Revolving Credit Commitment, the Trade
Letter of Credit Commitment and the Standby Letter of Credit Commitment.
"Consolidated Depreciation" means depreciation of the Borrower and its
Consolidated Subsidiaries, on a consolidated basis, all as determined in
accordance with GAAP. "Consolidated Earnings Before Interest, Taxes,
Depreciation and Amortization" means, for any period, Consolidated Net Income,
plus Consolidated Interest Expense, plus Consolidated Taxes, plus Consolidated
Depreciation, plus Consolidated Principal Amortization, all for such period.
"Consolidated Interest Expense" means, for any period, all interest paid or
required to be paid by Borrower and its Consolidated Subsidiaries on all of
their respective Debt, including the Obligations, during such period.
<PAGE>
"Consolidated Inventory" means, at any time, the Inventory of the Borrower and
its Consolidated Subsidiaries on a consolidated basis, all as determined in
accordance with GAAP.
"Consolidated Net Income" means, for any period the net income of the Borrower
and its Consolidated Subsidiaries, on a consolidated basis, all as determined in
accordance with GAAP.
"Consolidated Principal Amortization" means scheduled consolidated principal
payments of all funded debt of Borrower and the Consolidated Subsidiaries.
"Consolidated Subsidiaries" means all existing and future Subsidiaries of the
Borrower, except HIL and any subsidiary of HIL, that should be included in the
Borrower's consolidated financial statements, all as determined in accordance
with GAAP.
"Consolidated Tangible Net Worth" means the sum of (1) Consolidated Total
Tangible Assets less (2) Consolidated Total Liabilities, less (3) the investment
in HIL by Borrower or the Consolidated Subsidiaries including but not limited to
the equity of HIL, any advances to HIL and guaranties by the Borrower or its
Consolidated Subsidiaries of the obligations of HIL.
"Consolidated Taxes" means, for any period, the income and franchise taxes of
the Borrower and its Consolidated subsidiaries, on a consolidated basis, all as
determined in accordance with GAAP.
"Consolidated Total Tangible Assets" means the total assets of the Borrower and
its Consolidated Subsidiaries, on a consolidated basis, minus all intangible
assets (other than deferred taxes), including, but not limited to, non-compete
contracts, employment contracts, deferred or prepaid transactions cost,
capitalized research and development cost, capitalized interest, debt discount
and expenses, goodwill, patents, trademarks, copyrights, franchise, license and
other intangible assets, all as determined in accordance with GAAP.
"Consolidated Total Liabilities" means total liabilities and all mandatory
redeemable preferred stock of the Borrower and its Consolidated Subsidiaries, on
a consolidated basis, all as determined in accordance with GAAP.
"Credit Facilities" means, collectively, the Revolving Credit Loans and the
Letters of Credit.
"Debt" means: (1) indebtedness or liability for borrowed money, or for the
deferred purchase price of property or services (including trade obligations);
(2) the principal portion of obligations as lessee under Capital Leases; (3)
obligations under letters of credit issued for the account of any Person; (4)
all obligations arising under bankers' or trade acceptance facilities of any
Person; (5) all guarantees, endorsements (other than for collection or deposit
in the ordinary course of business), and other contingent obligations to
purchase any of the items included in this definition, to provide funds for
payment, to supply funds to invest in any Person, or otherwise to assure a
creditor against loss; and (6) all obligations secured by any Lien on property
owned by such Person, whether or not the obligations have been assumed. For
purposes of the foregoing, (i) the amount of any Debt described in clause 6
shall be equal to the lesser of the amount of such liability for borrowed money
and the Fair Market Value of the property subject to such Lien and (ii) the
amount of any Debt described in clause 5 shall be equal to the lesser of the
amount of the primary obligation in respect to which such guaranty is issued and
the maximum liability amount under the terms of such guaranty.
"Default" means any event which with the giving of notice or lapse of time, or
both, would become an Event of Default.
"Default Rate" means, with respect to an amount of any Revolving Credit Loan not
paid when due, a rate per annum equal to two percent (2%) above the Interest
Rate then in effect thereon.
<PAGE>
"Dollars" and the sign "$" mean lawful money of the United States of America.
"Effective Date" means May 28, 1998.
"Eligible Accounts" means those Accounts of the Borrower and the Consolidated
Subsidiaries, deemed eligible from time to time for lending purposes by the
Agent in the Agent's sole discretion. Agent shall, in general, deem accounts to
be Eligible Accounts if the accounts are: (1) not factored; (2) not disputed; or
(3) no more than the lesser of sixty (60) days past due or one hundred twenty
(120) days past the invoice date; provided however, that such general criteria
may be revised from time to time by Agent in its sole discretion.
"Eligible Inventory" means Consolidated Inventory of the Borrower and the
Consolidated Subsidiaries, and deemed eligible from time to time for lending
purposes by the Agent in the Agent's sole discretion valued at lower of cost or
market.
"Environmental Discharge" means any discharge or release by Borrower or any
Consolidated Subsidiaries of any Hazardous Materials in violation of any
applicable Environmental Law.
"Environmental Law" means any Law relating to pollution or the environment,
including Laws relating to noise or to emissions, discharges, releases or
threatened releases of Hazardous Materials into the workplace, the community or
the environment, or otherwise relating to the generation, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
"Environmental Notice" means any complaint, order, citation, letter, inquiry,
notice or other written communication from any Person (1) affecting or relating
to the Borrower or any Consolidated Subsidiaries' violation of any Environmental
Law in connection with any activity or operations at any time conducted by the
Borrower or such Consolidated Subsidiary, (2) relating to the unpermitted
occurrence or Presence of or exposure to or possible or threatened or alleged
occurrence or presence of or exposure to Environmental Discharges or Hazardous
Materials at any of the Borrower's or any Consolidated Subsidiary's locations or
facilities, including, without limitation: (a) the existence of any
contamination or possible or threatened contamination at any such location or
facility and (b) remediation of any Environmental Discharge or Hazardous
Materials at any such location or facility or any part thereof; and (3) any
violation or alleged violation of any relevant Environmental Law.
"Equity Issuance" means the Borrower's issuance of any capital stock, whether
such issuance is a private placement or a public offering of such capital stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, including any
rules and regulation promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as the Borrower or any Guarantor or is under common control
(within the meaning of Section 4 14(c) of the Code) with the Borrower or such
Guarantor; provided, however, that for purposes of provisions herein concerning
minimum funding obligations (imposed under Section 412 of the Code or Section
302 of ERISA), the term "ERISA Affiliate" shall also include any entity required
to be aggregated with the Borrower or any Guarantor under Section 4 14(m) or 4
14(o) of the Code.
"Eurodollar Base Rate" means with respect to any Interest Period for a
Eurodollar Loan, the arithmetic mean, as calculated by the Agent, of the
respective rates per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) quoted at approximately 11:00 A.M. London time by the principal London
branch of the Agent two (2) Banking Days prior to the first day of such Interest
Period for the offering to leading banks in the London interbank market of
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Dollar deposits in immediately available funds, for a period, and in an amount,
comparable to the Interest Period and principal amount of the Eurodollar Loan
which shall be made by the Agent and outstanding during such Interest Period.
"Eurodollar Loan" means any Revolving Loan when and to the extent the interest
rate therefor is determined on the basis of the definition "Eurodollar Base
Rate."
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, a rate per annum (rounded upwards, if necessary to the nearest 1/100
of 1% determined by the Agent to be equal to (a) the quotient of (i) the
Eurodollar Base Rate for such Loan for such Interest Period, divided by (ii) one
minus the Reserve Requirement for such Loan for such Interest Period.
"Exempt Preferred Stock" means not more than 1,000 shares of Preferred Stock,
$200 stated value, of Glamourette, with an annual dividend rate not in excess of
$62 per share.
"Event of Default" has the meaning specified in Section 11.01.
"Fiscal Quarter" means each of the four (4) quarterly periods of the Borrower's
Fiscal Year.
"First Quarterly Date" means the last day of the first Fiscal Quarter of each
Fiscal Year.
"Fiscal Year" means each calendar year ending December 31.
"Fourth Quarterly Date" means the last day of the fourth Fiscal Quarter of each
Fiscal Year.
"GAAP" means generally accepted accounting principles in the United States of
America as in effect on the date hereof, applied on a basis consistent with
those used in the preparation of the financial statements referred to in Section
7.05.
"Good Faith Contest" means the contest of an item if: (1) the item is diligently
contested in good faith by appropriate proceedings timely instituted; (2)
adequate reserves are established in accordance with GAAP; (3) during the period
of such contest, the enforcement of any contested item is effectively stayed;
and (4) the failure to pay or comply with the contested item during the period
of the Good Faith Contest is not likely to result in a Material Adverse Change.
"Governmental Approvals" means any authorization, consent, approval, license,
permit, certification, or exemption of registration or filing with or report or
notice to any Governmental Authority.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantors" means, collectively Hampshire, Glamourette, Knitworks, and Segue
and any future Consolidated Subsidiaries and HIL prior to the termination of
HIL's Guaranty in accordance with the terms thereof. "Guarantor Security
Agreements" means the Security Agreements executed by the Consolidated
Subsidiaries, to secure the Guarantor Obligations as defined in Section 5.01.
"Guaranty" means, collectively, all of the guarantees provided by the Guarantors
pursuant to Section 5.01.
"Guaranty Obligations" has the meaning specified in Section 5.01.
"Hampshire Pledge Agreement" means the Pledge Agreement to be executed by
Hampshire in favor of the Agent.
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"Hazardous Materials" means any pollutant, effluents, emissions, contaminants,
toxic or hazardous wastes or substances, as any of those terms are defined from
time to time in or for the purposes of any applicable Environmental Law,
including asbestos fibers and friable asbestos, polychlorinated biphenyl, and
any petroleum or hydrocarbon-based products or derivatives.
"HIL Note" means the $5,000,000.00 note issued by HIL in favor of Borrower as
amended from time to time evidencing any indebtedness from time to time
hereafter due from HIL to Borrower.
"Instructions" means oral or written instructions or instructions transmitted by
teleprocess given on behalf of the Borrower by one or more Authorized Persons.
"Instrument" means with respect to any Letter of Credit or steamship guaranty,
any draft, receipt, acceptance, teletransmission, including, but not limited to,
telex or cable, or other written demand for payment under such Letter of Credit.
"Insurance Companies" shall mean Phoenix Home Life Mutual Insurance Company and
The Ohio National Life Insurance Company.
"Insurance Company Loan Documents" means the agreements and documents among the
Insurance Companies and the Borrower and/or Guarantors providing for the
purchase by the Insurance Companies of Senior Secured Notes of the Borrower in
the amount of $15,000,000 and the giving of security therefor.
"Intercreditor Agreement" means the agreement among the Banks, the Agent and the
Insurance Companies and the Agent for the Insurance Companies.
"Interest Period" means, with respect to any Eurodollar Loan, a period of one,
two, three or six months commencing on the date such Loan is made, converted
from another type of Loan or renewed, as the Borrower may select in accordance
with Section 2.02, provided that each such Interest Period which commences on
the last Banking Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Banking Day of the appropriate calendar month.
"Interest Rate" means either a) with respect to a Prime Rate Loan, the Prime
Rate or b) with respect to a Eurodollar Rate Loan, the Eurodollar Rate plus the
Applicable Margin.
"Inventory" shall have the meaning set forth in the Borrower Security Agreement
and Guarantors' Security Agreement.
"Law" means any applicable federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and any applicable judicial or administrative
interpretation thereof by a Governmental Authority or otherwise, including any
judicial or administrative order, consent decree or judgment.
"Letters of Credit" means Trade Letters of Credit and the Standby Letters of
Credit.
"Letter of Credit Fee" means the Trade Letter of Credit Fee and any fee paid in
connection with any Standby Letter of Credit.
"Letter of Credit Issuing Bank" means Chase.
"Letter of Credit Obligations" means at any time an amount equal to the sum of
(1) the aggregate unused face amount of all outstanding Trade Letters of Credit
and Standby Letters of Credit, (2) the aggregate amount of all unreimbursed
obligations on Trade Letters of Credit and Standby Letters of Credit, (3) the
aggregate amount of all outstanding overdrafts created to satisfy any of the
<PAGE>
foregoing obligations, (4) the amount of any outstanding indemnity for existing
Letters of Credit issued by the Letter of Credit Issuing Bank at the Closing in
favor of Fleet Bank, (5) any Letter of Credit Fee due and payable and (6) the
aggregate amount of steamship guaranties.
"Lien" means any mortgage, deed of trust, pledge, security, interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable Law of any jurisdiction to evidence any of the
foregoing).
"Loan Document(s)" means this Agreement, the Notes, the Letters of Credit, the
Security Documents and the Intercreditor Agreement.
"Material Adverse Change" means either (1) a material adverse change in the
status of the business, assets, liabilities, results of operations, condition
(financial or otherwise), property or prospects of the Borrower, and its
Consolidated Subsidiaries taken as a whole, or (2) any event or occurrence of
whatever nature which is likely to have a material adverse effect on the
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party. For the avoidance of doubt, no matter affecting the business,
operations, affairs, financial condition, assets or properties of HIL or any
Subsidiary thereof in and of itself shall be deemed to cause a material adverse
change in the status of the business, assets, liabilities, results of
operations, condition (financial or otherwise), property or prospects of the
Borrower or the Borrower's ability to perform its obligations under any Loan
Document.
"Monthly Date(s)" means the first Banking Day of each calendar month occurring
on or after the Closing Date.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA.
"Note(s)" means the Revolving Credit Notes.
"Obligations" shall mean any and all Revolving Credit Loans, Letter of Credit
Obligations and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrower or Guarantors (excluding the
Obligations of HIL other than Obligations arising under its Guaranty) to the
Banks and/or their Affiliates, including principal, interest, charges, fees,
expenses, and foreign exchange obligations, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, arising under this
Agreement, whether now existing or hereafter arising, whether arising before,
during or after the Termination Date or after the commencement of any case with
respect to Borrower or any Guarantor under the Bankruptcy Code or any similar
statute, whether direct or indirect, absolute or contingent, joint or several,
due or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, original, renewed or extended and whether arising directly or
howsoever acquired by the Banks including from any other entity outright,
conditionally or as collateral security, by assignment, merger with any other
entity, participations or interests of the Banks in the obligations of Borrowers
or Guarantors to others, assumption, operation of law, subrogation or otherwise
and shall also include all amounts chargeable to Borrower or any Guarantor under
this Agreement or in connection with any of the foregoing, provided, however,
that indebtedness and obligations due to any of the Banks in connection with
transactions between Borrower and any Guarantor and any such Bank separate from
this Agreement shall not be deemed "Obligations."
"Optional Prepayment" has the meaning specified in Section 2.07.
"Outstanding Credit Facilities" means at any time an amount equal to the sum of
(l) the aggregate principal amount of all outstanding Revolving Credit Loans and
(2) the Letter of Credit Obligations.
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"Parent" means, with respect to any Bank, any Person controlling such Bank.
"Participating Banks" means each Bank other than Chase.
"Participation" has the meaning set forth in 4.01.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding
to any or all of its functions under ERISA.
"Permitted Short Term Lenders" means the Lenders described in Schedule 9.01.
"Person" means an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan" means any plan, agreement, arrangement or commitment which is an employee
benefit plan, as defined in Section 3(3) of ERISA, maintained by the Borrower,
any Guarantor or any ERISA Affiliate or with respect to which the Borrower, any
Guarantor or any ERISA Affiliate at any relevant time has any liability or
obligation to contribute.
"Presence" when used in connection with any Environmental Discharge or Hazardous
Materials, means and includes presence, generation, manufacture, installation,
treatment, use, storage, handling, repair, encapsulation, disposal,
transportation, spill, discharge and release.
"Prime Rate" means that rate of interest from time to time announced by Chase at
its Principal Office as its prime commercial lending rate.
"Prime Rate Loan" means any Loan when and to the extent the interest rates
therefor is based on the Prime Rate.
"Principal Office" means the principal office of Chase, presently located at 270
Park Avenue, New York, New York 10017.
"Pro Rata Share" means (1) with respect to each Bank's Revolving Credit
Commitment a fraction, the numerator of which is such Bank's portion of the
Revolving Credit Commitment and the denominator of which is the total of all the
Bank's Revolving Credit Commitments; (2) with respect to each payment on the
Revolving Credit Loans, a fraction, the numerator of which is the outstanding
principal amount of all such Revolving Credit Loans owed to such Bank, and the
denominator of which is the outstanding principal amount of all such Revolving
Credit Loans owed to all Banks; and (3) with respect to Letters of Credit, the
percentages set forth in Section 4.01.
As of the Closing Date the amount of each Bank's Revolving Credit Commitment and
its Pro Rata Share of such Revolving Credit Commitment is as follows: Bank
Commitment Pro Rata Share Chase $18,900,000 45% NationsBank $13,860,000 33%
Republic $ 9,240,000 22%
"Prohibited Transaction" means any transaction prohibited under Section 406 of
ERISA or Section 4975 of the Code.
"Quarterly Date" means the last Banking Day of each March, June, September, and
December.
"Reportable Event" means any of the events set forth in Section 4043(c) of ERISA
or in the regulations thereunder except for any such event for which the 30-day
notice requirement is waived.
"Regulatory Change" means, with respect to any Bank, any change after the date
of this Agreement in the United States federal, state, municipal or foreign laws
or regulations (including without limitation Regulation D) or the adoption or
making after such date of any interpretations, directives or requests applying
to a class of banks including any of the Banks of or under any United States
federal, state, municipal or foreign laws or regulations (whether or not having
the force of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof.
