CLASS 4 SECURITY AGREEMENT
CLASS 4 SECURITY AGREEMENT (this "Agreement"), dated as of May 12, 1997,
made by ANDOVER TOGS, INC., a Delaware corporation (the "Company") and its
subsidiaries, SPRINGDALE FASHIONS, INC., a Delaware corporation, TORTONI
MANUFACTURING CORP., a Delaware corporation, and STONEHENGE FINANCIAL CORP., a
New York corporation (each a "Subsidiary", and together with the Company,
individually and collectively, the "Grantor") in favor of X.X. XXXXXXX &
ASSOCIATES, INC., as Collateral Trustee (as defined in the Plan described below)
for the benefit of the holders of Allowed General Unsecured Claims (as defined
in the Plan) all of whom hold interests in the Class 4 Note (as defined in the
Plan).
W I T N E S S E T H:
WHEREAS, pursuant to and in accordance with the terms of the Grantors'
Joint Plan of Reorganization, dated January 30, 1997, confirmed by order of the
United States Bankruptcy Court for the Southern District of New York (as
amended, supplemented or modified from time to time, the "Plan"), the Company
has executed and delivered to the Collateral Trustee, for the benefit of the
holders of Allowed General Unsecured Claims, the Class 4 Note;
WHEREAS, each Subsidiary has executed and delivered in favor of the
Collateral Trustee, for the benefit of the holders of Allowed General Unsecured
Claims, a guaranty of payment of the Class 4 Note (collectively, the "Subsidiary
Guarantees");
WHEREAS, pursuant to and in accordance with the terms of the Plan, the
Grantor has agreed to grant to the Collateral Trustee, for the benefit of the
holders of Allowed General Unsecured Claims, as security for the Class 4 Note,
the Subsidiary Guarantees and the other Obligations (as hereinafter defined), a
second priority security interest in all personal property of the Grantor
constituting Collateral (as hereinafter defined);
WHEREAS, the Grantor and the Collateral Trustee have entered into a Note
and Collateral Trust Agreement, dated as of the date hereof, as the same may be
amended, supplemented or otherwise modified from time to time (the "Note
Agreement"), pursuant to which the Collateral Trustee will (a) act as paying
agent for the Maker under the Note and (b) administer the Collateral for the
benefit of the holders of Allowed General Unsecured Claims;
WHEREAS, pursuant to the terms of the Amended and Restated Financing and
Security Agreement, dated on or about the date hereof, by and among The CIT
Group/Commercial Services, Inc. ("CIT"), as Agent for itself and the other
Lenders now or hereafter party thereto (in such capacity, and including any
successor Agent thereunder, the "Agent"), and Andover Togs, Inc., as Borrower,
as the same may now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced (the "Financing Agreement"), the Grantor
has agreed to grant to the Agent, for the benefit of the Lenders (as defined in
the Financing Agreement), as security for the Obligations (as defined in the
Financing Agreement), a first priority security interest in the Collateral; and
WHEREAS, this Agreement is subject to the terms of the Intercreditor
Agreement, dated on or about the date hereof, between CIT and the Collateral
Trustee (as amended, supplemented or modified from time to time, the
"Intercreditor Agreement");
NOW THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt and insufficiency of which is hereby
acknowledged, the Grantor hereby agrees with the Collateral Trustee, for the
benefit of the holders of Allowed General Unsecured Claims, as follows:
SECTION 1. Definitions. All terms used in this Agreement which are defined
in the Note Agreement or in Article 9 of the Uniform Commercial Code currently
in effect in the State of New York (the "Code") and which are not otherwise
defined herein shall have the same meanings herein as set forth therein. In the
event of any inconsistencies in such definitions, the provisions of the Code
shall control.