"Required Banks" means at any time the Banks holding one hundred percent (100%)
of the then aggregate unpaid principal amount of the Outstanding Credit
Facilities or the aggregate Revolving Credit Commitment. In calculating the
Outstanding Credit Facilities and Revolving Credit Commitment of each Bank for
purposes of this definition of "Required Banks", each Bank (other than Chase)
<PAGE>
shall be deemed to have a portion of the Letter of Credit Commitment equal to
that Bank's Pro Rata Share of the Letter of Credit Commitment, and Chase shall
be deemed to have a portion of the Letter of Credit Commitment equal to one
hundred percent (100%) minus the sum of the Pro Rata Shares of the other Banks.
"Reserve Requirement" means, for any Interest Period for any Eurodollar Loan for
any Interest Period therefor, the rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding $1,000,000,000 against
in the case of Eurodollar Loans, "Eurocurrency Liabilities" (as such term is
used in Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks by reason of any Regulatory Change against (i) any category of
liabilities which includes deposits by reference to which the Eurodollar Base
Rate is to be determined as provided in the definition of "Eurodollar Base Rate"
in this Section 1.01 or (ii) any category of extensions of credit or other
assets which include Eurodollar Loans. The Agent will use its best efforts to
promptly notify Borrower of any change of such Reserve Requirement.
"Revolving Credit Commitment" means the commitment of the Banks to lend,
pursuant to their Pro Rata Share, Forty-Two Million ($42,000,000) Dollars to the
Borrower pursuant to the terms of this Agreement.
"Revolving Credit Loan(s)" has the meaning specified in Section 2.01.
"Revolving Credit Note(s)" has the meaning specified in Section 2.06.
"Revolving Credit Termination Date" means May 26, 1999 unless earlier extended
by Borrower and Banks in accordance with the letter in form of Exhibit D annexed
hereto.
"Second Quarterly Date" means the last day of the second fiscal Quarter of each
Fiscal Year.
"Secured Parties" means the Agent and each of the Banks.
"Security Agreements" means the Borrower Security Agreement, Borrower's Pledge
Agreement and the Guarantors' Security Agreements.
"Security Documents" means the Security Agreements and the Borrower's Pledge
Agreement.
"Solvent" means, when used with respect to any Person, that (1) the fair value
of the property of such Person, on a going concern basis, is greater than the
total amount of liabilities (including, without limitation, contingent
liabilities) of such Person, (2) the present fair salable value of the assets of
such Person, on a going concern basis, is not less than the amount that will be
required to pay the probable liabilities of such Person on its debts as they
become absolute and matured, (3) such Person does not intend to, and does not
believe that it will incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature, and (4) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged. Contingent liabilities will be
computed at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Standby Letter of Credit" means a Standby Letter of Credit issued by Chase for
the account of the Borrower.
"Standby Letter of Credit Commitment" shall have the meaning set forth in
Section 3.05.
"Subsidiary" means, as to any Person, a corporation of which shares of stock
having ordinary voting power (other than stock having such power only by reason
of the happening of a contingency) to elect a majority of the board of directors
or other managers of such corporation are at the time owned, or the management
of which is otherwise controlled, directly, or indirectly through one or more
intermediaries, or both, by such Person.
<PAGE>
"Third Quarterly Date" means the last day of the third Fiscal Quarter of each
Fiscal Year.
"Trade Letter of Credit" has the meaning specified in Section 3.01.
"Trade Letter of Credit Commitment" has the meaning specified in Section 3.01.
"Trade Letter of Credit Obligations" means at any time an amount equal to the
sum of (1) the aggregate unused face amount of all outstanding Trade Letters of
Credit, (2) the aggregate amount of all unreimbursed obligations on Trade
Letters of Credit, and (3) the aggregate amount of all outstanding overdrafts
created to satisfy any of the foregoing obligations.
"Uniform Customs and Practices" means, with regard to each Letter of Credit, the
Uniform Customs and Practices for Documentary Letters of Credit (1993
Revisions), International Chamber of Commerce Publication No. 500, and any
subsequent revision thereof adhered to by Chase on the date such Letter of
Credit is issued.
Section 1.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP, and all financial data
required to be delivered hereunder shall be prepared in accordance with GAAP.
Section 1.03. Computation of Time Periods. Except as otherwise provided herein,
in this Agreement, in the computation of periods of time from a specified date
to later specified date, the word "from" means "from and including" and words
"to" and "until" each means "to but excluding".
Section 1.04. Rules of Construction. When used in this Agreement: (1) "or" is
not exclusive; (2) a reference to a law includes any amendment or modification
to such law and any statutory amendments and recodifications; (3) a reference to
a Person includes its permitted successors and permitted assigns; and (4) a
reference to an agreement, instrument or document shall include such agreement,
instrument or document as the same may be amended, modified or supplemented from
time to time in accordance with its terms and as permitted by the Loan
Documents.
ARTICLE II. REVOLVING CREDIT LOANS
Section 2.01. Revolving Credit. Subject to the terms and conditions of this
Agreement, each of the Banks severally agrees to make loans (the "Revolving
Credit Loans") according to each such Bank's Pro Rata Share of the Revolving
Credit Commitment, to Borrower from time to time during the period from the
Closing Date up to but not including the Revolving Credit Termination Date,
provided that the aggregate principal amount of all Revolving Credit Loans
outstanding at any time does not exceed the lesser of a) the Revolving Credit
Commitment minus the Letter of Credit Obligations or b) the Borrowing Base. Each
Revolving Credit Loan which shall not utilize the Revolving Credit Commitment in
full shall be in the minimum amount set forth in Section 2.10. Within the limits
off the Revolving Credit Commitment, the Borrower may borrow, make an optional
Prepayment pursuant to Section 2.07, and reborrow under this Section 2.01.
The failure of any Bank to make any requested Revolving Credit Loan to be made
by it on the date specified for such Revolving Credit Loan shall not relieve any
other Bank of its obligation (if any) to make such Revolving Credit Loan on such
date, but no Bank shall be responsible for the failure of any other Bank to make
such Revolving Credit Loans to be made by such other Bank.
Section 2.02. Notice and Manner of Borrowing. The Borrower shall give the Agent
telephonic notice, to be followed by written or telegraphic or facsimile notice
in the form of Exhibit E hereto (effective upon receipt) of any Revolving Credit
Loan by not later than 11:00 A.M. (New York time) on the date of such Revolving
Credit Loan and whether such Revolving Credit Loan shall be a Prime Rate Loan or
Eurodollar Loan. Each of the foregoing notices (a "Borrowing Notice") must
specify the date and the amount of such Revolving Credit Loan to the Agent and
the Agent will promptly notify each Bank of receipt by the Agent of a Borrowing
Notice and of the contents thereof. In the case of a Eurodollar Loan the
Borrowing Notice shall be received three (3) Banking Days prior to such
Eurodollar Loan and shall specify the Interest Period selected. Not later than
1:00 P.M. (New York time) on the date of a Revolving Credit Loan, each Bank will
cause to be transmitted to the Agent, to the account set forth below, in
immediately available funds such Bank's Pro Rata Share of such Revolving Credit
Loan. After the Agent's receipt of such funds, not later than 3:00 P.M. (New
York time) on the date of a Revolving Credit Loan, and upon fulfillment of the
<PAGE>
applicable conditions set forth in Article VI, the Agent will make such
Revolving Credit Loan available to the Borrower in immediately available funds
by crediting the amount thereof to the Borrower's account or the account of a
Consolidated Subsidiary as designated by the Borrower with the Agent.
Chase Account No. 323-0922 17 (Borrower)
Chase Account No. 323-092179 (Hosiery Division of Designers)
Chase Account No. 323-092 144 (Designers)
Chase Account No. 323-092209 (Segue)
Section 2.03. Conversions. The Borrower shall have the right to convert one type
of Revolving Credit Loan into another type of Revolving Credit Loan at any time
or from time to time; provided that: (a) the Borrower shall give the Agent at
least three (3) Banking Days notice of the conversion of a Prime Rate Loan into
a Eurodollar Loan and (b) Eurodollar Loans may be prep aid or converted only on
the last day of an Interest Period for such Loans. Agent shall promptly notify
each Bank of any such conversion.
Section 2.04. Non-Receipt of Funds by Agent. Unless the Agent shall have
received notice from a Bank, prior to the date on which such Bank is to provide
funds to the Agent for a Revolving Credit Loan to be made by such Bank, that
such Bank will not make available to the Agent such funds, the Agent may assume
that such Bank has made such funds available to the Agent on the date of such
Revolving Credit Loan in accordance with Section 2.02 and the Agent, in its sole
discretion, may, but shall not be obligated to, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent such Bank shall not have made such funds available to the
Agent, such Bank agrees to repay the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent, at the customary rate set by the Agent for the correction
of errors among banks for three (3) Banking Days and thereafter at the Prime
Rate. If such Bank shall repay to the Agent such corresponding amount, such
amount so repaid shall constitute such Bank's Revolving Credit Loan for purposes
of this Agreement. If such Bank does not pay such corresponding amount forthwith
upon Agent's demand therefor, the Agent shall promptly notify Borrower, and
Borrower shall immediately pay such corresponding amount to the Agent with the
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Agent, at the rate of
interest applicable at the time to such proposed Revolving Credit Loan. Unless
the Agent shall have received notice from the Borrower prior to the date on
which any payment is due to any Bank hereunder that the Borrower will not make
such payment in full, the Agent may assume that the Borrower has made such
payment in full to the Agent on such date and the Agent, in its sole discretion,
may, but shall not be obligated to, in reliance upon such assumption, cause to
be distributed to each Bank on such due date an amount equal to the amount then
due such Bank. If and to the extent the Borrower shall not have so made such
payment in full to the Agent, each Bank shall repay to the Agent forthwith on
demand such amount distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such Bank until the date
such Bank repays such amount to the Agent, at the customary rate set by the
Agent for the correction of errors among banks for three (3) Banking Days and
thereafter at the Prime Rate.
Section 2.05. Interest. The Borrower shall pay interest to the Agent for the
account of the applicable Bank on the outstanding and unpaid principal amount of
the Revolving Credit Loans at a rate per annum equal to the Prime Rate for a
Prime Rate Loan and at the Eurodollar Rate plus the Applicable Margin for a
Eurodollar Loan. Any principal or interest amount not paid when due (at
maturity, by acceleration or otherwise) shall bear interest thereafter, payable
on demand, at the Default Rate.
The interest rate on each Prime Rate Loan shall change when the Prime Rate
changes. Interest on each Revolving Credit Loan shall not exceed the maximum
amount permitted under applicable Law and shall be calculated on the basis of a
year of three hundred sixty (360) days for the actual number of days elapsed.
Accrued interest shall be due and payable (1) in the case of a Prime Rate Loan
(a) in arrears on each Monthly Date, commencing with the first such date after
such Prime Rate Loan, and (b) upon each payment or prepayment of principal on
such Prime Rate Loan and (2) in the case of a Eurodollar Loan, at the end of
each Interest Period, but no less than quarterly.
<PAGE>
Section 2.06. Notes. All Revolving Credit Loans made by each Bank under this
Agreement shall be evidenced by, and repaid with interest in accordance with, a
single promissory note of the Borrower in substantially the form of Exhibit A
duly completed, in the principal amount equal to such Bank's Pro Rata Share of
the total Revolving Credit Commitment, dated the date such bank becomes a Bank,
payable to such Bank and maturing as to principal on the Revolving Credit
Termination Date (the "Revolving Credit Notes"). Each Bank is hereby authorized
by the Borrower to endorse on the schedule attached to the Revolving Credit Note
held by it the amount of each Revolving Credit Loan, and each payment of
principal amount received by such Bank on account of the Revolving Credit Loans,
which endorsement shall, in the absence of manifest error, be conclusive as to
the outstanding balance of the Revolving Credit Loans made by such Bank;
provided, however, that the failure to make such notation with respect to any
Revolving Credit Loan or payment shall not limit or otherwise affect the
obligations of the Borrower under this Agreement or the Revolving Credit Note
held by such Bank. Each Bank agrees that prior to any assignment of the
Revolving Credit Note it will endorse the schedule attached to its Revolving
Credit Note.
Section 2.07. Optional and Mandatory Prepayments. The Borrower may prepay a
Prime Rate Loan, in whole or in part with accrued interest to the date of such
prepayment on the amount prepaid, provided that each partial prepayment shall be
in a principal amount of not less than One Hundred Thousand Dollars
($100,000.00) ("Optional Prepayment"). Eurodollar Loans may only be prepaid at
end of any Interest Period.
During the term of this Agreement, Borrower shall make a mandatory prepayment of
all outstanding Revolving Credit Loans and loans or other direct Obligations
(excluding Letter of Credit reimbursement obligations) of Permitted Short Term
Lenders excluding the long term debt in the original amount of $1,000,000.00
secured by the mortgage provided by Merchants National Bank and shall not
reborrow any Revolving Credit Loans or loans from Permitted Short Term Lenders
for a period of no less than forty-five (45) days.
To the extent that the Outstanding Credit Facilities exceed the then effective
Revolving Credit Commitment or the Borrowing Base, the Borrower shall
immediately pay to the Agent for the benefit of the Banks a prepayment of the
Revolving Credit Loans in an amount equal to the excess of such Outstanding
Credit Facilities over the then effective Revolving Credit Commitment or
Borrowing Base.
Section 2.08. Method of Payment. The Borrower shall make each payment under this
Agreement and under the Notes not later than noon (New York time) on the date
when due in Dollars to the Agent at the Agent's Office in immediately available
funds. The Agent will promptly thereafter cause to be distributed to each Bank
(1) such Bank's Pro Rata Share of the payments of principal and interest in like
funds, and (2) fees or sums payable to such Bank in accordance with the terms of
this Agreement, including, but not limited to amounts due in accordance with
Article XIII.
The Borrower hereby authorizes the Agent to charge from time to time against any
account it maintains with the Agent or any Bank any such amount so due to the
Agent and/or the Banks.
Except to the extent provided in this Agreement, whenever any payment to be made
under this Agreement or under the Notes shall be stated to be due on any day
other than a Banking Day, such payment shall be made on the next succeeding
Banking Day, and such extension of time shall in such case be included in the
computation of the payment of interest and other fees, as the case may be.
Section 2.09. Use of Proceeds. On and after the Closing Date, the proceeds of
the Revolving Credit Loans will be used by the Borrower to provide working
capital for Borrower and its Consolidated Subsidiaries, and for other general
corporate purposes and the Trade Letters of Credit will be used for importation
and purchasing of inventory by Borrower and its Consolidated Subsidiaries.
The Borrower will not, directly or indirectly, use any part of such proceeds for
the purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors or to extend credit to any Person for the
purpose of purchasing or carrying any such margin stock.
<PAGE>
Section 2.10. Minimum Amounts. Each Prime Rate Loan shall be in an amount at
least equal to One Hundred Thousand ($100,000) Dollars and each Eurodollar Loan
shall be in an amount at least equal to One Million Two Hundred Thousand
($1,200,000) Dollars.
ARTICLE III. LETTERS OF CREDIT
All references to Chase in this Article shall refer to Chase in its capacity as
the Letter of Credit Issuing Bank.
Section 3.01. Trade Letters of Credit. Chase agrees, on the terms and conditions
hereinafter set forth, to issue trade letters of credit with a maturity date of
up to one hundred eighty (180) days from the date of issuance ("Trade Letters of
Credit") for the account of the Borrower, during the period from the Effective
Date to the Revolving Credit Termination Date provided that at no time will the
outstanding Trade Letter of Credit Obligations exceed the lesser of (1)
Thirty-Five Million Dollars ($35,000,000) less all Standby Letters of Credit, or
(2) the Revolving Credit Commitment less outstanding Revolving Credit Loans and
Standby Letters of Credit (the "Trade Letter of Credit Commitment"); provided
further, that Chase will not be required to issue a Trade Letter of Credit with
a maturity date of more than 90 days after the Revolving Credit Termination
Date, provided however, all of such outstanding Trade Letters of Credit
Obligations, and/or Standby Letters of Credit Obligations as of two days prior
to the Revolving Credit Termination Date are cash collateralized at one hundred
and five (105%) percent of the face value.
Title documents shall be consigned to Chase at Chase's request.
Section 3.02. Reimbursement Obligation. The Borrower will pay Chase, on demand
at Chase's Principal Office, in immediately available funds, the amount required
to reimburse Chase in respect of Chase's payment of each Instrument. Such
reimbursement shall be made with interest at the Default Rate on Revolving
Credit Loans from the date of Chase's demand for reimbursement of such
Instrument to the date of reimbursement. If the Instrument is in foreign
currency, such reimbursement shall be in Dollars at Chase's selling rate for
cable transfers to the place of payment of the Instrument current on the date of
payment or of Chase's settlement of its obligation, as Chase may require. If,
for any cause, on the date of payment or settlement, as the case may be, there
is no selling rate or other rate of exchange generally current in New York for
effecting such transfers, the Borrower will pay Chase on demand an amount in
Dollars equivalent to Chase's actual cost of settlement of its obligation
however or whenever Chase shall make such settlement, with interest at the Prime
Rate for Revolving Credit Loans from the date of settlement to the date of
payment. The Borrower will comply with all governmental exchange regulations now
or hereafter applicable to each Letter of Credit or Instrument or payments
related thereto and will pay Chase, on demand, in Dollars, such amount as Chase
may be or may have been required to expend on account of such regulations. Chase
may debit or direct any other Bank to debit any account or accounts maintained
by the Borrower with any office of Chase or any other Bank or any of their
respective Subsidiaries or Affiliates (now or in the future) and apply the
proceeds to the payment of any and all amounts owed by the Borrower to Chase
hereunder, and such Bank, Subsidiary or Affiliate shall be authorized to act in
accordance herewith and shall treat this authorization as irrevocable.