SECTION 2. Grant of Security Interest. As security for the payment in full
of all of the Obligations, the Grantor hereby pledges and assigns to the
Collateral Trustee and grants to the Collateral Trustee, for the benefit of the
holders of Allowed General Unsecured Claims, a continuing general lien upon and
second priority, perfected security interest in, subject only to the security
interest of the Agent therein, all of the following, wherever located and
whether presently in existence or hereafter acquired or created, however
acquired or created and which is owned by the Grantor or in which the Grantor
has any interest, wherever held by the Grantor or others for its account
(collectively, the "Collateral"):
(a) all of the Grantor's right, title and interest in and to all
equipment (including Grantor's screen print machinery at such time as the
existing lienor with respect thereto is paid in full), vehicles, furniture,
fixtures and machinery wherever located and whether now or hereafter existing
and whether now owned or hereafter acquired, together with all substitutions,
replacements, accessions and additions thereto, and all tools, parts,
accessories and attachments used in connection therewith (hereinafter
collectively referred to as the "Equipment");
(b) all of the Grantor's right, title and interest in and to all
inventory of any kind wherever located and whether now or hereafter existing and
whether now owned or hereafter acquired (including, without limitation, all
types of inventory, merchandise, goods, tangible personal property and other
assets that are held by the Grantor for sale, lease or other disposition in the
ordinary course of the Grantor's business or to be furnished under a contract
for services, whether such inventory, merchandise, goods, tangible personal
property and other assets are raw,
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in process or finished, and materials used or consumed in the business of the
Grantor, and goods returned to or repossessed by the Grantor and goods in which
the Grantor has an interest in mass or in joint or other interest or right of
any kind including consigned goods and goods being possessed), and all
accessions thereto and products thereof and all packing and shipping materials
(hereinafter collectively referred to as the "Inventory");
(c) all of the Grantor's right, title and interest in and to,
whether now or hereafter existing, (i) all present and future accounts, contract
rights, chattel paper, documents and instruments (as such terms are defined in
the Code); (ii) all moneys, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, the Collateral
Trustee from or for the Grantor, whether for safekeeping, pledge, custody,
transmission, collection or otherwise; (iii) all of the Grantor's right, title
and interest, and all of the Grantor's rights, remedies, security and liens, in,
to and in respect of any credit insurance, accounts (including, without
limitation, rights of stoppage in transit, replevin, repossession, reclamation
and other rights and remedies of an unpaid vendor, lienor or secured party),
guaranties or other contracts of suretyship with respect to accounts and
deposits or other security for the obligation of any account debtor; (iv) all
rights relating to the sale or other transfer of property to, or the
construction, renovation or other improvement of property by or for the Grantor;
(v) all rights now or hereafter existing in and to all security agreements,
leases and other contracts now or hereafter existing and securing or otherwise
relating to any accounts, contract rights, chattel paper, instruments,
documents, or other rights or obligations; and (vi) all of the Grantor's right,
title and interest in, to and in respect of all goods relating to, or which by
sale have resulted in, accounts, including, without limitation, all goods
described in invoices or other documents or instruments with respect to, or
otherwise representing or evidencing, any accounts, and all returned, reclaimed
or repossessed goods (any and all such accounts, contract rights, chattel paper,
instruments, documents, and rights and obligations being hereinafter referred to
as the "Accounts");
(d) (i) all of the Grantor's right, title and interest in and to all
general intangibles; (ii) all rights, interest, choses in action, causes of
action, claims and all other intangible property of every kind and nature, in
each instance whether now owned or hereafter acquired by the Grantor, including,
without limitation, all corporate and other business records, all loans,
royalties, and all other forms of obligations receivable whatsoever (other than
Accounts); (iii) all trademarks, trademark applications, trademark licenses,
patents, patent applications, patent licenses, trade secrets, licenses,
copyrights, goodwill, inventions, designs, registrations, permits, franchises
and licenses; (iv) all computer programs, software, printouts and other computer
materials, customer lists, credit files, correspondence, and advertising
materials; (v) all customer and supplier contracts, sale orders, rights under
license and franchise agreements, and other contracts and contract rights; (vi)
all interests in partnership and joint ventures, including all moneys due from
time to time in respect thereof; (vii) all federal, state and local tax refunds
and federal, state and local tax refund claims; (viii) all right, title and
interest under
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leases, subleases, licenses and concessions and other agreements relating to
personal property, including all moneys due from time to time in respect
thereof; (ix) all payments due or made to the Grantor in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of any property
by any governmental authority or any other party; (x) all deposit accounts
(general or special) with any bank or other financial institution; (xi) all
credits with and other claims against third parties (including carriers and
shippers) (other than Accounts); (xii) all rights to indemnification; (xiii) all
reversionary interests in pension and profit sharing plans and reversionary,
beneficial and residual interests in trusts; (xiv) all proceeds of insurance
(except key man life insurance), including credit insurance, of which the
Grantor is the beneficiary; (xv) all letters of credit, guaranties, liens,
security interests and other security held by or granted to such Grantor; and
(xvi) all other intangible property, whether or not similar to the foregoing, in
each instance, however and wherever and whenever arising and whether now owned
or hereafter acquired (all of the foregoing described in this Subsection (d)
hereinafter collectively referred to as "General Intangibles");
(e) the books and records of the Grantor relating to any of the
foregoing Collateral, including, without limitation, all customer contracts,
sale orders, minute books, ledgers, records, computer programs, software,
printouts and other computer materials, customer lists, credit files,
correspondence and advertising materials, in each case indicating, summarizing
or evidencing any of the Collateral; and
(f) all cash and non-cash proceeds of any and all of the foregoing
Collateral and, to the extent not otherwise included, all payments under
insurance (whether or not the Collateral Trustee is the loss payee thereof)
(except key man life insurance) and any indemnity, warranty or guaranty, payable
by reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral;
in each case, howsoever the Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
SECTION 3. Security for Obligations. The security interest hereby created
in the Collateral constitutes continuing collateral security for payment and
performance of all of the Obligations. As used in this Agreement, "Obligations"
means, at any time, whether or not due and payable at such time, all
obligations, liabilities and indebtedness, whether matured or unmatured, of the
Grantor arising out of or evidenced by the Class 4 Note, the Subsidiary
Guarantees, any Collateral Document or the Note Agreement, whether as principal,
interest, or expenses, including, without limitation, the reasonable fees and
disbursements of the Collateral Trustee and the reasonable disbursements of the
Committee payable pursuant to this Agreement, and the reasonable fees and
disbursements of the respective counsel to the Collateral Trustee and the
Committee and of the accountants to the Committee, payable pursuant to the Note
Agreement or this Agreement.