Section 3.03. Payment of Commissions, Expenses and Interest. The Borrower will
pay Chase, on demand, Chase's commission and all charges, costs, and expenses
paid or incurred by Chase in connection with any Letter of Credit, and interest
where chargeable, including reasonable fees and charges of counsel, or
reasonable costs allocated by Chase's internal legal department in connection
with the enforcement of this Agreement or any Letter of Credit. Unless otherwise
agreed:
(a) commissions payable hereunder shall be at the rate customarily charged
by Chase at the time in like circumstances;
(b) interest payable under this Article III on amounts not paid when due
shall be at the lesser of (A) the maximum rate permissible under applicable
Law or (B) The Default Rate; and
<PAGE>
(c) in addition to commissions, fees and amounts otherwise payable with
respect to the issuance of the Letter of Credit, the Borrower shall pay to
Chase on demand such amounts as Chase in its sole discretion determines are
necessary to compensate it for any cost attributable to its issuing or
having outstanding such Letter of Credit resulting from the application of
any Law or regulation applicable to Chase regarding any reserve,
assessment, capital adequacy or similar requirements relating to letters of
credit or the reimbursement agreements with respect thereto or to similar
liabilities or assets of Chase whether existing at the time of issuance of
the Letter of Credit or adopted thereafter including but not limited to
fees and amounts payable with respect to amendments to and increases of a
Letter of Credit. The Borrower acknowledges that there may be various
methods of allocating costs to the Letter of Credit and agrees that Chase's
allocation for purposes of determining the costs referred to above shall be
conclusive and binding upon the Borrower provided such allocation is made
in good faith.
In addition to any and all of Chase's customary issuance fees and other expenses
to be paid by the Borrower with respect to a Trade Letter of Credit, the
Borrower shall pay to Chase under a Trade Letter of Credit a fee for each draw
in the amount of the greater of (a) one-quarter of one percent (25%) of the
amount drawn under such Trade Letter of Credit ("Trade Letter of Credit Fee") or
(b) Chase's minimum fee as provided in a letter agreement between Chase and
Borrower. All such fees shall be due and payable at the time of drawing.
Section 3.04. Proper Drawing; Chase's Honoring. Chase may accept or pay any
Instrument presented to it on or before the expiration date set forth in the
related Application. Except insofar as written instructions may be given by an
Authorized Person expressly to the contrary, and prior to Chase's issuance of a
Letter of Credit:
(a) Chase may honor the related Instrument(s) in an amount or amounts not
exceeding the amount of such Letter of Credit, although shipment(s) in
excess of the quantity called for under such Letter of Credit are made, and
(b) Chase may honor, as complying with the terms of such Letter of Credit
and of the Application relating to it, any Instrument or other document
otherwise in order signed or issued by a person purporting to be an
administrator, executor, trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, liquidator, receiver or other legal
representative of the party authorized under such Letter of Credit to draw
or issue such Instruments or other documents.
Section 3.05. Standby Letters of Credit. Chase may open at Borrower's request
Standby Letters of Credit in an aggregate amount not to exceed $750,000.00 (the
"Standby Letter of Credit Commitment"). No Standby Letter of Credit shall have a
stated expiration date later than the Revolving Credit Termination Date, unless
collateralized as provided in Section 3.01. For the purpose of calculating the
Borrowing Base, Standby Letters of Credit shall be deemed Revolving Loans. In
addition to all other fees, commissions and other amounts otherwise payable with
respect to issuance of Letters of Credit, Borrower shall pay to Chase an amount
equal to the greater of a) 1 1/2% of the face amount of each Standby Letter of
Credit payable upon issuance (the "Standby Letter of Credit Fee") or b) Chase's
minimum fee, as provided in a letter agreement between Chase and Borrower.
Section 3.06. Amendment, Change. Modification; No Waiver. In the event of any
amendment, change or modification relating to a Letter of Credit or any
Instruments or documents called for thereunder, including waiver of
noncompliance of any such Instruments or documents with the terms of such Letter
of Credit, this Agreement shall be binding upon the Borrower with regard to such
Letter of Credit as so amended, changed, or modified, and to any act taken by
Chase or any of its correspondents relating thereto. No amendment, change,
waiver, or modification to which Chase has consented shall be deemed to mean
that Chase will consent or has consented to any other or subsequent request to
amend, change, modify or waive a term of such Letter of Credit. Chase shall not
be deemed to have waived any of its rights hereunder, unless Chase or its
authorized agent shall have signed such waiver in writing. No such waiver,
unless expressly stated therein, shall be effective as to any transaction which
occurs subsequent to the date of such waiver, nor as to any continuance of a
breach after such waiver.
<PAGE>
Section 3.07. U.C.P.; Agreements and Acknowledgments; Indemnification. The
Uniform Customs and Practice shall be binding on the Borrower and Chase, except
to the extent it is otherwise expressly agreed. It is also agreed that:
(a) user(s) of a Letter of Credit shall not be deemed agents of Chase;
(b) none of Chase, its Affiliates, Subsidiaries, or its correspondents
shall be responsible for
(i) failure of any Instrument to bear any reference to the related
Letter of Credit or inadequate reference in any Instrument to such
Letter of Credit, or failure of any document (other than documents
expressly required to be presented under such Letter of Credit) to
accompany any Instrument at negotiation, or failure of any person to
note the amount of any Instrument on the reverse of a Letter of
Credit, or to surrender or take up a Letter of Credit or to forward
documents apart from Instruments as required by the terms of such
Letter of Credit, each of which provisions, if contained in a Letter
of Credit itself, it is agreed may be waived by Chase; or
(ii) errors, omissions, interruptions or delays in transmission, or
delivery of any message, by mail, telex, cable, telegraph, wireless or
other teletransmission or by oral instructions, whether or not they
may be in cipher;
(c) Chase shall not be responsible for any act, error, neglect or default,
omission, insolvency or failure in business of any of its correspondents;
(d) the Borrower will promptly examine:
(i) any copy of a Letter of Credit (and of any amendments the thereof)
sent to it by Chase; and
(ii) all Instruments and documents delivered to it from time to time,
and, in the event of any claim of non compliance with Borrowers s
instructions or other irregularity, the Borrower will immediately
notify Chase thereof in writing, the Borrower being conclusively
deemed to have waived any such claim against Chase and its
correspondents unless such notice is given as aforesaid;
(e) any action, inaction or omission on the part of Chase or any of its
correspondents, under or in connection with a Letter of Credit or the
related Instruments, documents or property, if in good faith, shall be
binding upon the Borrower and shall not place Chase or any of its
correspondents under any liability to the Borrower; and
(f) in the event that Chase shall preassign a letter of credit number or
numbers to the Borrower, the Borrower shall keep such number(s)
confidential and shall not disclose any such number to any Person until the
Letter of Credit to which such number relates has been approved by Chase.
The Borrower agrees to hold Chase, each Affiliate and Subsidiary of Chase, each
Bank, each Affiliate and Subsidiary of each Bank, each of their officers,
directors, employees and correspondents indemnified and harmless against any and
all claims, loss, liability or damage, including reasonable counsel fees,
howsoever arising from or in connection with any Letter of Credit or any
Application, including, without limitation, any such claim, loss, liability or
damage arising out of any transfer, sale, delivery, surrender or endorsement of
any document at any time(s) held by Chase or any of its Affiliates or
Subsidiaries, or held for the account of any one of them by any correspondent of
any of them, or arising out of any action for injunctive or other judicial or
administrative relief arising out of or in connection with any Letter of Credit
and affecting, directly or indirectly, Chase, or each Affiliate or Subsidiary of
Chase.
<PAGE>
Section 3.08. Licenses; Insurance; Regulations. The Borrower will procure
promptly any necessary import, export or other licenses for the import, export
or shipping of the property shipped under or pursuant to or in connection with
each Letter of Credit, and will comply with all foreign and domestic
governmental regulations in regard to the shipment of such property or the
financing thereof, and will furnish such certificates in that respect as Chase
may at any time(s) require, and will keep such property adequately covered by
insurance in amounts, against risks and with companies satisfactory to Chase,
and will assign the policies or certificates of insurance to Chase, or will make
the loss or adjustment, if any, payable to Chase, at Chase's option, and will
furnish Chase, on its demand, with evidence of acceptance by the insurers of
such assignment. Should the insurance upon such property for any reason be
unsatisfactory to Chase, Chase may, at the Borrower's expense, obtain insurance
satisfactory to Chase.
Each Application for a Trade Letter of Credit hereunder shall constitute the
warranty and certification made by Borrower that no shipment or payment to be
made in connection with such Trade Letter of Credit violates or will violate any
Law or any United States export, currency control, or other regulations.
Section 3.09 Airway and Steamship Guaranties. Chase may, in its discretion,
issue a letter of indemnity or such other document requested by the party in
possession of merchandise to enable Borrower to take possession of such
merchandise forthwith without production of the shipping documents (an "Airway
Guaranty" or "Steamship Guaranty" as the case may be). Such Airway Guaranty or
Steamship Guaranty shall be deemed a part of the Letters of Credit Obligations
Section 3.10. Additional Security. If a temporary restraining order or an
injunction (preliminary or permanent) or any similar order is issued in
connection with any Letter of Credit or any Instrument or documents relating
thereto, which order, injunction, or similar order may apply, directly or
indirectly, to Chase, the Borrower shall, on demand, deliver, convey, transfer,
or assign to the Agent additional security of a value and character satisfactory
to Chase, or make such payment as Chase may require.
Section 3.11. Continuing Rights and Obligations. Chase's rights hereunder shall
continue unimpaired, and the Borrower shall be and remain obligated in
accordance with the terms and provisions hereof, notwithstanding the release
and/or substitution of any property which may be held as Collateral at any
time(s), or of any rights or interest therein. No delay, extension of time,
renewal, compromise or other indulgence which may occur or be granted by Chase
shall impair Chase's rights or powers hereunder.
Section 3.12. Instructions; No Liability. Instructions may be honored by Chase
when received from an Authorized Person. The Borrower may furnish Chase with
written confirmation of any such Instruction, but Chase's responsibility with
respect to any Instruction shall not be affected by its failure to receive or
the content of such confirmation. Chase shall have no responsibility to notify
the Borrower of any discrepancies between the Borrower's instructions and its
written confirmation, and in the event of any such discrepancy, the original
Instruction shall govern. Chase shall be fully protected in, and shall incur no
liability to the Borrower for, acting upon any Instructions or any oral,
written, telephone, teleprocess, electronic, or other amendments thereto which
Chase in good faith believes to have been given by any Authorized Person, and in
no event shall Chase be liable for special, consequential, or punitive damages.
Chase may, at its option, use any means of verifying any Instruction received by
it. Chase also may, at its option, refuse to act upon any instruction or other
communication or any part, thereof; without incurring any responsibility for any
loss, liability or expense arising out of such refusal. All such authorizations
and instructions shall continue in full force and effect unless Chase may elect
to act upon additional instructions delivered to it by the Borrower prior to the
issuance of a Letter of Credit in reliance upon the original Instructions.
Section 3.13. Steamship Guaranty. Any Steamship Guaranty which the Issuing Bank
may issue from time to time at its sole discretion will be deemed Trade Letter
of Credit Obligations.
<PAGE>
ARTICLE IV. PARTICIPATION
Section 4.01. Participating Banks' Pro Rata Shares. Subject to the terms and
conditions hereinafter set forth in this Article IV, Chase hereby agrees to sell
and each Participating Bank hereby agrees to purchase a risk participation
("Participation") from Chase in each Letter of Credit to the extent of the
percentage set forth below opposite such Bank's name (as such percentage may be
reduced or otherwise modified from time to time in accordance with the terms of
this Article IV):
NationsBank 33%
Republic 22%
Section 4.02. Sale and Purchase of Participation. Each Participating Bank hereby
irrevocably and unconditionally agrees to purchase, and Chase hereby agrees to
sell and transfer to each Participating Bank, an undivided fractional interest
equal to such Participating Bank's Pro Rata Share in each Letter of Credit upon
issuance thereof and each draw thereunder upon such drawing and the obligations
of the Borrower in respect of each such Letter of Credit under this Agreement
and the Letter of Credit (including all related payments and recoveries to which
such Participating Bank is entitled pursuant to Section 4.05 hereof).
Section 4.03. Participation in Fees and Collateral; Relationship.
Chase shall pay each Participating Bank its Pro Rata Share of each Trade Letter
of Credit Fee and Standby Letter of Credit Fee. This fee shall be due and
payable promptly, after such Fee is paid to Chase in arrears on each Quarterly
Date.
The relationship between Chase (in its capacity as seller) of Participation
pursuant to this Article IV) and each Participating Bank (in its capacity as
purchaser of a Participation pursuant to this Article IV) is and shall be that
of a purchaser and seller of a property interest and not a creditor-debtor
relationship or joint venture. Chase (in its capacity as seller of a
Participation pursuant to this Article IV) shall owe each Participating Bank (in
its capacity as purchaser of Participation pursuant to this Article IV) no duty
except as specifically set forth in this Article IV.
Section 4.04. Procedures. Whenever a draw shall be made under a Letter of Credit
and the Borrower shall fail to reimburse Chase therefor in accordance with this
Agreement, Chase will promptly notify each Participating Bank regarding such
draw as follows: (1) the date of such draw, and (2) the amount of such draw or
payment. Although Chase shall be responsible for paying each such draw on each
Letter of Credit, each Participating Bank shall bear its Pro Rata Share of the
credit risk associated with each such draw. Accordingly, in the event that the
amount of any such draw is not paid in full by or on behalf of the Borrower when
required in accordance with the terms of this Agreement, for any reason, Chase
shall give prompt notice by telephone (promptly confirmed in writing) or telex
to each Participating Bank of such event. Upon receipt of such telephone or
telex notice, each Participating Bank shall cause to be transmitted to Chase, to
an account to be specified by Chase, an amount in immediately available funds
equivalent to its Pro Rata Share of such draw or payment in such manner to
ensure that such funds are received by Chase, and available to Chase by 3:00
P.M., New York City time, on the date demand therefor was made by Chase (if
demand was made by 11:00 A.M., New York City time) or by 10:00 A.M., New York
City time, on the Banking Day following the date demand therefore was made (if
demand was made after 11:00 A.M., New York City time) and any such payment by
each Participating Bank shall be deemed a Revolving Loan.
Chase shall advise each Participating Bank quarterly of its Pro Rata Share of
the Letter of Credit Obligations. In addition, Chase shall supply any notices of
reasonable requests in the ordinary course of business.
Section 4.05. Collections and Remittances. Whenever Chase receives any payment,
interest reimbursement, collection, recovery, setoff, counterclaim or banker's
lien on account of a Letter of Credit whether from the Borrower, the Collateral,
or otherwise, it shall allocate such receipt as follows:
(1) First, to the payment of taxes, assessments, insurance premiums, legal
fees, or for similar purposes as required by the Letter of Credit, as the
case may be, or any other Loan Document, and, if previously paid by Chase,
such sums shall be retained by Chase; and
<PAGE>
(2) In the event the Borrower fails to reimburse Chase for any draw under a
Letter of Credit, as the case may be, when due and Chase receives a payment
of or on account of such defaulted amount as to which a Participating Bank
has paid Chase the amount of its Pro Rata Share pursuant to Section 4.04,
that portion of the amount received shall be allocated between each such
Participating Bank and Chase pro rata, with each such Participating Bank's
percentage of the principal amount based on its Pro Rata Share and with
each such Participating Bank's portion of the interest and fees on its Pro
Rata Share based upon the amounts set forth above.
If any payment received by Chase and distributed or credited to a Participating
Bank is later rescinded or is otherwise returned by Chase for whatever reason
(including, without limitation, settlement of an alleged claim), each such
Participating Bank, upon demand by Chase, shall immediately pay to Chase, such
Participating Bank's Pro Rata Share of the amount so returned with interest at
the Federal Funds Rate from and after the date of demand. The covenants
contained in this paragraph shall survive the termination of this Agreement.
Section 4.06. Sharing of Setoffs and Collections. Each Participating Bank agrees
that to the extent any payment is received by it on any of the Borrower's
obligations under a Letter of Credit, whether by counterclaim, setoff, banker's
lien, by realizing on collateral or otherwise and such payment results in such
Participating Bank receiving a greater payment than it would have been entitled
to under Section 4.05 had the total amount of such payment been paid directly to
Chase for disbursement according to that Section, then such Participating Bank
shall immediately purchase for cash from Chase an additional Participation and a
participation from the other Participating Banks in such Letter of Credit
(subject to the same terms and conditions provided for herein), sufficient in
amount so that such payment shall effectively be shared pro rata with Chase and
the other Participating Banks in accordance with the amount, and to the extent,
of their respective interests in the Letter of Credit; provided, however, that
if all or any portion of such payment is thereafter recovered from such
Participating Bank at any time, the purchase shall be rescinded and the purchase
price returned to the extent of such recovery upon demand by such Participating
Bank with interest at the Federal Funds Rate from and after the date of demand.