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SECTION 4. Representations and Warranties. The Grantor represents and
warrants as follows:
(a) The Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
as set forth on the first page hereof, and (ii) has all requisite power and
authority to execute, deliver and perform this Agreement and the Class 4 Note.
(b) Each Subsidiary has the requisite power and authority to
execute, deliver and perform this Agreement and its Subsidiary Guaranty.
(c) The execution, delivery and performance by the Company of this
Agreement and the Class 4 Note and by each Subsidiary of this Agreement and of
its Subsidiary Guaranty (i) have been duly authorized by all necessary corporate
action, (ii) do not and will not contravene its charter or by-laws, any other
applicable law or any contractual restriction binding on or affecting the
Grantor or any of its properties, and (iii) do not and will not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties other than as set
forth in this Agreement.
(d) This Agreement and the Class 4 Note are legal, valid and binding
obligations of the Company and this Agreement and the Subsidiary Guarantees are
legal, valid and binding obligations of the respective Subsidiaries, enforceable
against the Company and the Subsidiaries, respectively, in accordance with their
respective terms, subject as to enforcement to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting the rights of creditors generally and limitations imposed by federal
or state law or equitable principles upon the specific enforceability of any of
the remedies, covenants or other provisions hereof and thereof.
(e) All Equipment and Inventory now existing is, and all Equipment
and Inventory hereafter existing will be, unless consented to in writing by the
Collateral Trustee, located at the address(es) specified therefor in Schedule I
hereto. The Grantor's chief place of business and chief executive office, the
place where the Grantor keeps its records concerning Accounts and General
Intangibles and all originals of all chattel paper which constitutes Accounts
are located at the address(es) specified therefor in such Schedule I. None of
the Accounts or General Intangibles is evidenced by a promissory note or other
instrument. Set forth as Schedule II hereto is a complete and correct list of
each trade name used by the Grantor.
(f) [INTENTIONALLY LEFT BLANK]
(g) The Grantor is and will be at all times the owner of the
Collateral free and clear of any lien, security interest or other charge or
encumbrance, except for (i) the security
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interest created by this Agreement, (ii) the security interest in favor of the
Agent and (iii) the security interests and other encumbrances described in
Schedule III hereto. No effective financing agreement or other instrument
similar in effect covering all or any part of the Collateral is on file in any
recording or filing office, except (i) such as may have been filed in favor of
the Collateral Trustee relating to this Agreement, (ii) such as may have been
filed in favor of the Agent and (iii) such as may have been filed to perfect or
protect any security interest or encumbrance described in Schedule III hereto.
(h) The exercise by the Collateral Trustee of any of its rights and
remedies hereunder will not contravene any law or any contractual restrictions
binding on or affecting the Grantor or any of its properties and will not result
in or require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of the Grantor's properties other than
as set forth in this Agreement and the Intercreditor Agreement.
(i) Except with respect to any authorization or approval required
under the laws of another country as to Tortoni, no authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for (i) the due execution, delivery and performance
by the Grantor of this Agreement or the Class 4 Note, (ii) the grant by the
Grantor, or the perfection, of the security interest purported to be created
hereby in the Collateral, or (iii) the exercise by the Collateral Trustee of any
of its rights and remedies hereunder, except for the filing of the financing
statements required to be filed to perfect the security interest created by this
Agreement, all of which financing statements have been duly filed and are in
full force and effect.
(j) There is no pending or, to the best of Grantor's knowledge,
threatened action, suit, proceeding or claim before any court or other
governmental authority or any arbitrator, or any order, judgment or award by any
court or other governmental authority or arbitrator, that may adversely affect
the grant by the Grantor, or the perfection, of the security interest purported
to be created hereby in the Collateral, or the exercise by the Collateral
Trustee of any of its rights and remedies hereunder.
(k) This Agreement creates a valid second priority security interest
in the Collateral in favor of the Collateral Trustee, for the benefit of the
holders of Allowed General Unsecured Claims, as security for the Obligations.
The filing of the financing statements required to perfect the security interest
created by this Agreement has been made and results in the perfection of such
security interest in that portion of the Collateral in which a security interest
may be perfected by filing financing statements. Such security interest is, or
in the case of Collateral in which the Grantor obtains rights after the date
hereof and in which a security interest may be perfected by filing financing
statements, will be, a perfected, second priority security interest, subject
only to the security interest of the Agent and the other encumbrances described
in Schedule III hereto.
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SECTION 5. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding, unless the Collateral Trustee shall
otherwise consent in writing:
(a) Further Assurances. The Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable or that
the Collateral Trustee may reasonably request in order (i) to perfect and
protect the security interest created hereby; (ii) after the occurrence and
during the continuance of an Event of Default (as hereinafter defined), to
enable the Collateral Trustee to exercise and enforce it rights and remedies
hereunder in respect of the Collateral, subject to the terms of the
Intercreditor Agreement or (iii) to otherwise effect the purpose of this
Agreement, including, without limitation, (A) marking conspicuously each chattel
paper included in the Accounts and General Intangibles and, at the request of
the Collateral Trustee, each of its records pertaining to the Collateral with a
legend, in form and substance reasonably satisfactory to the Collateral Trustee,
indicating that such chattel paper or Collateral is subject to the security
interest created hereby, (B) if the Financing Agreement has terminated, if any
Account or General Intangible shall be evidenced by a promissory note or other
instrument or chattel paper, delivering and pledging to the Collateral Trustee
hereunder such note, instrument or chattel paper duly endorsed and accompanied
by executed instruments of transfer or assignment, all in form and substance
satisfactory to the Collateral Trustee, (C) executing and filing such financing
or continuation statements, or amendments thereto, as may be necessary or
desirable or that the Collateral Trustee may reasonably request in order to
perfect and preserve the security interest purported to be created hereby, and
(D) furnishing to the Collateral Trustee from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Collateral Trustee may
reasonably request, all in reasonable detail.
(b) Location of Equipment and Inventory. The Grantor will keep the
Equipment and Inventory (other than Inventory sold in the ordinary course of
business) at the location(s) specified therefor in Schedule I hereto, or, upon
not less than 30 Business Days' prior written notice to the Collateral Trustee
accompanied by a new Schedule I hereto indicating each new location of the
Equipment and Inventory, at such other location as the Grantor may elect,
provided that the Collateral Trustee's rights in such Equipment and Inventory,
including, without limitation, the existence, perfection and priority of the
security interest created hereby in such Equipment and Inventory, are not
materially adversely affected thereby.
(c) Condition of Equipment. The Grantor will cause Equipment
necessary for the operation of its business to be maintained and preserved in
good repair and working order, ordinary wear and tear excepted, and will
forthwith, or in the case of any loss or damage to any Equipment as quickly as
practicable after the occurrence thereof, make or cause to be made all repairs,
replacement, and other improvements in connection therewith which are necessary
or desirable or that the Collateral Trustee may reasonably request to such end.
The Grantor will
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promptly furnish to the Collateral Trustee a statement regarding any loss or
damage in excess of $100,000 to any Equipment.
(d) Taxes. The Grantor will pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against any
Collateral, except to the extent the validity thereof is being contested in good
faith by proper proceedings which stay the imposition of any penalty, fine or
lien resulting from the non-payment thereof and with respect to which adequate
reserves have been set aside for the payment thereof.
(e) Insurance.
(i) The Grantor will, at it own expense, maintain insurance
(including, without limitation, comprehensive general liability
insurance and all risk insurance insuring against loss by fire,
explosion, theft and such other casualties as may be satisfactory to
the Collateral Trustee) with respect to the Equipment and Inventory
in such amounts, against such risks, in such form and with such
insurers, as is currently in effect. Subject to the terms of the
Intercreditor Agreement, each policy for liability insurance shall
provide for all losses to be paid on behalf of the Collateral
Trustee and the Grantor as their respective interests may appear,
and each policy for property damage shall provide for all losses to
be paid directly to the Collateral Trustee upon the occurrence and
during the continuance of an Event of Default. In addition, subject
to the terms of the Intercreditor Agreement, each such policy or
property damage insurance shall provide for all losses to be paid
directly to the Collateral Trustee and shall (A) include the
Collateral Trustee as an insured party thereunder (without any
representation or warranty by or obligation upon the Collateral
Trustee) as its interest may appear, (B) contain the agreement by
the insurer that any loss pursuant to clause (iii) of this Section
5(e) shall be payable to the Collateral Trustee notwithstanding any
action, inaction or breach of representation or warranty by the
Grantor, (C) provide that there shall be no recourse against the
Collateral Trustee for payment of premiums or other amounts with
respect thereto, and (D) provide that at least 30 days' prior
written notice of cancellation or of lapse shall be given to the
Collateral Trustee by the insurer. The Grantor will, if so requested
by the Collateral Trustee, deliver to the Collateral Trustee
duplicate policies of all liability and property damage insurance
and, as often as the Collateral Trustee may reasonably request, a
report of a reputable insurance broker with respect to such
insurance. Subject to the terms of the Intercreditor Agreement, the
Grantor will also, after the occurrence and during the continuance
of an Event of Default, at the request of the Collateral Trustee,
duly execute and deliver instruments of assignment of such insurance
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policies and cause the respective insurer to acknowledge notice of
such assignment.