Section 4.07. Indemnification; Costs and Expense. To the extent not reimbursed
by the Borrower, and without limiting the obligation of the Borrower to do so,
each Participating Bank agrees to reimburse Chase for, indemnify Chase against,
and hold Chase harmless from, on demand, to the extent of each such
Participating Bank's Pro Rata Share of any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements of any kind whatsoever (including, without limitation,
disbursements necessary, in the judgment of Chase, to preserve or protect the
Collateral), that may at any time be imposed on, incurred by, or asserted
against Chase in any way relating to this Agreement, a Letter of Credit, the
Collateral or any other Revolving Credit Loan Document or other instrument
relating to any of the foregoing, or the transactions contemplated thereby and
hereby, or any action taken or omitted by Chase under or in connection with any
of the foregoing; provided, however, that no Participating Bank shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
resulting from Chase's gross negligence or willful misconduct. The covenants
contained in this Section 4.07 shall survive the termination of this Agreement.
Section 4.08. Administration; Standard of Care. Chase will administer each
Letter of Credit in the ordinary course of business and in accordance with its
usual practices, modified from time to time as it deems appropriate under the
circumstances. Except as expressly set forth in the third paragraph of this
Section 4.08, Chase shall be entitled to use its discretion in taking or
refraining from taking any actions in connection with any of the foregoing as if
it were the sole party involved in any of the foregoing and no Participation
existed.
Each Participating Bank acknowledges that its Participation hereunder is without
recourse to Chase and that each such Participating Bank expressly assumes all
risk of loss in connection with its Participation in the Letters of Credit as if
such Participating Bank had directly provided such Letters of Credit. Chase
shall have no liability express or implied, for any action taken or omitted to
<PAGE>
be taken by Chase or for any failure or delay in exercising any right or power
possessed by Chase under any of the Loan Documents except for actual losses, if
any, suffered by any Participating Bank that are proximately caused either by
Chase's gross negligence or by Chase's willful misconduct. Without limiting the
foregoing, Chase (1) may consult with legal counsel, independent public
accountants, appraisers, and other experts, selected by Chase, and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such persons, (2) shall be entitled to rely on,
and shall incur no liability by acting upon, any conversation, notice, consent,
certificate, statement, order, or any document or other writing (including,
without limitation, telegraph, telex, telecopy, TWX, or other telecommunication
device) believed by Chase to be genuine and correct and to have been signed,
sent, or made by the proper person, (3) makes no warranty or representation of
any kind or character relating to the Borrower or the Collateral, and shall not
be responsible for any warranty or representation made in or in connection with
any of the Loan Documents, (4) makes no warranty or representation as to, and
shall not be responsible for the correctness as to form, the due execution,
legality, validity, enforceability, genuineness, sufficiency, or collectability
of any of the Loan Documents, for any failure by the Borrower or any Person to
perform its obligations thereunder, for the Borrower's use of the proceeds
therefrom, or for the preservation of the Collateral or the loss, depreciation,
or release thereof, (5) makes no warranty or representation as to, and assumes
no responsibility for, the authenticity, validity, accuracy, or completeness of
any notice, financial statement, or other document or information received by
Chase or any Participating Bank in connection with, or otherwise referred to in,
any of the Loan Documents, and (6) shall not be required to make any inquiry
concerning the observance or performance of any agreement contained in, or
conditions of, any of the Loan Documents, or to inspect the property, books, or
records of the Borrower or any Person.
Notwithstanding the provisions of the first paragraph of this Section 4.08,
Chase agrees that it will not take any of the following actions without the
written consent of each Participating Bank: (1) waive any default by the
Borrower involving the payment of money to Chase pursuant to any of the Loan
Documents; (2) extend the maturity date of any Letter of Credit beyond ninety
(90) days after the Revolving Credit Termination Date; (3) increase the amount
of the Trade Letter of Credit Commitment or the Standby Letter of Credit
Commitment; (4) reduce the fees charged on the Letters of Credit below the
amount required to be paid to Chase or to the Participating Banks pursuant to
the terms of this Article IV; or (5) release any Collateral, except as otherwise
contemplated in any Loan Documents. Chase shall be fully justified in failing or
refusing to take any action under any of the Loan Documents unless it shall
first receive such advice or concurrence of the Participating Banks.
Chase and the Participating Banks may lend money to, accept deposits from, and
generally engage in any kind of business with the Borrower as freely as though
no Participation had been granted to a Participating Bank.
Section 4.09. Independent Investigation by the Participating Banks. Each
Participating Bank acknowledges (1) that Chase has provided such Participating
Bank with copies of all of the Loan Documents and the Borrower has provided, or
granted such Participating Bank access to certain financial data and other
information pertaining to the Borrower and the Guarantor that such Participating
Bank has requested in order to enable it to make an independent, informed
judgment with respect to the desirability of purchasing Participation in the
Letters of Credit, (2) that Chase has not made any representations or warranties
to such Participating Bank and that no prior or future act by Chase, including,
without limitation, any review of the affairs of the Borrower, shall be deemed
to constitute a representation or warranty of Chase, and (3) that such
Participating Bank has independently, without reliance upon Chase, and based on
such information as such Participating Bank has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial condition, and general credit worthiness of the Borrower, made its own
analysis of the value and Lien status of any Collateral, and made its own
decision to execute this Agreement and thereby purchase Participation in
accordance with this Article IV in the Letters of Credit. Each Participating
Bank agrees that, independently and without reliance upon Chase or any
representations or statements of Chase, and based on such information as such
Participating Bank deems appropriate at the time, it will continue to make and
rely, upon its own credit analysis and decisions in taking or not taking any
action under this Article IV or any of the Loan Documents.
Section 4.10. Participating Banks' Ownership of Interests in the Participation;
Repurchases by Chase.
<PAGE>
Each Participating Bank hereby represents and warrants to Chase that the
purchase of its Participation in the Letters of Credit (1) is a legal investment
pursuant to the Law under which such Participating Bank is organized and
operates, (2) has been duly authorized and approved by all necessary action of
the management of such Participating Bank, and (3) is made for such
Participating Bank's own account for the purpose of investment only and with no
present intention of disposing of the same.
Upon the occurrence of an Event of Default and failure to consent to a change in
this Agreement where such Participating Bank's consent is required pursuant to
them as of this Article IV, Chase, or any party designated by it, shall have the
right (but not the obligation) to repurchase such Participating Bank's
Participation in any Letter of Credit for a purchase price equal to any unpaid
amount due the Participating Bank with respect to such Participation. Upon
demand and payment therefor, such Participating Bank shall promptly transfer to
Chase its Participation in any such Letter of Credit by executing and delivering
to Chase an instrument of transfer in form and substance satisfactory to Chase
and such Participating Bank; provided, however, that failure by such
Participating Bank to do so shall not affect Chase's repurchase of such
Participating Bank's Participation in any such Letter of Credit, which
repurchase shall be effective upon payment therefor by Chase to such
Participating Bank. At any time before each payment, Chase may withdraw and
terminate its offer to repurchase such Participating Bank's Participation in any
such Letter of Credit prior to the payment of such price.
ARTICLE V. GUARANTY
Section 5.01. Guaranty. Each Guarantor hereby jointly and severally irrevocably,
absolutely and unconditionally guarantees to each Bank Party and their
successors, endorsees, transferees and assigns the prompt and complete payment
by Borrower, as and when due and payable (whether at stated maturity or by
required prepayment, acceleration, demand or otherwise), of all indebtedness,
obligations and liabilities of the Borrower to each Bank Party now existing or
hereafter incurred under or arising out of or in connection with the Notes, the
Letters of Credit, this Agreement and the other Loan Documents whether for
principal, interest, reimbursement obligations, fees, expenses, or otherwise and
all other obligations of the Borrower to each Bank Party (all such indebtedness,
obligations and liabilities being herein called the "Obligations"); and agrees
to pay on demand any and all expenses, (including counsel fees and expenses)
which may be paid or incurred by any Bank Party in collecting any or all of the
Obligations and/or enforcing any rights under any of the Loan Documents or under
the Obligations (the "Guaranty"). The Guaranty of each Guarantor of the payment
of the Obligations is such Guarantor's "Guaranty Obligation".
Section 5.02. Guarantor's Guaranty Obligations Unconditional. Each Guarantor
hereby guarantees that the Obligations will be paid strictly in accordance with
the terms of the Loan Documents, regardless of any Law now or hereafter in
effect in any jurisdiction affecting any such terms or, the rights of any Bank
Party with respect thereto. The obligations and liabilities of each Guarantor
under this Guaranty shall be to the extent permitted by applicable law absolute
and unconditional irrespective of: (1) any lack of validity or enforceability of
any of the Obligations, any Loan Documents, or any agreement or instrument
relating thereto; (2) any change in the time, manner or place of payment of, or
in any other term in respect of, all or any of the Obligations, or any other
amendment or waiver of or consent to any departure from any Loan Documents or
any other documents or instruments executed in connection with or related to the
Obligations; (3) any exchange or release of, or non-perfection of any Lien on or
in, any Collateral, or any release or amendment or waiver of or consent to any
departure from any other guaranty, for all or any of the Obligations; or (4) any
other circumstances which might otherwise constitute a defense (other than
indefeasible payment in full) available to, or a discharge of, the Borrower or
any other guarantor in respect of the Obligations of any Guarantor in respect of
this Guaranty.
This Guaranty is a continuing guaranty and shall remain in full force and effect
until: (1) the payment in full of all the Obligations and (2) the payment of the
other expenses to be paid by the Guarantors pursuant hereto. This Guaranty shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment, or any part thereof, of any of the Obligations is rescinded or
must otherwise be returned by any Bank Party upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or otherwise, all as
though such payment had not been made.
<PAGE>
The obligations and liabilities of each Guarantor under this Guaranty shall not
be conditioned or contingent upon the pursuit by the Agent or any Bank or any
other Person at any time of any right or remedy against the Borrower or any
other Person which may be or become liable in respect of all or any part of the
Obligations or against any Collateral or security or guarantee therefor or right
of setoff with respect thereto.
Each Guarantor hereby consents that, without the necessity of any reservation of
rights against any Guarantor and without notice to or further assent by any
Guarantor, any demand for payment of any of the Obligations made by any Bank
Party may be rescinded by such Bank Party and any of the Obligations continued
after such rescission.
Section 5.03. Waivers. To the extent permitted by applicable law, each Guarantor
hereby waives: (1) promptness and diligence; (2) notice of or proof of reliance
by any Bank Party upon this Guaranty or acceptance of this Guaranty; (3) notice
of the incurrence of any Obligation by the Borrower or the renewal, extension or
accrual of any Obligation; (4) notice of any actions taken by any Bank Party or
the Borrower or any other party under any Loan Document, or any other agreement
or instrument relating to the Obligations; (5) all other notices, demands and
protests, and all other formalities of every kind in connection with the
enforcement of the Obligations or of the obligations of any Guarantor hereunder,
the omission of or delay or which, but for the provisions of this Section 5.03,
might constitute grounds for relieving any Guarantor of its obligations
hereunder; and (6) any requirement that any Bank Party protect, secure, perfect
or insure any Lien on any property subject thereto or exhaust any right or take
any action against the Borrower or any other Person or any Collateral.
Section 5.04. Subrogation. Each Guarantor agrees that it hereby defers any
rights which it may acquire by way of subrogation under this Guaranty, whether
acquired by any payment made hereunder, by any setoff or application of funds of
such Guarantor by any Bank Party or otherwise until the Obligations have been
paid in full.
Section 5.05. Limitation of Liability. The obligations of each Guarantor
hereunder shall be limited to an aggregate amount equal to the largest amount
that would not render its obligations hereunder subject to avoidance under
Section 548 of the United States Bankruptcy Code or any comparable provision of
any applicable state law.
ARTICLE VI. CONDITIONS PRECEDENT
Section 6.01. Conditions Precedent to Initial Use of a Credit Facility on and
after the Closing Date. The obligations of the Banks on or after the Closing
Date to make a Revolving Credit Loan and the obligation of Chase to issue the
initial Letter of Credit is subject to the condition precedent that the Banks
shall have received on or before the Closing Date each of the following
documents, in form and substance satisfactory to the Banks and their counsel,
and each of the following requirements shall have been fulfilled:
(a) Evidence of Due Organization and all Corporate Actions by the Borrower
and each Guarantor. A certificate of the Secretary or Assistant Secretary
of the Borrower and each Guarantor, dated the Closing Date, attesting to
the certificate of incorporation and by-laws of the Borrower and each
Guarantor and all amendments thereto and to all corporate actions taken by
the Borrower and each Guarantor, including resolutions of its board of
directors, authorizing the execution, delivery and performance of the Loan
Documents, and each other document to be delivered pursuant to the Loan
Documents;
(b) Incumbency and Signature Certificates of the Borrower and each
Guarantor. A certificate of the Secretary or Assistant Secretary of the
Borrower and each Corporate Guarantor, dated the Closing Date, certifying
the names and true signatures of the officers of the Borrower and each
Guarantor authorized to sign the Loan Documents to which it is a party, and
the other documents to be delivered pursuant to the Loan Documents;
<PAGE>
(c) Good Standing Certificates of the Borrower and each Guarantor. A
Certificate, dated reasonably near the Closing Date, from the Secretary of
State (or other appropriate official) of the jurisdiction of incorporation
of the Borrower and each Guarantor certifying as to the due incorporation
and good standing of the Borrower or such Guarantor and certificates, dated
reasonably near the Closing Date, from the Secretary of State (or other
appropriate official) of each other jurisdiction where the Borrower and
each Guarantor is required to be qualified to conduct business, certifying
that the Borrower or such Guarantor is duly qualified to do such business
and is in good standing in each such state;
(d) Notes. The Revolving Credit Notes;
(e) Borrower Security Agreement. The Borrower Security Agreement duly
executed by Borrower together with (a) duly executed financing statements
(UCC-l) previously filed under the Uniform Commercial Code of all
jurisdictions necessary or, in the opinion of the Agent or any Bank,
desirable to perfect the security interest created by such Security
Agreement; and (b) Uniform Commercial Code searches identifying all of the
financing statements on file with respect to Borrower in all jurisdictions
referred to under (a), including the financing statements filed by the
Agent against such party indicating that no party other than the Agent
claims an interest in any of the Collateral except with respect to
Permitted Liens;
(f) The Guarantor Security Agreements. The Guarantor Security Agreements
duly executed by the Guarantors (other than HIL) together with (a) duly
executed financing statements (UCC-l) previously filed under the Uniform
Commercial Code of all jurisdictions necessary or, in the opinion of the
Agent or any Bank, desirable to perfect the security interest created by
such Security Agreement; and (b) Uniform Commercial Code searches
identifying all of the financing statements on file with respect to the
Subsidiaries in all jurisdictions referred to under (a), including the
financing statements filed by the Agent against such party indicating that
no party other than the Agent claims an interest in any of the Collateral
except with respect to Permitted Liens;
(g) Termination or Assignment of UCC Financing Statements terminating or
assigning Liens other than Permitted Liens;
(h) Borrower Pledge Agreement. The Borrower Pledge Agreement duly executed
by Borrower, together with the certificates representing the shares pledged
pursuant to the Borrower Pledge Agreement and undated stock powers executed
in blank for each such certificate;
(i) Hampshire Pledge Agreement. The Hampshire Pledge Agreement duly
executed by Hampshire, together with the certificates representing the
shares pledged pursuant to the Hampshire Pledge Agreement and undated stock
powers executed in blank for such certificates.
(j) Intercreditor Agreement: The Intercreditor Agreement duly executed by
each of the Insurance Companies and the Banks;
<PAGE>
(k) Opinions of Counsel for Borrower. A favorable opinion of Willkie Farr &
Gallagher, counsel for the Borrower and each Guarantor, addressed to all
Banks, dated the Closing Date;
(l) Insurance Coverage. A certificate from Borrower's and Guarantors'
insurance carriers evidencing the coverage required by Section 8.05 (which
certificates shall show that the Agent or the Insurance Companies is an
additional insured and loss payee);
(m) Payment of Fees. Payment in full to the Agent of all fees required to
be paid to the Agent pursuant to the terms of the Fee Letter; and payment
in full of all other fees required to be paid in accordance with the Loan
Documents;
(n) Officer's Certificate. The following statements shall be true and the
Agent shall have received a certificate signed by a duly authorized officer
of the Borrower dated the Closing Date stating that:
(i) The representations and warranties contained in this Agreement and
in each of the other Loan Documents are correct on and as of Closing
Date as though made on and as of such date; and
(ii) No Default or Event of Default has occurred and is continuing,
and
(iii) Borrower has evaluated the impact of the year "2000" computer
problem on its business and has determined that such will not have a
material adverse change.
(o) Assignment of HIL Note. An assignment by Borrower of the HIL Note in
form acceptable to the Banks.
(p) Additional Documentation. Such other approvals, opinions or documents
as the Agent or any Bank may reasonably request.
Section 6.02. Conditions Precedent to All Credit Facilities. The obligations of
the Banks or Chase, as the case may be, to provide each Credit Facility, shall
be subject to the further conditions precedent that on the date of providing
such Credit Facility:
(1) The following statements shall be true:
(a) (i) the representations and warranties with a materiality
provision contained in this Agreement and in each of the other Loan
Documents are correct on and as of the date of providing such Credit
Facility as though made on and as of such date and (ii) all the
representations and warranties with no materiality provision contained
in this Agreement and in each of the other Loan Documents are correct
in all material respects on and as of the date of providing such
Credit Facility as though made on and as of such date; and
<PAGE>
(b) no Default or Event of Default has occurred and is continuing, or
could result from providing such Credit Facility;
(2) The Agent shall have received such other approvals, opinions or
documents as the Agent or any Bank may reasonably request.
Section 6.03. Deemed Representation. Each request under a Credit Facility and
acceptance by the Borrower of any proceeds of such Revolving Credit Loan or the
issuance of any Letter of Credit, as the case may be, shall constitute (1) for
representations and warranties with a materiality provision, a representation
and warranty that the statements contained in Section 6.02(1) are true and
correct both on the date of such notice and as of the date of the providing of
such Revolving Credit Loan or issuance of such Letter of Credit, as the case may
be, and (2) for representations and warranties with no materiality provision, a
representation and warranty that the statements contained in Section 6.02(1) are
true and correct in all material respects both on the date of such notice and as
of the date of the providing of such Revolving Credit Loan or issuance of such
Letter of Credit, as the case may be.
ARTICLE VII. REPRESENTATIONS AND WARRANTIES
The Borrower and each Guarantor hereby represents and warrants that:
Section 7.01. Incorporation. Good Standing and Due Qualification. The Borrower
and each Guarantor is duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, has the corporate power
and authority to own its assets and to transact the business in which it is now
engaged or proposed to be engaged, and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required, except to the extent that its failure to
be so qualified could not result in a Material Adverse Change.
Section 7.02. Corporate Power and Authority; No Conflicts. The execution,
delivery and performance by the Borrower and each Guarantor of the Loan
Documents to which it is a party have been duly authorized by all necessary
corporate action and do not and will not: (1) require any consent or approval of
its stockholders which has not been obtained; (2) contravene its certificate of
incorporation or by-laws; (3) violate any provision of, or require any filing
(other than the filing of the financing statements contemplated by the Security
Documents), registration, consent or approval under any Law (including, without
limitation, Regulations T, U and X of the Board of Governors), order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to the Borrower or any Guarantor; (4) result in a breach of or
constitute a default under or require any consent under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which the
Borrower or any Guarantor is a party or by which it or its properties may be
bound or affected; (5) result in, or require, the creation or imposition of any
Lien (other than as created under the Security Documents), upon or with respect
to any of the properties now owned or hereafter acquired by the Borrower or any
Guarantor; or (6) cause such corporation to be in default under any such Law,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument.
Section 7.03. Legally Enforceable Agreements. Each Loan Document to which the
Borrower and each Guarantor is a party is a legal, valid and binding obligation
of the Borrower and each Guarantor, enforceable against the Borrower and each
Guarantor in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally.
Section 7.04. Litigation. As of the Closing Date, there are no actions, suits or
proceedings (private or governmental) pending or, to the knowledge of the
Borrower or any Consolidated Subsidiary, threatened, against or affecting the
Borrower or any Consolidated Subsidiary before any Governmental Authority or
arbitrator, except as set forth in Schedule 7.04.
<PAGE>
Section 7.05. Financial Statements. The combined balance sheets of the Borrower
and its Subsidiaries as of December 31, 1997, the related combined statements of
income and retained earnings, and combined statements of cash flows of the
Borrower and its Subsidiaries for the Fiscal Year, then ended, and the
accompanying footnotes, together, with the opinion thereon, dated February 27,
1998, of Price Waterhouse LLC, independent certified public accountants, copies
of which have been furnished to the Banks, fairly present the financial
condition of the Borrower and its Subsidiaries as at such dates and the results
of the operations of the Borrower and its Subsidiaries for the periods covered
by such statements, all in accordance with GAAP consistently applied.
As of the Closing Date, there has been no Material Adverse Change since December
31, 1997.
As of the Closing Date, there are no liabilities of the Borrower or any of the
Subsidiaries, fixed or contingent, which are material but are not reflected in
the financial statements referred to above or in the notes thereto, other than
liabilities arising in the ordinary course of business since December 31, 1997.
No information, exhibit, or report furnished by the Borrower or any Consolidated
Subsidiaries to the Agent or any Bank in connection with the negotiation of this
Agreement and the other Loan Documents contained any material misstatement of
fact or omitted to state a material fact or any fact necessary to make the
statements contained therein not materially misleading.
Section 7.06. Ownership and Liens. The Borrower and each Consolidated Subsidiary
have title to, or valid leasehold interests in, all of their properties and
assets, real and personal, including the properties and assets, and leasehold
interests reflected in the financial statements referred to in Section 7.05
(other than any properties or assets disposed of in the ordinary course of
business), and none of the properties and assets owned by the Borrower or any
Consolidated Subsidiary and none of their leasehold interests are subject to any
Lien, except as may be permitted under this Agreement.
Section 7.07. Taxes. The Borrower and each Consolidated Subsidiary have filed
all tax returns (federal, state and local) required to be filed and have paid
all taxes, assessments and governmental charges and levies thereon to be due,
including interest and penalties, except to the extent they are the subject of a
Good Faith Contest.
Section 7.08. ERISA. Each Plan is administered in compliance in all material
respects with all applicable provisions of ERISA and the Code except where such
failure would not reasonably be expected to result in a Material Adverse Change.
Neither a Reportable Event nor a Prohibited Transaction has occurred with
respect to any Plan; no notice of intent to terminate a Plan has been filed nor
has any Plan been terminated; no circumstance exists which constitutes grounds
under Section 4042 of ERISA entitling the PBGC to institute proceedings to
terminate, or appoint a trustee to administer, a Plan, nor has the PBGC
instituted any such proceedings; neither the Borrower nor any Guarantor nor any
ERISA Affiliate has completely or partially withdrawn under Section 4201 or 4204
of ERISA from a Multiemployer Plan; and no Plan which is a Multiemployer Plan is
in reorganization (within the meaning of Section 4241 of ERISA), is insolvent
(within the meaning of Section 4245 of ERISA) or is terminating; the Borrower,
each Guarantor and each ERISA Affiliate has met its minimum funding requirements
under ERISA with respect to all of its Plans subject to Title IV of ERISA and
there are no unfunded vested liabilities except as set forth in Schedule 7.08;
and neither the Borrower nor any Guarantor nor any ERISA Affiliate has incurred
any liability to the PBGC under ERISA; and neither the Borrower, any Guarantor,
nor any ERISA Affiliate has liability for retiree medical, life insurance or
other death benefits (contingent or otherwise) other than as a result of a
continuation of medical coverage required under Section 4980B of the Code or as
required pursuant to an employment agreement.
<PAGE>
Section 7.09. Ownership of Guarantors; Investments. As of the Closing Date, all
of the outstanding capital stock or other interest of each Guarantor (other than
the Exempt Preferred Stock) is set forth on Schedule 7.09 and has been validly
issued, is fully paid and nonassessable and, is owned free and clear of all
Liens. As of the Closing Date, Schedule 7.09 lists all capital stock and other
equity securities or other debt or equity investments owned or held by the
Borrower or any Consolidated Subsidiary.
Section 7.10. Operation of Business. The Borrower and each Consolidated
Subsidiary possess all licenses, permits, franchises, and trade names, or rights
thereto, to conduct their business substantially as now conducted and as
presently proposed to be conducted, and the Borrower and each Consolidated
Subsidiary are not in violation of any valid rights of others with respect to
any of the foregoing.
Section 7.11. No Default on Outstanding Judgments or Orders. The Borrower and
each Consolidated Subsidiary have satisfied all judgments and the Borrower and
each Consolidated Subsidiary are not in default with respect to any judgment,
writ, injunction, or decree of any court, arbitrator or any rule or regulation
of any federal, state, municipal or other Governmental Authority, commission,
board, bureau, agency or instrumentality, domestic or foreign.
Section 7.12. No Defaults on Other Agreements. Neither the Borrower nor any
Consolidated Subsidiary is a party to any indenture, loan or credit agreement or
any lease or other agreement or instrument or subject to any certificate of
incorporation or corporate restriction which is likely to result in a Material
Adverse Change. Neither the Borrower nor any Consolidated Subsidiary is in
default in any respect in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement or
instrument where such failure to perform, observe or fulfill is likely to result
in a Material Adverse Change. Neither the Borrower nor any Consolidated
Subsidiary is a party to any agreement which restricts or prohibits any
Consolidated Subsidiary from declaring and/or paying dividends to the Borrower
other than as specified in Schedule 7.12.
Section 7.13. Labor Disputes and Acts of God. Neither the business nor the
properties of the Borrower or any Consolidated Subsidiary are affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), except as specified in Schedule
7.13.
Section 7.14. Governmental Regulation. Neither the Borrower nor any Consolidated
Subsidiary is subject to regulation under the Public Utility Holding Company Act
of 1935, the Investment Company Act of 1940, the Interstate Commerce Act, the
Federal Power Act or any statute or regulation limiting its ability to incur
indebtedness for money borrowed as contemplated hereby.
Section 7.15. Partnerships. Neither the Borrower nor any Consolidated Subsidiary
is a partner in any partnership.
Section 7.16. Environmental Protection. The Borrower and each Consolidated
Subsidiary have obtained all permits, licenses and other authorizations which
are required under all Environmental Laws, except to the extent failure to have
any such permit, license or authorization is not likely to result in a Material
Adverse Change. The Borrower and each Consolidated Subsidiary are in compliance
with all Environmental Laws and the terms and conditions of the required
permits, licenses and authorizations, and is also in compliance with all other
applicable limitations, restrictions, obligations, schedules and timetables
contained in those Laws or contained in any plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved by
a Governmental Authority thereunder, except to the extent failure to comply is
not likely to result in a Material Adverse Change.
The Collateral contains no Hazardous Materials that, under any Environmental Law
then in effect, (1) would impose liability on the Borrower or any Consolidated
Subsidiary that could result in a Material Adverse Change or (2) could result in
the imposition of a Lien on the Collateral or any portion thereof or any other
assets of the Borrower or any Consolidated Subsidiary, in each case if not
properly handled in accordance with applicable Law.
<PAGE>
Section 7.17. Solvency. The Borrower and each Guarantor is, and upon
consummation of the transactions contemplated by this Agreement, the other Loan
Documents, and any other documents, instruments or agreements relating thereto,
will be Solvent.
Section 7.18. Year 2000. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of (i) the Borrower's computer
systems and (ii) equipment containing embedded microchips (including systems and
equipment supplied by others or with which Borrower's systems interface) and the
testing of all such systems and equipment, as so reprogrammed, will be completed
by June 1, 1999. The cost to the Borrower of such reprogramming and testing and
of the reasonably foreseeable consequences of year 2000 to the Borrower
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in a Material Adverse Change. Except as
such of the reprogramming referred to in the preceding sentence as may be
necessary, the computer and management information systems of the Borrower and
its Subsidiaries are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient to permit the Borrower
to conduct its business without Material Adverse Change.
ARTICLE VIII. AFFIRMATIVE COVENANTS
So long as any of the Notes shall remain unpaid or any Letter of Credit
Obligation shall remain outstanding or any Bank or Chase shall have a Commitment
hereunder, or any other amount is owing by the Borrower to any Bank Party
hereunder or under any other Loan Document, the Borrower and each Guarantor,
except HIL, shall:
Section 8.01. Maintenance of Existence. Preserve and maintain its corporate
existence and good standing in the jurisdiction of its incorporation, and
qualify' and remain qualified as a foreign corporation in each jurisdiction in
which such qualification is required, except to the extent that its failure to
so qualify could not result in a Material Adverse Change.
Section 8.02. Conduct of Business. Continue to operate its business in a manner
consistent with the conduct of it on and prior to the Closing Date.
Section 8.03. Maintenance of Properties. Maintain, keep and preserve all of its
properties, (tangible and intangible) necessary or used in the proper conduct of
its business in good working order and condition, ordinary wear and tear
excepted.
Section 8.04. Maintenance of Records. Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP,
reflecting all of its financial transactions.
Section 8.05. Maintenance of Insurance. Maintain insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated and such other insurance as reasonably
required by the Banks.
<PAGE>
Section 8.06. Compliance with Laws. Comply in all respects with all applicable
Laws, such compliance to include, without limitation, paying before the same
become delinquent all taxes, assessments and governmental charges imposed upon
it or upon its property, except (1) in the case of the failure to pay taxes,
such taxes are the subject of a Good Faith Contest, and (2) to the extent that
its failure to so comply is not likely to result in a Material Adverse Change.
Section 8.07. Right of Inspection. Except upon the occurrence of an Event of
Default and during the continuance thereof, upon prior notice, at any time
during normal business hours, permit the Agent or any Bank or any agent or
representative thereof, to examine and make copies and abstracts from the
records and books of account of, and visit the properties of, the Borrower and
any Consolidated Subsidiary and to discuss the affairs, finances and accounts of
the Borrower and any Consolidated Subsidiary with any of their respective
officers and directors and independent accountants; permit the Agent or any
agent or representative thereof, to examine and audit the inventory and
receivables of the Borrower and each Consolidated Subsidiary, such costs to be
borne by the Banks.
Section 8.08. Reporting Requirements. Furnish directly to each of the Banks: (1)
Borrower's quarterly Financial Statements. As soon as available and in any event
within forty-five (45) days after the end of each of the first three quarters of
each Fiscal Year of the Borrower, the consolidated and consolidating balance
sheets of the Borrower, and (a) its Consolidated Subsidiaries, and (b) all of
its Subsidiaries as of the end of such quarter, consolidated and consolidating
statements of income, statements of stockholders' equity and cash flow
statements of the Borrower and (a) its Consolidated Subsidiaries and (b) all of
its Subsidiaries both for such quarter and for the period commencing at the end
of the previous Fiscal Year and ending with the end of such quarter, all in
reasonable detail and stating in comparative form corresponding unaudited
consolidated figures for the corresponding date and period in the previous
Fiscal Year and all prepared in accordance with GAAP consistently applied and
certified by the chief financial officer of the Borrower (subject to year-end
adjustments);
(2) Borrower's Annual Financial Statements. As soon as available and in any
event within one hundred twenty (120) days after the end of each Fiscal
Year of the Borrower, the consolidated and consolidating balance sheets of
the Borrower and its Subsidiaries, as of the end of such Fiscal Year, the
consolidated and consolidating statements of income, statements of changes
in stockholders' equity and cash flow statements of the Borrower and its
Subsidiaries for such Fiscal Year, all in reasonable detail and stating in
comparative form the respective consolidated figures for the corresponding
date and period in the Fiscal Year and all prepared in accordance with GAAP
consistently applied, which consolidated balance sheets and consolidated
statements of income, statements of changes in stockholders' equity and
cash flow statements of the Borrower and its Subsidiaries, shall be audited
by such independent certified public accountants selected by the Borrower
and acceptable to the Banks and with such consolidating financial
statements also being consolidated to the Borrower and the Consolidated
Subsidiaries and including balance sheets and consolidating statements of
income, statements of changes and stockholders' equity and cash flow
statements prepared in accordance with GAAP consistently applied and
certified by the Chief Financial Officer of the Borrower;
(3) Borrowing Base Certificate. Within twenty-one (21) days after the end
of each month, a Borrowing Base Certificate, in form and substance
satisfactory to the Agent showing compliance with the Borrowing Base and
showing outstanding indebtedness listed in Section 9.0 1(a), (b), (c) and
(d);
(4) Management Letters. Promptly upon receipt thereof, copies of any
reports submitted to the Borrower and any Consolidated Subsidiary by
independent certified public accountants in connection with the examination
of the financial statements of such Borrower and Consolidated Subsidiary
made by such accountants;
<PAGE>
(5) Certificate of No Default. Within forty-five (45) days after the end of
each quarter of each Fiscal Year of the Borrower, a certificate of the
chief financial officer of the Borrower (a) certifying that no Default or
Event of Default has occurred and is continuing or, if a Default or Event
of Default has occurred and is continuing, a statement as to the nature
thereof and the action which is proposed to be taken with respect thereto,
and (b) with computations demonstrating compliance with the covenants
contained in Article X, as of the end of that fiscal period.
(6) Notice of Litigation. Promptly after the commencement thereof, notice
of all actions, suits, and proceedings before any Governmental Authority,
affecting the Borrower or any Consolidated Subsidiary which, if determined
adversely to the Borrower or any Consolidated Subsidiary, could result in a
Material Adverse Change;
(7) Notices of Defaults and Events of Default. As soon as possible and in
any event within ten (10) days after the occurrence of each Default or
Event of Default a written notice setting forth the details of such Default
or Event of Default and the action which is proposed to be taken with
respect thereto;
(8) ERISA Reports. As soon as possible and in any event within twenty (20)
days after the Borrower knows or has reason to know that any Reportable
Event or Prohibited Transaction has occurred with respect to any Plan or
that the PBGC or the Borrower has instituted or will institute proceedings
under Title IV of ERISA to terminate any Plan or that the Borrower, or any
ERISA Affiliate has completely or partially withdrawn from a Multiemployer
Plan or that a Plan which is a Multiemployer Plan is in reorganization
(within the meaning of Section 4241 of ERISA), is insolvent (within the
meaning of Section 4245 of ERISA) or is terminating, the Borrower will
deliver to each of the Banks a certificate of the chief financial officer
of the Borrower setting forth details as to such Reportable Event or
Prohibited Transaction or Plan termination or withdrawal or reorganization
or insolvency and the action the Borrower proposes to take with respect
thereto;
(9) Annual Business Plan. As soon as possible and in any event no later
than March 31 in any year, a copy of an annual consolidated business plan
in form and substance acceptable to the Banks with respect to the following
Fiscal Year (consisting of consolidated balance sheets of the Borrower and
its Subsidiaries, and consolidated statements of earnings and cash flow
statements of the Borrower and its Subsidiaries, prepared on a quarterly
basis for such year) for the Borrower and its Subsidiaries approved by the
Borrower's Board of Directors, together with the assumptions and
projections on which the business plan is based. Any material changes made
to the plan during the year will be provided by the Borrower as soon as
possible.