(ii) Reimbursement under any liability insurance maintained by
the Grantor pursuant to this Section 5(e) may be paid directly to
the party who shall have incurred liability covered by such
insurance. In the case of any loss involving damage to Equipment or
Inventory as to which clause (iii) of this Section 5(e) is not
applicable, the Grantor will make or cause to be made the necessary
repairs to or replacements to such Equipment and Inventory, and any
proceeds of insurance maintained by the Grantor pursuant to this
Section 5(e) shall be paid to the Grantor as reimbursement for the
costs of such repair or replacements.
(iii) Subject to the terms of the Intercreditor Agreement,
upon the occurrence and during the continuance of an Event of
Default, or the actual or constructive total loss (in excess of
$100,000 per occurrence) of any Equipment or Inventory, all
insurance payments in respect of such Equipment and Inventory and
all other Collateral shall be paid to the Collateral Trustee and
applied as specified in Section 7(b) hereof.
(f) Provisions Concerning the Accounts and General Intangibles.
(i) The Grantor will (A) give the Collateral Trustee at least
30 days' prior written notice of any change in the Grantor's name,
identity or corporate structure, (B) keep its chief place of
business and chief executive office and all originals of all chattel
paper which constitutes Accounts or General Intangibles at the
locations specified therefor in Schedule I hereof, and (C) keep
adequate records concerning the Accounts and General Intangible and
such chattel paper and, after reasonable notice, permit
representatives of the Collateral Trustee to inspect and make
abstracts from such records and chattel paper at any time during
normal business hours.
(ii) The Grantor will, except as otherwise provided in this
subsection (f), continue to collect at its own expense, all amounts
due or to become due under the Accounts and General Intangibles. In
connection with such collections, the Grantor may (and, subject to
the Intercreditor Agreement, at the Collateral Trustee's direction,
will) take such action as the Grantor or the Collateral Trustee may
deem necessary or advisable to enforce collection or performance of
the Accounts and General Intangibles; provided, however, the
Collateral Trustee shall, subject to the terms of the Intercreditor
Agreement, have the right at any time, upon the occurrence and
during the continuance of an Event of Default, to notify the account
debtors or obligors under any Account or General Intangible of the
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assignment of such Account or General Intangible to the Collateral
Trustee and to direct such account debtors or obligors to make
payment of all amounts due or to become due to the Grantor hereunder
directly to the Collateral Trustee and, upon such notification and
at the expense of the Grantor and to the extent permitted by law, to
enforce collection of any such Account or General Intangible and to
adjust, settle or compromise the amount or payment thereof, in the
same manner and to the same extent as the Grantor might have done.
In addition, upon the occurrence and during the continuance of an
Event of Default, the Collateral Trustee shall have the right,
subject to the terms of the Intercreditor Agreement to notify the
United States Postal Service authorities to change the address for
delivery of mail addressed to the Grantor at such address as the
Collateral Trustee may designate and to do all other acts and things
necessary to carry out this Agreement. Subject to the terms of the
Intercreditor Agreement, after an Event of Default, (A) all amounts
and proceeds (including instruments) received by the Grantor in
respect of the Accounts and General Intangibles shall be received in
trust for the benefit of the Collateral Trustee hereunder, shall be
segregated from other funds of the Grantor and shall be forthwith
paid over to the Collateral Trustee in the same form as so received
(with any necessary indorsement) to be held as cash collateral and
either (1) released to the Grantor so long as no Event of Default,
or an event which, with the giving of notice or lapse of time or
both, would constitute an Event of Default shall have occurred and
be continuing or (2) if any Event of Default shall be continuing,
applied as specified in Section 7(b) hereof, and (B) the Grantor
will not adjust, settle or compromise the amount or payment of any
Account or General Intangible or release wholly or partly any
account debtor or obligor thereof or allow any credit or discount
thereon without the express written consent of the Collateral
Trustee.
(g) Transfers and Other Liens. The Grantor will not (i) sell,
transfer or assign (by operation of law or otherwise), lease, exchange or
otherwise dispose of any of the Collateral except for (A) sales or disposal of
Inventory in the ordinary course of business and (B) sale and disposition of
obsolete equipment in the ordinary course of business so long as the amount
thereof sold in any fiscal year by the Grantor shall not have a fair market
value in excess of $100,000, or (ii) create or suffer to exist any lien,
security interest or other charge or encumbrance upon or with respect to any of
the Collateral, except for (A) the security interest created hereby, (B) the
security interest in favor of the Agent and (C) the security interests and other
encumbrances described in or permitted under Schedule III hereto.
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SECTION 6. Additional Provisions Concerning the Collateral.
(a) So long as any of the Obligations remain outstanding the Grantor
hereby authorizes the Collateral Trustee to file, without the signature of the
Grantor where permitted by law, one or more financing or continuation
statements, and amendments thereto, relating to the Collateral.