(10) Insurance. Upon the occurrence of any casualty, damage or loss,
whether or not giving rise to a claim under any insurance policy, in an
amount greater than Five Hundred Thousand ($500,000) Dollars, notice
thereof, together with copies of any document relating thereto (including
copies of any such claim) in possession or control of the Borrower and any
Consolidated Subsidiary or any agent of the Borrower and any Consolidated
Subsidiary; and immediately after the occurrence thereof, written notice of
any cancellation of any insurance policy required to be maintained by the
Borrower and any Consolidated Subsidiary pursuant to Section 6.05 hereof.
(11) Material Adverse Change. As soon as possible and in any event within
five (5) days after the occurrence of any event or circumstance which is
likely to result in or has resulted in a Material Adverse Change, written
notice thereof.
(12) Environmental Notices. As soon as possible and in any event within ten
(10) days after receipt by any corporate executive officer, copies of all
Environmental Notices received by the Borrower or any Consolidated
Subsidiary which are not received in and do not relate to the ordinary
course of the Borrower or such Consolidated Subsidiary's business.
(13) General Information. Such other information respecting the conditions
or operations, financial or otherwise, of the Borrower or any Consolidated
Subsidiary as the Agent or any Bank may from time to time reasonably
request.
<PAGE>
Section 8.09. Compliance With Environmental Laws. Comply in all respects with
all applicable Environmental Laws where the failure to comply could result in a
Material Adverse Change.
Section 8.10. Additional Guarantor. Borrower shall cause Keynote Services
Limited ("Keynote") to become a Guarantor hereunder at such time as Keynote's
assets (as calculated in accordance with GAAP) equal or exceed One Hundred
Thousand ($100,000.00) Dollars.
ARTICLE IX. NEGATIVE COVENANTS
So long as any of the Notes shall remain unpaid or any Letter of Credit
Obligation shall remain outstanding or any Bank or Chase shall have any
Commitment hereunder or any other amount is owing by the Borrower to any Bank
Party hereunder or under any other Loan Document, the Borrower and each
Guarantor (excluding HIL and its Subsidiaries with respect to this Article IX),
shall not:
Section 9.01. Debt. Create, incur, assume or suffer to exist any Debt, except:
(1) Debt of the Borrower and the Guarantors under this Agreement, the
Notes, or any other Loan Document;
(2) Accounts payable to any Person that supplies goods or services to the
Borrower or any Guarantor, and other current liabilities (other than Debt)
incurred, in the ordinary course of business provided that all such
accounts and liabilities are paid in the ordinary course of business;
(3) Debt of the Borrower under the Insurance Company Loan Documents;
(4) Debt secured by purchase money Liens a) permitted by Section 9.03 and
b) of acquired properties and acquired Persons who become Consolidated
Subsidiaries;
(5) Debt to the parties listed on Schedule 9.01 in the amounts indicated;
provided however, that such Debt shall be limited to:
(a) term indebtedness existing as of December 31, 1997;
(b) a Two Million, Five Hundred Thousand ($2,500,000.00) Dollar
unsecured line of credit provided by Merchants National Bank to the
Borrower plus $465,000.00 in Standby Letters of Credit;
(c) a Two Million ($2,000,000.00) Dollar unsecured line of credit
provided by Banco Popular to Glamourette;
(d) up to an aggregate of Six Million ($6,000,000.00) Dollars in
unsecured lines of credit provided by MTB Bank and Marine Midland Bank
to Segue to be used for trade letters of credit, which may include
loans and advances repayable in ten days or less and in amounts not to
exceed Five Hundred Thousand ($500,000.00) Dollars in the aggregate
and any time outstanding
(e) Renewals and replacements provided by the same or other financial
institutions that do not increase the principal amount of Debt
hereunder or give new security;
(6) Guaranties permitted under Section 9.02.
Section 9.02. Guaranties. Assume, guarantee, endorse or otherwise be or become
directly or contingently responsible or liable (including, but not limited to an
agreement to purchase any obligation, stock, assets, goods or services or to
supply or advance any funds, assets, goods or services, or an agreement to
maintain or cause such Person to maintain a minimum working capital or net worth
or otherwise to assure the creditors of any Person against loss) for the
obligations of any Person, except (1) guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business, (2) the Guaranty Obligations, (3) guaranties by the Borrower
or any Guarantor of accounts payable incurred in the ordinary course of business
by the Borrower or any Guarantor, as the case may be, and (4) guaranties by
Borrower and the Guarantors for the benefit of HIL, but not in excess of the
amount provided in Section 9.10, (5) guaranties under Insurance Company Loan
Documents, (6) guaranties up to $100,000.00 of trade obligations of other
Persons provided such guaranties are within the amount of Restricted Payments
and (7) guaranties of Debt described in Section 9.01(5).
<PAGE>
Section 9.03. Liens. Create, incur, assume or suffer to exist any Lien, upon or
with respect to any of its real or personal properties (including, without
limitation, leasehold interests, leasehold improvements and any other interest
in real property or fixtures), now owned or hereafter acquired, except the
following ("Permitted Liens"):
(1) Liens granted under and pursuant to the Loan Documents;
(2) Liens granted under and pursuant to the Insurance Company Loan
Documents.
(3) Liens for taxes or assessments or other government charges or levies if
not yet due and payable or if due and payable if they are the subject of a
Good Faith Contest;
(4) Liens imposed by law, such as mechanic's, materialmen's, landlord's,
warehousemen's and carrier's Liens, and other similar Liens, securing
obligations incurred in the ordinary course of business which are not past
due for more than ninety (90) days, or which are the subject of a Good
Faith Contest;
(5) Liens under workmen's compensation, unemployment insurance, social
security or similar legislation (other than ERISA) or to secure letters of
credit obtained in connection therewith;
(6) Liens of BNY Financial Corp. ("BNY") in its capacity as factor for the
Winona Knitting Mills, Division of Designers, but the foregoing shall not
be deemed to permit liens to secure loans and advances made by BNY under
the factoring agreement.
(7) Liens, deposits or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory
obligations, surety, stay, appeal, indemnity, performance or other similar
bonds, or other similar obligations arising in the ordinary course of
business;
(8) judgment and other similar Liens arising in connection with court
proceedings, provided that the execution or other enforcement of such Liens
is effectively stayed and the claims secured thereby are the subject of a
Good Faith Contest;
(9) easements, rights-of-way, restrictions, zoning and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower or any Guarantor of the
property or assets encumbered thereby in the normal course of its business
or materially impair the value of the property subject thereto;
(10) each of the Liens listed on Schedule 7.03 securing the Debt specified
on such Schedule, including any extension or modification thereof but not
the extension of such Lien to other property in whole or in part;
(11) purchase money Liens on any real property, fixtures or equipment
hereafter .acquired or the assumption of or taking subject to any Lien on
real property, fixtures or equipment existing at the time of such
acquisition, or a Lien incurred in connection with any conditional sale or
other title retention agreement or a Capital Lease; provided that:
(a) any property subject to any of the foregoing is acquired by the
Borrower or any Guarantor in the ordinary course of its business and
the Lien on any such property (if not preexisting) is created
contemporaneously with such acquisition or within 90 days thereof;
(b) the Debt secured by any Lien so created, assumed or existing shall
not exceed one hundred percent (100%) of the lesser of the cost or
fair market value as of the time of acquisition of the property
covered thereby including shipping and installation costs;
(c) each such Lien shall attach only to the property so acquired and
fixed improvements thereon.
Section 9.04. Sale of Assets. Sell, lease, assign, transfer or otherwise dispose
of any of its now owned or hereafter acquired assets, except for (1) inventory
disposed of in the ordinary course of business; (2) the sale or other
disposition of assets no longer necessary for the conduct of its business; (3)
the sale or other dispositions of assets not exceeding One Hundred Thousand
($100,000) Dollars per year; (4) the leasing of assets having an aggregate book
value not exceeding One Hundred Fifty Thousand ($150,000.00) Dollars; and (5)
accounts receivable of the Winona Knitting Mills, Division of Designers which
are factored by BNY.
<PAGE>
Section 9.05. Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate other than the Borrower or any
Consolidated Subsidiary or enter into any transaction, including, without
limitation, the purchase, sale or exchange of property or the rendering of any
service, with any such Affiliate, except for transactions among the Borrower and
its Consolidated Subsidiaries or in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's or the Consolidated Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower or
Consolidated Subsidiary than it would obtain in a comparable arms' length
transaction with a Person not an Affiliate, provided, however that Borrower and
Consolidated Subsidiaries may make loans, and advances to and investments in HIL
provided that all such loans, advances, investments and guaranties provided in
Section 9.02 hereof do not, in the aggregate, exceed the amount of permitted
Restricted Payments allowed in Section 9.10.
Section 9.06. Investments. Without the written approval of the Banks except as
provided in Section 9.05 and 9.10 of this Agreement, make, any loan or advance
to any Person or purchase or otherwise acquire, any capital stock, assets,
obligations or other securities of, make any capital contribution to, or
otherwise invest in, or acquire any interest in, any Person in excess of
$250,000.00, except: (a) direct obligations of the United States of America or
any agency or instrumentality thereof with maturities of one year or less from
the date of acquisition; (b) commercial paper of a domestic issuer or government
securities rated at least "A-1" by Standard & Poor's Corporation or "P-1" by
Moody's Investors Service, Inc.; (c) time deposits, demand deposits and
certificates of deposit with maturities of one year or less from the date of
acquisition issued by and commercial bank operating within the United States of
America having capital and surplus in excess of $50,000,000.00; (d) for stock,
obligations or securities received in settlement of debts (created in the
ordinary course of business) owing to the Borrower; (each of (a) (b) (c) and (d)
collectively "Permitted Investments") and (e) any Acquisition as defined herein.
For the purpose hereof, "Acquisition" means any transaction pursuant to which
the Borrower and any of its Consolidated Subsidiaries (i) acquires equity
securities (or warrants, options or other rights to acquire such securities) of
any corporation other than the Borrower or the Consolidated Subsidiaries or any
corporation, pursuant to a solicitation of tenders therefor, or in one or more
negotiated block, market or other transactions not involving a tender offer, or
a combination of any of the foregoing, except in connection with Section 9.06
(iii) or (ii) causes any such corporation to be merged into the Borrower or any
Consolidated Subsidiary, in any case pursuant to a merger, purchase of assets or
any reorganization providing for the delivery or issuance to the holders of such
corporation's then outstanding securities, in exchange for such securities, of
cash or securities of the Borrower, or a combination thereof or (iii) purchases
all or substantially all of the business or assets of any corporation or other
business entity, provided, however, that i) the acquired entity is engaged in
the same line of business as that of the Borrower or the Consolidated
Subsidiary; ii) the purchase price for such Acquisition does not exceed Five
Million ($5,000,000) Dollars of which the cash portion does not exceed Three
Million ($3,000,000) Dollars; and iii) such Acquisition is within the limits of
Restricted Payments set forth in Section 9.10 and unless approved by the Agent
and the Banks, after the exercise of due diligence, the accounts receivable and
inventory so acquired shall not be deemed Eligible Accounts or Eligible
Inventory.
Section 9.07. Mergers. Except as provided in Section 9.06, merge or consolidate
with, or sell, assign, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets (whether
<PAGE>
now owned or hereafter acquired) to any Person, except that the foregoing shall
not prohibit the merger of Consolidated Subsidiaries with and into each other or
into the Borrower, so long as at the time thereof or as a result thereof there
shall be no Default or Event of Default.
Section 9.08. Leases. Create, incur, assume, or suffer to exist any obligation
as lessee for the rental or hire of any real or personal property except: (1)
Capital Leases permitted under Section 9.03(11), (2) each of the retail and
warehouse leases in effect on this date and those retail and warehouse leases
entered into in the future, and (3) leases that do not in the aggregate require
the Borrower and its subsidiaries to make payments (including taxes, insurance,
maintenance, and similar expenses which the Borrower is required to pay under
the terms of the lease but excluding all payments based upon a percentage of
sales or revenues) in any Fiscal Year in excess of One Million Five Hundred
Thousand ($1,500,000) Dollars.
Section 9.09. Dividends. Declare or pay any cash dividends on capital stock of
the Borrower; or purchase, redeem, retire, or otherwise acquire for value any of
the capital stock or securities convertible into capital stock of the Borrower
now or hereafter outstanding or make any distribution of assets to its
stockholders as such whether in cash, assets, or in obligations of the Borrower
or any Consolidated Subsidiary, or allocate or otherwise set apart any sum for
the payment of any dividend or distribution on, or for the purchase, redemption,
or retirement of any shares of its capital stock, except in all cases for
transactions that are (a) made in common stock of the Borrower or (b) otherwise
permitted under Section 9.10.
Section 9.10. Restricted Payments. Notwithstanding anything to the contrary
contained in this ARTICLE IX, Borrower shall not declare or pay any cash
dividend, optional pre-payment of subordinated debt, issue any guaranties
(except as provided in Section 9.02), repurchase any shares of the Borrower or
make any advances or payments to, investments in, or issue guaranties for HIL to
the extent that such transactions exceed in the aggregate Twenty Million
($20,000,000.00) Dollars plus (i) 50% of the Consolidated Net Income of Borrower
and Guarantors (less 100% of the Consolidated Net Losses) earned after December
31, 1997 and (ii) cash proceeds from an Equity Issuance. Notwithstanding the
foregoing limitations, Glamourette may pay cash dividends on its Exempt
Preferred Stock outstanding from time to time and may redeem, retire, purchase
or otherwise acquire shares of its Exempt Preferred Stock from time to time. For
the avoidance of doubt, such payments and transactions relating to Exempt
Preferred Stock shall not constitute "restricted payments" for purposes of this
Agreement and the amounts thereof shall not be included in determining
compliance with the foregoing formula for any purpose.
Section 9.11. Fiscal Year. change its fiscal year to a period other than its
fiscal year in effect on the date hereof.
Section 9.12. Changes. Amendments or Modifications. Change, amend, modify or
supplement any of the following: (1) its certificate of incorporation; or (2)
by-laws.
ARTICLE X. FINANCIAL COVENANTS
So long as any of the Notes shall remain unpaid or any Letter of Credit
obligation shall remain outstanding or any Bank or Chase shall have any
Commitment hereunder or any other amount hereunder is owning by the Borrower to
any Bank party hereunder or under any other Loan Document:
Section 10.01.Consolidated Tangible Net Worth. The Borrower and its Consolidated
Subsidiaries shall maintain at all times a Consolidated Tangible Net Worth of
not less than the amount specified below:
<PAGE>
$34,000,000.00 and increasing by fifty (50%) percent of the Consolidated
Net Income (without deduction or offset for net losses), earned after
December 31, 1997.
Section 10.02. Consolidated Fixed Charge Coverage Ratio. The Borrower and its
consolidated subsidiaries will maintain for each twelve (12) month period
calculated on a rolling four (4) quarter basis a ratio of (1) (a) consolidated
Earnings Before Interest, Taxes, Depreciation and Amortization for such period,
less (b) Consolidated Capital Expenditures made by the Borrower or any
Consolidated subsidiary during such period, less (c) Consolidated Taxes to 92)
the sum of (a) Consolidated Interest Expense for such period, plus (b)
Consolidated Principal Amortization of not less than the ratio specified below:
1.5 to 1
Section 10.03. Consolidated Leverage Ratio. The Borrower and its Consolidated
subsidiaries shall maintain at all times a ratio of (1) Consolidated total
Liabilities to (2) Consolidated Tangible Net Worth of not greater than the ratio
specified below:
1.75 to 1
Section 10.04. Consolidated Capital Expenditures. The Borrower and its
Consolidated Subsidiaries shall not make Consolidated Capital Expenditures in
the aggregate amount in any Fiscal Year of $5,000,000.00.
ARTICLE XI. EVENTS OF DEFAULT
Section 11.01. Events of Default. Any of the following events shall be an "Event
of Default":
(1) the Borrower shall: (a) fail to pay the principal of any Note or shall
fail to reimburse any Bank on a Letter of Credit as and when due and
payable; (b) fail to pay interest on any Note within five (5) Banking Days
of when such interest is due and payable; or (c) fail to pay within ten
(10) days after the request for payment is made any fees or expenses
required to be paid under the terms of any of the Loan Documents;
(2) any representation or warranty made or deemed made by the Borrower or
any Guarantor in this Agreement or in any other Loan Document to which it
is a party or which is contained in any certificate, document, opinion,
financial or other statement furnished at any time under or in connection
with any Loan Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made;
(3) The Borrower or any Guarantor shall fail to perform or observe any
term, covenant or agreement contained in this Agreement or any of the Loan
Documents and such failure shall continue for fifteen (15) days or more
following the earlier of the time (a) an executive officer of Borrower knew
or should have known of such Event of Default; or (b) written notice of
such Event of Default is given to Borrower by the Agent.
(4) The Borrower or any Guarantor shall: (a) fail to pay all or any portion
of a Debt in an amount greater than Two Hundred Fifty Thousand ($250,000)
Dollars (other than the payment obligations described in (1) above), of the
Borrower or any Guarantor when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) after giving effect to any
applicable grace period; (b) fail to perform or observe any term, covenant
<PAGE>
or condition on its part to be performed or observed or an event of default
has occurred under any agreement or instrument relating to any such Debt,
including the Insurance Company Debt when required to be performed or
observed, the effect of which is to cause any such Debt to become, or to
permit such Debt to be declared to be, due and payable prior to its
scheduled maturity; or
(5) The Borrower or any Guarantor: (a) shall generally not, or be unable
to, or shall admit in writing its inability to, pay its debts as such debts
become due; or (b) shall make an assignment for the benefit of creditors,
petition or apply to any tribunal for the appointment of a custodian,
receiver or trustee for it or a substantial part of its assets; or (c)
shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect; or (d)
shall have had any such petition or application filed or any such
proceeding shall have been commenced, against it, in which an adjudication
or appointment is made or order for relief is entered, or which petition,
application or proceeding remains undismissed or unstayed for a period of
sixty (60) days or more; or shall be the subject of any proceeding under
which its assets may be subject to seizure, forfeiture or divestiture; or
(e) by any act or omission shall indicate its consent to, approval of or
acquiescence in any such petition, application or proceeding or order for
relief or the appointment of a custodian, receiver or trustee for all or
any substantial part of its property; or (f) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a
period of thirty (30) days or more;
(6) one or more judgments, decrees or orders for the payment of money in
excess of Two Hundred Fifty Thousand ($250,000.00) Dollars in the aggregate
shall be rendered against the Borrower or any Guarantor, and such
judgments, decrees or orders shall continue unsatisfied and in effect for a
period of thirty (30) consecutive days without being vacated, discharged,
satisfied or stayed or bonded pending appeal;
(7) any of the following events shall occur or exist with respect to the
Borrower or any Guarantor or any ERISA Affiliate: (a) any Prohibited
Transaction involving any Plan; (b) any Reportable Event shall occur with
respect to any Plan; (c) the filing under Section 4041 of ERISA of a notice
of intent to terminate any Plan or the termination of any Plan; (d) any
event or circumstance exists which might constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; (e) complete
or partial withdrawal under Section 4201 or 4204 of ERISA from a
Multiemployer Plan or the reorganization, insolvency, or termination of any
Multiemployer Plan; (f) an accumulated funding deficiency (as defined in
Section 302 of ERISA or Section 412 of the Code) exists with respect to a
Plan, whether or not waived; and in each case above, such event or
condition, together with all other events or conditions, if any, would
reasonably be expected to subject the Borrower or any Guarantor or any
ERISA Affiliate to any tax, penalty, or other liability to a Plan,
Multiemployer Plan, the PBGC, or otherwise (or any combination thereof)
which in the aggregate exceeds or may exceed Two Hundred Fifty Thousand
($250,000.00) Dollars.
(8) Article V shall, at any time after the execution and delivery of this
Agreement and for any reason, cease to be in full force and effect or shall
be declared null and void, or the validity or enforceability thereof shall
be contested by any Guarantor or any Guarantor (other than HIL after the
<PAGE>
termination of its Guaranty) shall deny it has any further liability or
obligation under or shall fail to perform its obligations under Article V.
Section 11.02. Remedies. If any Event of Default shall occur and be continuing,
the Agent shall, upon request of the Required Banks, by notice to the Borrower,
(1) declare the Revolving Credit Commitment, and the Letter of Credit Commitment
to be terminated, whereupon the same shall forthwith terminate; (2) require the
Borrower to provide cash collateral or the equivalent thereof in an aggregate
amount of one hundred and five percent (105%) of all outstanding Letter of
Credit Obligations; (3) declare the outstanding Notes, all interest thereon, and
all other amounts payable under this Agreement, and any other Loan Documents to
be forthwith due and payable, whereupon the Notes, all such interest, and all
such amounts due under this Agreement, and under any other Loan Document shall
become and be forthwith due and payable, without presentment, demand, protest,
or further notice of any kind, all of which are hereby expressly waived by the
Borrower; (4) exercise any remedies provided in any of the Loan Documents;
and/or (5) exercise any remedies provided by Law; provided, however, that upon
the occurrence of an Event of Default referred to in Section 11.01(5), the
Revolving Credit Commitment and the Letter of Credit Commitment shall
automatically terminate and the outstanding Notes, Letters of Credit, and any
other amounts payable under this Agreement or any of the other Loan Documents,
and all interest on any of the foregoing shall be forthwith due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower,
ARTICLE XII. THE AGENT
Section 12.01. Appointment, Powers and Immunities of Agent. Each Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under any other Loan Document with such powers as are specifically delegated to
the Agent by the terms of this Agreement and any other Loan Document, together
with such other powers as are reasonably incidental thereto. The Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement and any other Loan Document, and shall not by reason of this Agreement
be a trustee for any Bank. The Agent shall not be responsible to the Banks for
any recitals, statements, representations or warranties made by the Borrower or
any Guarantor or any officer or official of the Borrower or any Guarantor or
anyone purporting to be an Authorized Person or any other Person contained in
this Agreement or any other Loan Document, or in any certificate or other
document or instrument referred to or provided for in, or received by any of
them under, this Agreement or any other Loan Document, or for the value,
legality, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Loan Document or any other document or instrument
referred to or provided for herein or therein, for the perfection or priority of
any Lien securing the Obligations or for any failure by the Borrower or any
Guarantor to perform any of its obligations hereunder or thereunder. The Agent
may employ agents and attorneys-in-fact and shall not be responsible, except as
to money or securities received by it or its authorized agents, for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither the Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder or under any other Loan Document or
in connection herewith or therewith, except for its or their own gross
negligence or willful misconduct. The Borrower shall pay any fee agreed to by
the Borrower and the Agent with respect to the Agent's services hereunder at the
Closing Date and each anniversary thereof during the term of this Agreement.
Section 12.02. Reliance by Agent. The Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) reasonably believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
<PAGE>
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. The Agent may
deem and treat each Bank as the holder of the Revolving Credit Loans made by it
and Participation purchased by it for all purposes hereof unless and until a
notice of the assignment or transfer thereof satisfactory to the Agent signed by
such Bank shall have been furnished to the Agent but the Agent shall not be
required to deal with any Person who has acquired a participation in any
Revolving Credit Loan or Bank. As to any matters not expressly or any other
Revolving Credit provided for by this Agreement, the Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in accordance
with instructions signed by the Required Banks, and such instructions of the
Required Banks and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks and any other holder of all or any portion of any
Revolving Credit Loan or Participation.
Section 12.03. Defaults. The Agent shall not be deemed to have knowledge of the
occurrence of a Default or Event of Default, other than a payment default,
unless the Agent has received notice from a Bank or the Borrower or any
Guarantor specifying such Default or Event of Default and stating that such
notice is a "Notice of Default." In the event that the Agent receives such a
notice of the occurrence of a Default or Event of Default, the Agent shall give
prompt notice thereof to the Banks. The Agent shall (subject to Section 12.08)
take such action with respect to such Default or Event of Default which is
continuing as shall be directed by the Required Banks; provided that, unless and
until the Agent shall have received such directions, the Agent may take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the Banks;
and provided further that the Agent shall not be required to take any such
action which it determines to be contrary to Law.
Section 12.04. Rights of Agent as a Bank. With respect to its Commitment and the
Revolving Credit Loans provided by it and the Letters of Credit issued by it,
the Agent in its capacity as a Bank hereunder shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though it were
not acting as the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include the Agent in its capacity as a Bank. The
Agent and its Affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to (on a secured or unsecured basis), and
generally engage in any kind of banking, trust or other business with the
Borrower or any Guarantor and any of their Affiliates as if it were not acting
as the Agent, and the Agent may accept fees and other consideration from the
Borrower for services in connection with this Agreement or otherwise without
having to account for the same to the Banks.
Section 12.05. Indemnification of Agent. The Banks agree to indemnify the Agent
(to the extent not reimbursed under Section 13.03 or under the applicable
provisions of any other Loan Document, but without limiting the obligations of
the Borrower under Section 13.03 or such provisions), for its Pro Rata Share of
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement, any other Loan Document or
any other documents contemplated by or referred to herein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses which the Borrower or any Guarantor are obligated to pay under Section
13.03) or under the applicable provisions of any other Loan Document or the
enforcement of any of the terms hereof or thereof or of any such other documents
or instruments; provided that no Bank shall be liable for any of the foregoing
to the extent they arise from the gross negligence or willful misconduct of the
Agent.
<PAGE>
Section 12.06. Documents. The Agent will forward to each Bank, promptly after
the Agent's receipt thereof, a copy of each report, notice or other document
required by this Agreement or any other Loan Document to be delivered to the
Agent for such Bank.
Section 12.07. Non-Reliance on Agent and Other Banks. Each Bank agrees that it
has, independently and without reliance on the Agent, Chase or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrower and each Guarantor and the decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent, Chase or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any other Loan Document. The Agent shall not be required to keep itself informed
as to the performance or observance by the Borrower or any Guarantor of this
Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or to inspect the properties or books of the
Borrower or any guarantor. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs, financial
condition or business of the Borrower or any Guarantor (or any of their
Affiliates) which may come into the possession of the Agent or any of its
Affiliates. The Agent shall not be required to file this Agreement, any other
Loan Document or any document or instrument referred to herein or therein, for
record or give notice of this Agreement, any other Loan Document or any document
or instrument referred to herein or therein, to anyone; provided, however, the
Agent shall (1) file the Trademark Assignment with the United States Patent and
Trademark Office, and (2) file financing statements (UCC-1) set forth in Section
6.01 herein in the appropriate jurisdictions.
Section 12.08. Failure of Agent to Act. Except for action expressly required of
the Agent hereunder, the Agent shall in all cases be fully justified in failing
or refusing to act hereunder unless it shall have received further assurances
(which may include cash collateral) of the indemnification obligations of the
Banks under Section 12.05 in respect of any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Section 12.09. Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving written notice thereof to the Banks, the Borrower and each
Guarantor, and the Agent may be removed at any time with or without cause by the
Required Banks; provided that the Borrower, each Guarantor and the other Banks
shall be promptly notified thereof. Upon any such resignation or removal, the
Required Banks shall have the right to appoint a successor Agent, which, unless
an Event of Default shall have occurred and be continuing, shall be reasonably
acceptable to the Borrower. If no successor Agent shall have been so appointed
by the Required Banks and shall have accepted such appointment within thirty
(30) days after the retiring Agent's giving of notice of resignation or the
Required Banks' removal of the retiring Agent, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a bank which has
an office in New York, New York and assets in an amount not less than One
Billion ($1,000,000,000) Dollars, which, unless an Event of Default shall have
occurred and be continuing, shall be reasonably acceptable to the Borrower. The
Required Banks or the retiring Agent, as the case may be, shall upon the
appointment of a successor Agent promptly so notify the Borrower and the other
<PAGE>
Banks. Upon the acceptance of any appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article XII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.
Section 12.10. Amendments Concerning Agency Function. The Agent shall not be
bound by any waiver, amendment, supplement or modification of this Agreement or
any other Loan Document which affects its duties hereunder or thereunder unless
it shall have given its prior consent thereto.
Section 12.11. Liability of Agent. The Agent shall not have any liabilities or
responsibilities to the Borrower or any Guarantor on account of the failure of
any Bank to perform its obligations hereunder or to any Bank on account of the
failure of the Borrower or any Guarantor to perform its obligations hereunder or
under any other Loan Document.
Section 12.12. Transfer of Agency Function. Without the consent of the Borrower,
any Guarantor or any Bank, the Agent may at any time or from time to time
transfer its functions as Agent hereunder to any of its offices located in New
York, New York, provided that the Agent shall promptly notify the Borrower and
the Banks thereof
Section 12.13. Withholding Taxes; Each Bank represents that it is entitled to
receive any payments to be made to it hereunder without the withholding of any
tax and will furnish to the Agent such forms, certifications, statements and
other documents as the Agent may request from time to time to evidence such
Bank's exemption from the withholding of any tax imposed by any jurisdiction or
to enable the Agent to comply with any applicable laws or regulations relating
thereto. Without limiting the effect of the foregoing, if any Bank is not
created or organized under the laws of the United States of America or any state
thereof, such Bank will furnish to the Agent Form 4224 or Form 1001 of the
Internal Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank's
complete exemption from the withholding of U.S. tax with respect thereto. The
Agent shall not be obligated to make any payments hereunder to such Bank in
respect of any Revolving Credit Loan or Participation or such Bank's Revolving
Credit Commitment or obligation to purchase Participation until such Bank shall
have furnished to the Agent the requested form, certification, statement or
document.
ARTICLE XIII. YIELD PROTECTION.
Section 13.01. Additional Costs. (a) The Borrower shall pay directly to the
Agent from time to time on demand such amounts as any Bank may reasonably
determine to be necessary to compensate it for any costs which the Bank
determines are attributable to its making or maintaining any Eurodollar Rate
Loans under this Agreement or its obligation to make any such Loans hereunder,
or any reduction in any amount receivable by the Bank hereunder in respect of
any such Loans or such obligation (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to the Bank under this Agreement in respect of any of such Loans (other
than taxes imposed on the overall net income of the Bank for any of such Loans
by the jurisdiction in which the Bank has its principal office or is deemed to
hold the Loans); or (ii) imposes or modifies any reserve, special deposit,
deposit insurance or assessment, minimum capital, capital ratio or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, the Bank (including any of such Loans or
any deposits referred to in the definition of "Eurodollar Base Rate"; or (iii)
imposes any other condition affecting this Agreement (or any extensions of
credit or liabilities), except to the extent any such Regulatory Change has
previously resulted in a change in the calculation of Eurodollar Rate as a
result of being included in the Reserve Requirement used in calculating such
Eurodollar Rate. The Agent will notify the Borrower of any event occurring after
the date of this Agreement which will entitle the Bank to compensation pursuant
to this Section 13.01(a) as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation.
<PAGE>
(b) Without limiting the effect of the foregoing provisions of this Section
13.01, in the event that, by reason of any Regulatory Change, the Bank
either (i) incurs Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits or other
liabilities of the Bank which includes deposits by reference to which the
interest rate on Eurodollar Rate Loans is determined as provided in this
Agreement or a category of extensions of credit or other assets of the Bank
which includes Eurodollar Loans or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may hold,
then, if the Bank so elects by notice to the Borrower, the obligation of
the Bank to make or renew, and to convert Loans of any other type into,
Loans of such type hereunder shall be suspended until the date such
Regulatory Change ceases to be in effect.
(c) Without limiting the effect of the foregoing provisions of this Section
13.01 (but without dupli- cation), the Borrower shall pay directly to the
Agent from time to time on request such amounts as the Agent may determine
to be necessary to compensate any Bank for any costs which it determines
are attributable to the maintenance by it or any of its affiliates pursuant
to any Regulatory Change of any court or governmental or monetary authority
of capital in respect of its Loans hereunder or its obligation to make
Loans hereunder (such compensation to include, without limitation, an
amount equal to any reduction in return on assets or equity of the Bank to
a level below that which it could have achieved but for such Regulatory
Change), except to the extent the Base Rate has been adjusted to reflect
such costs. The Agent will notify the Borrower if any Bank is entitled to
compensation pursuant to this Section 13.01(c) as promptly as practicable
after it determines to request such compensation.
(d) Determinations and allocations by the Agent or Bank for purposes of
this Section 13.01 of the effect of any Regulatory Change pursuant to
subsections (a) or (b), or of the effect of capital maintained pursuant to
subsection (c), on its costs of making or maintaining Loans or its
obligation to make Loans, or on amounts receivable by, or the rate of
return to, it in respect of Loans or such obligation, and of the additional
amounts required to compensate the Bank under this Section 13.01, shall be
conclusive, provided that such determinations and allocations are made on a
reasonable basis and absent manifest error and having a retroactive effect
of no more than one hundred twenty (120) days.
Section 13.02. Illegality. Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for a Bank to (a) honor its
obligation to make or renew Eurodollar Rate Loans hereunder or convert Loans of
any type into Loans of such type, or (b) maintain Eurodollar Rate Loans
hereunder, then the Bank shall promptly notify the Borrower thereof and the
Bank's obligation to make or renew Eurodollar Rate Loans and to convert other
types of Loans into Loans of such type hereunder shall be suspended until such
time as the Bank may again make, renew, or convert and maintain such affected
Loans and the Bank's outstanding Eurodollar Rate Loans shall be converted to
Prime Rate Loans at the end of the then current Interest Period unless earlier
required by law.
Section 13.03. Certain Compensation. The Borrower shall pay to the Agent, upon
the request of the Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Agent) to compensate any Bank for any loss, cost or
expense which the Bank determines is attributable to:
(a) any payment or prepayment of a Eurodollar Rate Loan made by the Bank on
a date other than the last day of an Interest Period for such Loan (whether
by reason of acceleration or otherwise); or
(b) any failure by the Borrower to borrow a Eurodollar Rate Loan to be made
by the Bank on the date specified therefor in the relevant notice.
Without limiting the foregoing, such compensation shall include an amount equal
to the excess, if any, of: (i) the amount of interest which otherwise would have
accrued on the principal amount so paid, prepaid or not borrowed for the period
from and including the date of such payment, prepayment or failure to borrow to
but excluding the last day of the then current Interest Period for such Loan
(or, in the case of a failure to borrow, to but excluding the last day of the
Interest Period for such Loan which would have commenced on the date specified
therefor in the relevant notice) at the applicable rate of interest for such
Loan provided for herein; over (ii) the amount of interest (as reasonably
<PAGE>
determined by the Bank) the Bank would have bid in the London interbank market
for Dollar deposits for amounts comparable to such principal amount and
maturities comparable to such period. A determination of the Bank as to the
amounts payable pursuant to this Section 13.03 shall be conclusive absent
manifest error.