(b) Subject to the Intercreditor Agreement, the Grantor hereby
irrevocably appoints the Collateral Trustee the Grantor's attorney-in-act and
proxy, with full authority in the place and stead of the Grantor and in the name
of the Grantor or otherwise, from time to time in the Collateral Trustee's
discretion, to take any action and to execute any instrument which the
Collateral Trustee may reasonably deem necessary or advisable to accomplish the
purpose of this Agreement (subject to the rights of the Grantor under Section
5(f) hereof), including, without limitation: (A) to receive, take, endorse,
sign, assign and deliver, all in the name of the Collateral Trustee or the
Grantor, any and all checks, notes, drafts, and other documents or instruments
relating to the Collateral (but in all instances before an Event of Default in
the name of the Grantor and not the Collateral Trustee); (B) to obtain and
adjust insurance required to be paid to the Collateral Trustee pursuant to
Section 5(e) hereof, and to receive, indorse and collect any drafts or other
instruments, document and chattel paper in connection therewith; and (C) in
addition to the foregoing and without limitation, upon the occurrence of an
Event of Default, (1) to receive, indorse and collect any notes, drafts or other
instruments, documents and chattel paper relating to the Collateral; (ii) to
ask, demand, collect, xxx for, recover, compound, receive and give acquittance
and receipts for moneys due and to become due under or in respect of any
Collateral; (iii) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper in connection with clause (B), (C)(i)
or (C)(ii) of this Subsection (b); and (iv) to file any claim or take any action
or institute any proceedings which the Collateral Trustee may deem necessary or
desirable for the collection of any Collateral or otherwise to enforce the
rights of the Collateral Trustee with respect to any Collateral, including,
without limitation, the right, in the name of the Collateral Trustee for the
benefit of the holders of the Allowed General Unsecured Claims or the Grantor,
to file claims under any insurance policy, to receive, receipt and give
acquittance for any payments that may be payable thereunder, and to execute any
and all endorsements, receipts, release, assignment, reassignment or other
documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.
(c) If the Grantor fails to perform any agreement contained herein,
the Collateral Trustee may itself perform, or cause performance of, such
agreement or obligation, and the reasonable expenses of the Collateral Trustee
incurred in connection therewith shall be payable by the Grantor pursuant to
Section 8 hereof.
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(d) The powers conferred on the Collateral Trustee hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Collateral Trustee shall have no duty as to any Collateral or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral.
SECTION 7. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) Subject to the terms of the Intercreditor Agreement and the Note
Agreement, the Collateral Trustee may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all of the rights and remedies of a secured party on default under the
Code (whether or not the Code applies to the affected Collateral), and may also
(i) require the Grantor to, and the Grantor hereby agrees that it will at its
expense and upon request of the Collateral Trustee forthwith, assemble all or
part of the Collateral as directed by the Collateral Trustee and make it
available to the Collateral Trustee at a place to be designated by the
Collateral Trustee which is reasonably convenient to both parties, and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at a public or private sale, at any of the
Collateral Trustee'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 Trustee may reasonably deem commercially reasonable. The Grantor
agrees that, to the extent notice of sale shall be required by law, at least 10
days' notice to the Grantor 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 Trustee shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Collateral
Trustee 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. The Grantor hereby
waives any claims against the Collateral Trustee and the holders of Allowed
General Unsecured Claims arising by reason of the fact that the price at which
the Collateral may have been sold at a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Collateral Trustee accepts the first
offer received and does not offer the Collateral to more than one offeree,
provided that such sale has been conducted in a commercially reasonable manner.
(b) Subject to the terms of the Intercreditor Agreement and the Note
Agreement, any cash held by the Collateral Trustee as Collateral and all cash
proceeds received by the Collateral Trustee in respect of any sale of,
collection from, or other realization upon, all or any part of the Collateral
may, in the discretion of the Collateral Trustee, be held by the Collateral
Trustee as collateral for, and/or then or at any time thereafter applied (after
payment of any
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amounts payable to the Collateral Trustee pursuant to Section 8 hereof) in whole
or in part by the Collateral Trustee against, all or any part of the Obligations
in the order provided for in Section 6 of the Note Agreement.
(c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Trustee
is legally entitled, the Grantor shall be liable for the deficiency, together
with interest thereon at the rate specified in the Class 4 Note or such other
rate as shall be fixed by applicable law, together with the costs of collection
and the reasonable fees and expenses of any attorneys employed by the Collateral
Trustee to collect such deficiency.
SECTION 8. Indemnity and Expenses.
(a) The Grantor agrees to indemnify the Collateral Trustee from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting solely and directly
from the Collateral Trustee's gross negligence or willful misconduct.
(b) The Grantor will, upon demand, pay to the Collateral Trustee the
amount of any and all reasonable costs and expenses, including the reasonable
fees and disbursements of the Collateral Trustee's counsel and of any experts
and agents, which the Collateral Trustee may reasonably incur in connection with
(i) as applicable, the administration, amendment, waiver or other modification
or termination of the Class 4 Note, any of the Guaranties, this Agreement, the
other Collateral Documents, or the Note Agreement; (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral; (iii) the exercise or enforcement of any of
the rights of the Collateral Trustee hereunder; or (iv) the failure by the
Grantor to perform or observe any of the provisions hereof.
SECTION 9. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing and shall be mailed, telecopied or delivered:
If to the Grantor, to each of: Andover Togs, Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy Number: (000) 000-0000
Attn: Xxxxxxx Xxxxx, Chairman
Springdale Fashions, Inc.
c/o Andover Togs, Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
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Telecopy Number: (000) 000-0000
Attn: Xxxxxxx Xxxxx, Chairman
Tortoni Manufacturing Corp.
c/o Andover Togs, Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy Number: (000) 000-0000
Attn: Xxxxxxx Xxxxx, Chairman
Stonehenge Financial Corp.
c/o Andover Togs, Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy Number: (000) 000-0000
Attn: Xxxxxxx Xxxxx, Chairman
with a copy to
Xxxxxx X. Xxxxx, Esq.
Xxxxxxx Breed Xxxxxx & Xxxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy Number: (000) 000-0000
and to Xxxxxx X. Shack, Esq.
Shack & Xxxxxx, P.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy Number: (000) 000-0000;
If to the Collateral Trustee: to it at its address specified in the Note
Agreement; or as to any such party at such other address as shall be designated
by such party in a written notice to the other parties complying as to delivery
with the terms of this Section 9. All such notices and other communications
shall be effective (i) if mailed, when received or three Business Days after
mailing, whichever occurs first, (ii) if telecopied, when received, or (iii) if
hand delivered, upon delivery.
SECTION 10. Security Interest Absolute. All rights and the security
interest of the Collateral Trustee hereunder and all obligations of the Grantor
hereunder shall be absolute and unconditional irrespective of (i) any lack of
validity or enforceability of the Class 4 Note or
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any other agreement or instrument relating thereto; (ii) 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 the Class 4 Note or any other agreement or instrument relating thereto;
(iii) any increase in, addition to, exchange or release of, or non-perfection of
any lien on or security interest in, any other collateral, or any release or
amendment or waiver of or consent to departure from any guaranty, for all or any
of the Obligations; or (iv) the absence of any action on the part of the
Collateral Trustee to obtain payment or performance of the Obligations from the
Grantor or any other party.
SECTION 11. Miscellaneous.
(a) Amendments. No amendment of any provision of this Agreement
shall be effective unless it is in writing and signed by the Grantor and the
Collateral Trustee, and no waiver of any provision of this Agreement shall be
effective unless it is in writing and signed by the Collateral Trustee, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
(b) Waivers; Cumulative Rights; Etc. No failure on the part of the
Collateral Trustee to exercise, and no delay in exercising, any right hereunder
or under any other Collateral Document or the Class 4 Note shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Collateral Trustee provided herein and in
the Class 4 Note are cumulative and are in addition to, and not exclusive of,
any rights or remedies provided by law. The rights of the Collateral Trustee
under this Agreement and the Class 4 Note are not conditional or contingent on
any attempt by the Collateral Trustee to exercise any of its rights against any
other person.
(c) Captions; Separability. The captions of the various Sections,
Subsections and paragraphs of this Agreement have been inserted only for the
purposes of convenience; such captions are not a part of this Agreement and
shall not be deemed in any manner to modify, explain, enlarge or restrict any of
the provisions of this Agreement. Any provision of this Agreement which 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 portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
(d) Continuing Security Interest; Assignments. This Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until the payment in full of the Obligations and (ii) be
binding on the Grantor and its successors and assigns and shall inure, together
with all rights and remedies of the Collateral Trustee hereunder, to the benefit
of the Collateral Trustee and its successors, transferees and assigns.
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(e) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAW PRINCIPLES THEREOF.
(f) WAIVER OF JURY TRIAL AND SETOFF; CONSENT TO JURISDICTION; ETC.
(1) In any litigation in any court with respect to, in connection with, or
arising out of this Agreement, the Collateral, the Class 4 Note or any of the
Subsidiaries Guaranties or any instrument or document delivered pursuant to this
Agreement, or the validity, protection, interpretation, collection or
enforcement hereof or thereof, or any other claim or dispute howsoever arising,
between the Grantor on the one hand and the Collateral Trustee on the other
hand, the Grantor, to the fullest extent it may effectively do so, (i) waives
the right to interpose any setoff, recoupment, counterclaim or cross-claim in
connection with any such litigation, irrespective of the nature of such setoff,
recoupment, counterclaim or cross-claim, unless such setoff, recoupment,
counterclaim or cross-claim could not, by reason of any applicable Federal or
State procedural laws, be interposed, pleaded or alleged in any other action and
(ii) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION AND ANY RIGHT
IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES. THE GRANTOR AGREES THAT THIS SECTION 11(f) IS A SPECIFIC AND
MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE COLLATERAL TRUSTEE
ON BEHALF OF THE HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS WOULD NOT ENTER
INTO THIS AGREEMENT IF THIS SECTION 11(f) WERE NOT PART OF THIS AGREEMENT.