ARTICLE XIV. MISCELLANEOUS
Section 14.01. Amendments and Waivers. No amendment or waiver of any provision
of this Agreement or any other Loan Document nor consent to any departure by the
Borrower or any Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Agent and the Required Banks and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no amendment,
waiver or consent, shall, unless in writing and signed by all Banks do any of
the following: (1) increase the Revolving Credit Commitment or the Trade Letter
of Credit Commitment; (2) reduce the principal of, or interest on, the Notes;
(3) postpone the date fixed for the payment of principal of, or interest on, the
Notes or any other amount due hereunder or under any Loan Document, or waive any
default in the payment of principal, interest or any other amount due hereunder
or under any Loan Document; (4) change the definition of "Required Banks"; (5)
release or subordinate any Collateral (except as contemplated by the Loan
Documents); or (6) amend this Section 14.01 or any other provision requiring the
consent of all Banks. No failure on the part of the Agent or any Bank to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof or preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by Law.
Section 14.02. Usury. Anything herein to the contrary notwithstanding, the
obligations of the Borrower and the Guarantors under this Agreement and the
other Loan Documents shall be subject to the limitation that payments of
interest shall not be required to the extent that receipt thereof would be
contrary to provisions of Law applicable to a Bank limiting rates of interest
which may be charged or collected by such Bank.
Section 14.03. Expenses; Indemnification. The Borrower agrees to reimburse the
Agent and each of the Banks, on demand for all costs, expenses, and charges
(including, without limitation, all reasonable fees and charges of external
legal counsel for the Agent, Chase and each Bank) incurred by the Agent or any
Bank, in connection with the preparation of the Loan Documents. The Borrower
agrees to reimburse the Agent and each of the Banks on demand for all costs,
expenses, and charges (including, without limitation, all fees and charges of
external legal counsel for the Agent and each Bank) incurred by the Agent or any
Bank in connection with the performance, or enforcement of this Agreement, the
Notes, or any other Loan Documents. The Borrower agrees to indemnify the Agent,
Chase and each Bank and their respective directors, officers, employees and
agents (collectively, the "Indemnified Persons"), from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages or expenses
incurred by any of them arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to any actual or proposed use by the
Borrower of the proceeds of the Revolving Credit Loans or the Letters of Credit
or to any violation or alleged violation of any Environmental Law by the
Borrower or any Guarantor, including without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation or
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of any Indemnified Person or any other Indemnified Person of
which such Indemnified Person is an affiliate or agent).
The obligations of the Borrower under this Section shall survive the repayment
of the Obligations and all amounts due under or in connection with any of the
Loan Documents and the termination of the Commitments.
Section 14.04. Assignment; Participation; Additional Bank. This Agreement shall
be binding upon, and shall inure to the benefit of, the Borrower, the
Guarantors, the Agent, the Banks and their respective successors and permitted
assigns. No Borrower or Guarantor may assign or transfer its rights or
obligations hereunder. Any Bank may at any time grant to one or more banks or
other institutions (each a "Participant") participating interests in its portion
of the Revolving Credit Loans and the Participation. In the event of any such
grant by a Bank of a participating interest to a Participant, whether or not
upon notice to the Borrower and the Agent, such Bank shall remain responsible
<PAGE>
for the performance of its obligations hereunder, and the Borrower and the Agent
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations hereunder. Any agreement pursuant to which
any Bank may grant such a participating interest shall provide that such Bank
shall retain the sole right and responsibility to enforce the obligations of the
Borrower and the Guarantors hereunder and under any other Loan Document
including; without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement or any other Loan Document;
provided that such participation agreement may provide that such Bank will not
agree to any modification, amendment or waiver of this Agreement that would
require the consent of all Banks under Section 14.01 (1) through (6) without the
consent of the Participant.
Section 14.05. Notices. Unless the party to be notified otherwise notifies the
other party in writing as provided in this Section, and except as otherwise
provided in this Agreement, notices shall be given to the Agent by telephone,
confirmed by telex, telecopy or other writing, and to the Banks and to the
Borrower by ordinary mail, telecopy or telex addressed to such party at its
address on the signature page of this Agreement. Copies of notices mailed to the
Borrower should also be mailed by ordinary mail to Willkie, Farr & Gallagher,
787 Seventh Avenue, New York, NY 10019, Attention: Harvey L. Sperry, counsel to
the Borrower. Notices shall be effective: (1) if given by mail, upon receipt,
and (2) if given by telex, when the telex is transmitted to the telex number as
aforesaid; provided that notices to the Agent and the Banks shall be effective
upon receipt.
Section 14.06. Setoff. The Borrower agrees that, in addition to (and without
limitation of) any right of setoff, bankers' lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option, to offset balances
(general or special, time or demand, provisional or final) held by it for the
account of the Borrower at any of such Bank's offices, in Dollars or in any
other currency, against any amount payable by the Borrower to such Bank under
this Agreement or such Bank's Note, or any other Loan Document which is not paid
when due (regardless of whether such balances are then due to the Borrower), in
which case it shall promptly notify the Borrower and the Agent thereof; provided
that such Bank's failure to give such notice shall not affect the validity
thereof. Each Bank agrees that to the extent any such payment is received by it
as the result of a set-off or otherwise and such payment results in such Bank
receiving a greater payment than it would have been entitled to, had the total
amount of such payment been paid directly to the Agent for disbursement to the
Banks, then such Bank shall immediately purchase for cash from the other Banks
participations in the loans sufficient in amount so that such payment shall
effectively be shared pro rata with the other Banks in accordance with the
amount, and to the extent, of their respective interests in all the Revolving
Credit Loans; provided, however, that if all or any portion of such payment is
thereafter recovered from such Bank at any time, the purchase shall be rescinded
and the purchase price returned to the extent of such recovery, but without
interest or other return thereof.
Section 14.07. Jurisdiction; Immunities. The Borrower and each Guarantor hereby
irrevocably submit to the jurisdiction of any New York State or United States
Federal court sitting in New York City over any action or proceeding arising out
of or relating to this Agreement, the Notes, the Letters of Credit, or any other
Loan Document, and the Borrower and each Guarantor hereby irrevocably agree that
all claims in respect of such action or proceeding may be heard and determined
in such New York State or Federal court. The Borrower and each Guarantor
irrevocably consent to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to the Borrower and each
Guarantor at their respective addresses specified in Section 14.05. The Borrower
and each Guarantor agree that a final non-appealable judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. The Borrower and
each Guarantor further waive any objection to venue in such State and any
objection to an action or proceeding in such State on the basis of forum non
conveniens. The Borrower and each Guarantor agree that any action or proceeding
brought against the Agent or any Bank shall be brought only in New York State or
United States Federal Court sitting in New York County.
Nothing in this Section 14.07 shall affect the right of the Agent or any Bank to
serve legal process in any other manner permitted by law or affect the right of
the Agent or any Bank to bring any action or proceeding against any of the
Borrower or any Guarantor or their property in the courts of any other
jurisdictions.
<PAGE>
To the extent that the Borrower or any Guarantor has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
from service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, the
Borrower and each Guarantor hereby irrevocably waive such immunity in respect of
its obligations under this Agreement, the Notes, and any other Revolving Credit
Loan Document.
Section 14.08. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State.
Section 14.09. Counterparts. This agreement may be executed by the parties
hereto in separate counterparts, each of which, when so executed and delivered,
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all of the parties
hereto.
Section 14.10. Exhibits and Schedules. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to Sections,
Section 14.11. Table of Contents; Headings. The headings in the Table of
Contents and in this Agree- ment are for reference only, and shall not affect
the interpretation or construction of this Agreement.
Section 14.12. Severability. If any word, phrase, sentence, paragraph, provision
or section of this Agreement shall be held, declared, pronounced or rendered
invalid, void, unenforceable or inoperative for any reason by any court of
competent jurisdiction, governmental authority, statute or otherwise, such
holding, declaration, pronouncement or rendering shall not adversely affect any
other word, 'phrase, sentence, paragraph, provision or section of this
Agreement, which shall otherwise remain in full force and effect and be enforced
in accordance with its terms.
Section 14.13. Integration. The Loan Documents set forth the entire agreement
among the parties hereto relating to the transactions contemplated thereby and
supersede any prior oral or written statements or agreements with respect to
such transactions.
Section 14.14. Jury Trial Waiver. The Agent, the Banks, Borrower and its
Consolidated Subsidiaries each waive any right it may have to a jury trial in
any action or proceeding which pertains directly or indirectly to this
Agreement, the Obligations, the Collateral or, in any way, directly or
indirectly, arises out of or relates to the relationship between or among the
Borrower, the Consolidated Subsidiaries, the Agent and the Banks.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
HAMPSHIRE GROUP, LIMITED HAMPSHIRE DESIGNERS, INC.
/s/ Charles W. Clayton /s/ Charles W. Clayton
Title: Vice President Title: Vice President
HAMPSHIRE INVESTMENTS, LIMITED GLAMOURETTE FASHION MILLS, INC.
/s/ Charles W. Clayton /s/ Charles W. Clayton
Title: Vice President Title: Vice President
Title: Vice President
SAN FRANCISCO KNIT WORKS, INC. SEGUE (AMERICA), LIMITED
/s/ Charles W. Clayton /s/ Charles W. Clayton
Title: Vice President Title: Vice President
Address for all of the above: 215 Commerce Boulevard
Anderson, South Carolina 29621
Telecopier No.: (864) 225-4421
<PAGE>
REPUBLIC NATIONAL BANK OF NEW YORK
/s/ George Commander
Title: Senior Vice President
452 Fifth Avenue
New York, New York 10018
Telecopier No.: 525-5676
NATIONSBANK, N.A.
/s/ Richard Stanland
Title: Sr. Vice President
3005 North Main Street
Anderson, SC 29621
Telecopier No.:
THE CHASE MANHATTAN BANK
As Agent
/s/ Paul O'Neill
Title: Vice President
THE CHASE MANHATTAN BANK
/s/ Paul O'Neill
Title: Vice President
270 Park Avenue
New York, NY 10017
Telecopier No.:
NATIONSBANK, N.A.
/s/ Richard C. Stanland
Title: Sr. Vice President
3005 North Main Street
Anderson, SC 29621
STATE OF SOUTH CAROLINA)
) LEASE AGREEMENT
COUNTY OF ANDERSON )
THIS LEASE, made and entered into this first day of August, 1998, 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 five
years and nine months commencing on the first day of August 1998 and ending on
the thirtieth day of April 2004, 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
08/01/98 - 04/30/99 $5,712 $68,544
05/01/99 - 04/30/00 5,941 71,292
05/01/00 - 04/30/01 6,178 74,136
05/01/01 - 04/30/02 6,425 77,100
05/01/02 - 04/30/03 6,675 80,100
05/01/03 - 04/30/04 6,950 83,400
<PAGE>
Page 2 - Corporate Office Lease
7.All 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 $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.
<PAGE>
Page 3 - Corporate Office Lease
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 five (5) 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.
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.
<PAGE>
Page 4 - Corporate Office Lease
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMMERCE CENTER ASSOCIATES, INC.
/s/ Beverly Leepr By: /s/ Charles W. Clayton
- --------------------------- ------------------------------
Witness Its: President
HAMPSHIRE DESIGNERS, INC.
/s/ Lanna M. West By: /s/ Horace D. Padgett, Jr.
- --------------------------- ------------------------------
Witness Tenant
STATE OF SOUTH CAROLINA)
) LEASE AGREEMENT
COUNTY OF ANDERSON )
THIS LEASE, made and entered into this first day of August 1998, 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 five
years and nine months commencing on the first day of August, 1994 and ending on
the thirtieth day of April 2004, 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
08/01/98 - 04/30/99 $11,832 $141,984
05/01/99 - 04/30/00 12,305 147,660
05/01/00 - 04/30/01 12,797 153,564
05/01/01 - 04/30/02 13,300 159,600
05/01/02 - 04/30/03 13,775 165,300
05/01/03 - 04/30/04 14,250 171,000
<PAGE>
Page 2 - Distribution Center
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 the $1,500,000.
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
<PAGE>
Page 3 - Distribution Center
same in five (5) 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.
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.
<PAGE>
Page 4 - Distribution Center
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
COMMERCE CENTER ASSOCIATES, INC.
/s/ Beverly Leeper By: /s/ Charles W. Clayton
- ----------------------- -------------------------------
Witness Its: President
HAMPSHIRE DESIGNERS, INC.
/s/ Lanna M. West By: /s/ Horace D. Padgett, Jr.
- ----------------------- ---------------------------------
Witness Tenant
METLIFE CAPITAL
Principal Amount: $1,249,197.92
Date: July 30, 1998
WHEREAS, the parties herein, previously executed that certain Term Promissory
Note No. One dated July 30, 1993 in the Original Loan Amount of $3,500,000.00
(Ref. No. 5027993-001) ("Original Note"),
WHEREAS, HAMPSHIRE DESIGNERS, INC. ("Borrower") now desires to restructure said
original Note (Ref. No. 5027993-002); and
WHEREAS, MetLife Capital Corporation, holder of the Original Note, ("MetLife")
is agreeable to restructure said Original Note by applying $1,249,197.92 to said
attached Original Note for principal and interest, provided the Borrower
executes this Restated Term Note.
NOW THEREFORE, for value received the Borrower promises to pay to MetLife
Capital Corporation or order, the principal sum of ONE MILLION, TWO HUNDRED
FORTY-NINE THOUSAND, ONE HUNDRED NINETY-SEVEN AND 92/100 DOLLARS ($1,249,197.92)
("Loan") together with interest from JULY 30, 1998, until payment in full, on
the principal balance from time to time remaining unpaid thereon at the rate of
7.450% per annum (computed on the basis of a 360-day year of twelve consecutive
30-day months) in installments as follows:
THIRTY-SIX (36) installment including both principal and interest, each in the
amount of $38,829.14, payable commencing AUGUST 30, 1998 AND MONTHLY THEREAFTER
UNTIL July 30, 2001 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.
If any payment shall not be paid when due and shall remain unpaid for ten (10)
days, the Borrower agrees to pay an additional charge equal to five percent (5%)
of the delinquent payment or the highest additional charge permitted by law,
whichever is less. All payments of the principal and interest on the Restated
Term Note shall be made in coin or currency of the United States of America
which at the time shall be the legal tender for the payment of public and
private debts.
Upon not less than thirty (30) days prior written notice to MetLife, Borrower
shall have the right to prepay all, but not less than all, of the outstanding
principal balance on any regularly scheduled principal and interest payment date
without any prepayment fee.
In the event the Restated Term Note is placed in the hands of an attorney for
collection or suit is brought on the same, or the same is collected through
bankruptcy or other judicial proceedings then the Borrower agrees and promises
to pay a reasonable attorney's fee for collections, plus all out-of-pocket
<PAGE>
expenses. The Restated Term Note shall be governed and construed in accordance
with the laws of the State of Washington. The Borrower hereby irrevocably
submits to the jurisdiction of and state of federal court sitting in Seattle,
King County, Washington, in any action or proceeding brought to enforce or
otherwise arising out of or relating to the Restated Term Note, and thereby
waives any objection to venue in any such court and any claim that such forum is
an inconvenient forum.
The Restated Term Note may be declared due prior to its expressed maturity date,
all in the events, on the terms, and in the manner provided for in the Loan and
Security Agreement dated February 27, 1993, as amended and supplemented.
The undersigned waives presentment, notice of intention to accelerate, demand
and notice of dishonor.
HAMPSHIRE DESIGNERS, INC., BORROWER
By: /s/ Charles W. Clayton
Its: Vice President
<PAGE>
TERM PROMISSORY NOTE NO. ONE
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 Eighty-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 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 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
- -------------------------- ------- -----------------
36 - 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
<PAGE>
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.
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, 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
<PAGE>
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: $3,500,000.00
LOAN PROCEEDS NO. ONE July 27, 1993
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.
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 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
HAMPSHIRE GROUP, LIMITED
SCHEDULE OF SUBSIDIARIES
December 31, 1998
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, Limited Hong Kong 100
Hampshire Investments, Limited Delaware 100
Hampshire Investments London, Limited England 100
Hampshire Praha S.R.O. 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 March 11, 1999 appearing on page F-2 of this Annual Report on Form
10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 24, 1999
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 13,886
<SECURITIES> 549
<RECEIVABLES> 29,439
<ALLOWANCES> (3,817)
<INVENTORY> 20,789
<CURRENT-ASSETS> 66,223
<PP&E> 35,365
<DEPRECIATION> (21,688)
<TOTAL-ASSETS> 100,848
<CURRENT-LIABILITIES> 14,940
<BONDS> 22,505
0
0
<COMMON> 425
<OTHER-SE> 62,978
<TOTAL-LIABILITY-AND-EQUITY> 63,403
<SALES> 168,688
<TOTAL-REVENUES> 169,195
<CGS> 133,769
<TOTAL-COSTS> 133,769
<OTHER-EXPENSES> 26,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,696
<INCOME-PRETAX> 7,004
<INCOME-TAX> 1,277
<INCOME-CONTINUING> 5,727
<DISCONTINUED> (214)
<EXTRAORDINARY> 0
<CHANGES> (500)
<NET-INCOME> 5,013
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.13
</TABLE>