(2) The Grantor hereby irrevocably consents to the
non-exclusive jurisdiction of the courts of the State of New York and of any
Federal Court located in the City of New York in connection with any action or
proceeding arising out of or relating to this Agreement, the Collateral, the
Class 4 Note, any of the Subsidiary Guaranties or any instrument or document
delivered pursuant to this Agreement. In any such litigation, the Grantor
waives, to the fullest extent it may effectively do so, personal service of any
summons, complaint or other process and agrees that the service thereof may be
made by certified or registered mail directed to the Grantor at its address for
notice determined in accordance with Section 9 hereof. The Grantor hereby
waives, to the fullest extent it may effectively do so, the defenses of forum
non conveniens and improper venue.
(g) Admissibility of Security Agreement. The Grantor agrees that any
copy of this Agreement signed by the Grantor and transmitted by telecopier for
delivery to the Collateral Trustee shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence.
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(h) Binding Nature. This Agreement shall be binding upon and inure
to the benefit of the successors, assigns or other legal representatives of the
Grantor, and shall, together with the rights and remedies of the Collateral
Trustee hereunder, be binding upon and inure to the benefit of the Collateral
Trustee and the holders of Allowed General Unsecured Claims and each of their
respective successors, assigns or other legal representatives.
(i) Counterparts. This Agreement may be executed by the parties
hereto individually or in any combination, in one or more counterparts, each of
which shall be an original and all of which shall together constitute one and
the same agreement.
(j) Schedules. The Collateral Trustee is authorized to annex hereto
any schedules referred to herein.
(k) Acknowledgment of Receipt. The Grantor acknowledges receipt of a
copy of this Agreement.
(l) Intercreditor Agreement. This Agreement is subject to the terms
of the Intercreditor Agreement.
(m) Release and Termination. Upon the date on which the Obligations
shall have been paid in full, the liens and security interests granted hereby
shall terminate and all rights to the Collateral shall revert to the Grantor.
Upon any such termination, the Collateral Trustee will, at the Grantor's
expense, execute and deliver to the Grantor such documents prepared by the
Grantor and delivered to the Collateral Trustee as the Grantor shall reasonably
request to evidence such termination.
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed
and delivered by its officer thereunto duly authorized, as of the date first
above written.
ANDOVER TOGS, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------
Title: President
SPRINGDALE FASHIONS, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------
Title: President
[SIGNATURES CONTINUED ON NEXT PAGE]
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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
TORTONI MANUFACTURING CORP.
By: /s/ Xxxxxxx X. Xxxxx
------------------------
Title: President
STONEHENGE FINANCIAL
By: /s/ Xxxxxxx X. Xxxxx
------------------------
Title: President
- 18 -
SCHEDULE I
Collateral Information
Chief Place of Business and Chief Executive Offices:
Borrower and Stonehenge: 0000 Xxxxxxxx
Xxx Xxxx, XX 00000
Tortoni: Xxxx Xxxxxx XX
Xx Xxxxxx, Xxxxxxxxx Xxxxxxxx
Springdale:
Chief Place of Business: 000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Executive Offices: Xxxx Xxxxxx
Xxxxxx, XX 00000
Locations of Equipment and Inventory for Borrower and each Guarantor:
0000 Xxxxxxxx Xxxxxxxx xxx Xxxxxxxxxx
Xxx Xxxx, XX 00000
Main Street Borrower
Pisgah, AL 00000
Xxxxxxx 000 Xxxxxxxx
Xxxxxxxxx, XX 00000
000 Xxxxx Xxxxx Xxxx Xxxxx Xxxxxxxx
Xxxxxxxxxx, XX 00000
000 Xxxx Xxxxxxxx Xxxxxx Borrower and Springdale
Xxxxxxx, XX 00000
Xxxx Xxxxxx XX Borrower and Tortoni
La Romana, Dominican Republic
Plus goods in transit.
Locations of Inventory with Third Party Contractors for Borrower:
Almark Xxxxx, Inc. Borrower
000 Xxxxxxxxxx Xxxx Xxxx.
Xxxxxx, XX 00000-0000
American Childrenswear, Inc. Borrower
00000 X.X. 00xx Xxxxxx
Xxxxx Xxxxx, XX 00000
Locations of Books and Records Concerning Accounts and Collateral of Borrower
and Guarantors:
0000 Xxxxxxxx Borrower and Springdale and Stonehenge
Xxx Xxxx, XX 00000
Xxxx Xxxxxx Xxxxxxxx
Xxxxxx, XX 00000
Xxxx Xxxxxx XX Borrower and Tortoni
La Romana, Dominican Republic
SCHEDULE II
TO
CLASS 4 SECURITY AGREEMENT
Trade Names
Corporation Name
----------- ----
Andover Togs, Inc.
Stonehenge Financial Corp.
Springdale Fashions, Inc.
Tortoni Manufacturing Corp.
SCHEDULE III
Security Interests and Liens
1. Equipment financing with The First National Bank of Scottsboro pursuant
to secured note dated the Effective Date in the principal amount of
$205,090.
2. Equipment financing with Piedmont Sewing Machine.
3. Miscellaneous equipment financing or capitalized leases.
