LOAN AND SECURITY AGREEMENT
by and between
CONGRESS FINANCIAL CORPORATION (SOUTHERN)
as Lender
and
DH APPAREL COMPANY, INC.
DELTA MERCHANDISING, INC.
as Borrowers
Dated: May 16, 2000
TABLE OF CONTENTS
-----------------
Page
SECTION 1. DEFINITIONS.....................................................................................1
SECTION 2. CREDIT FACILITIES..............................................................................20
2.1 Revolving Loans................................................................................20
2.2 Letter of Credit Accommodations................................................................21
2.3 Term Loan......................................................................................24
2.4 Joint and Several Liability....................................................................25
SECTION 3. INTEREST AND FEES..............................................................................26
3.1 Interest.......................................................................................26
3.2 Closing Fee....................................................................................28
3.3 Servicing Fee..................................................................................28
3.4 Unused Line Fee................................................................................28
3.5 Changes in Laws and Increased Costs of Loans...................................................28
SECTION 4. CONDITIONS PRECEDENT...........................................................................30
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations......................30
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations..........................33
SECTION 5. GRANT OF SECURITY INTEREST.....................................................................34
SECTION 6. COLLECTION AND ADMINISTRATION..................................................................35
6.1 Borrowers' Loan Account........................................................................35
6.2 Statements.....................................................................................35
6.3 Collection of Accounts.........................................................................36
6.4 Payments.......................................................................................38
6.5 Authorization to Make Loans....................................................................38
6.6 Use of Proceeds................................................................................39
6.7 Appointment of Agent for Requesting Loans and Receipts of Loans and
Statements.....................................................................................39
SECTION 7. COLLATERAL REPORTING AND COVENANTS.............................................................40
7.1 Collateral Reporting...........................................................................40
7.2 Accounts Covenants.............................................................................41
7.3 Inventory Covenants............................................................................42
7.4 Equipment and Real Property Covenants..........................................................43
7.5 Power of Attorney..............................................................................44
7.6 Right to Cure..................................................................................45
7.7 Access to Premises.............................................................................45
(i)
7.8 Bills of Lading and Other Documents of Title..................................................45
SECTION 8. REPRESENTATIONS AND WARRANTIES.................................................................46
8.1 Corporate Existence, Power and Authority; Subsidiaries.........................................46
8.2 Financial Statements; No Material Adverse Change...............................................46
8.3 Chief Executive Office; Collateral Locations...................................................47
8.4 Priority of Liens; Title to Properties.........................................................47
8.5 Tax Returns....................................................................................47
8.6 Litigation.....................................................................................48
8.7 Compliance with Other Agreements and Applicable Laws...........................................48
8.8 Environmental Compliance.......................................................................49
8.9 Employee Benefits..............................................................................49
8.10 Bank Accounts..................................................................................50
8.11 Intellectual Property..........................................................................50
8.12 Acquisition of Assets..........................................................................51
8.13 Capitalization.................................................................................51
8.14 Labor Disputes.................................................................................52
8.15 Corporate Name; Prior Transactions.............................................................52
8.16 Restrictions on Subsidiaries...................................................................52
8.17 Material Contracts.............................................................................52
8.18 Accuracy and Completeness of Information.......................................................53
8.19 Survival of Warranties; Cumulative.............................................................53
8.20 Credit Card Agreements.........................................................................53
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.............................................................54
9.1 Maintenance of Existence.......................................................................54
9.2 New Collateral Locations.......................................................................54
9.3 Compliance with Laws, Regulations, Etc.........................................................54
9.4 Payment of Taxes and Claims....................................................................55
9.5 Insurance......................................................................................56
9.6 Financial Statements and Other Information.....................................................56
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc........................................58
9.8 Encumbrances...................................................................................59
9.9 Indebtedness...................................................................................61
9.10 Loans, Investments, Guarantees, Etc............................................................62
9.11 Dividends and Redemptions......................................................................64
9.12 Transactions with Affiliates...................................................................64
9.13 Additional Bank Accounts.......................................................................65
9.14 Compliance with ERISA. .......................................................................65
9.15 End of Fiscal Years: Fiscal Quarters...........................................................66
9.16 Change in Business.............................................................................66
9.17 Limitation of Restrictions Affecting Subsidiaries..............................................66
(ii)
9.18 After Acquired Real Property...................................................................66
9.19 Costs and Expenses.............................................................................67
9.20 Further Assurances.............................................................................67
9.21 Credit Card Agreements.........................................................................68
9.22 Year 2000 Compliance...........................................................................68
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.................................................................69
10.1 Events of Default..............................................................................69
10.2 Remedies.......................................................................................71
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW ........................................... .................73
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver..........................73
11.2 Waiver of Notices..............................................................................74
11.3 Amendments and Waivers.........................................................................74
11.4 Waiver of Counterclaims........................................................................74
11.5 Indemnification................................................................................74
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS...............................................................75
12.1 Term...........................................................................................75
12.2 Interpretative Provisions......................................................................76
12.3 Notices........................................................................................78
12.4 Partial Invalidity.............................................................................78
12.5 Successors.....................................................................................78
12.6 Entire Agreement...............................................................................78
(iii)
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Schedule 1.20 Customs Brokers
Schedule 1.36 Excluded Property
Schedule 1.37 Existing Letters of Credit
Schedule 1.65 Permitted Holders
Schedule 1.83 Warehouse Equipment
Schedule 8.2 Pro Forma Balance Sheet and Cash Flow Projections
Schedule 8.4 Existing Liens
Schedule 8.7 Permits
Schedule 8.8 Environmental Matters
Schedule 8.10 Bank Accounts
Schedule 8.11 Licensed Intellectual Property
Schedule 8.14 Labor Matters
Schedule 8.17 Material Contracts
Schedule 8.20 Credit Card Agreements
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
(i)
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement dated May 16, 2000 is entered into by and
between Congress Financial Corporation (Southern), a Georgia corporation
("Lender") and DH Apparel Company, Inc., a Georgia corporation ("Duck Head") and
Delta Merchandising, Inc., a South Carolina corporation ("Merchandising" and
together with Duck Head, each individually, a "Borrower" and collectively,
"Borrowers").
W I T N E S S E T H:
--------------------
WHEREAS, Borrowers have requested that Lender enter into certain financing
arrangements with Borrowers pursuant to which Lender may make loans and provide
other financial accommodations to Borrowers; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
-----------
For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrowers to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance, and including, without limitation, Credit Card Receivables.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one- sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the
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Reference Bank actually holds or has made any such deposits or loans. The
Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any
change in the Reserve Percentage.
1.3 "Affiliate" shall mean, with respect to a specified Person, any other
Person (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
person; (b) which beneficially owns or holds five (5%) percent or more of any
class of the Voting Stock or other equity interest of such specified person; or
(c) of which five (5%) percent or more of the Voting Stock or other equity
interest is beneficially owned or held by such specified person or a Subsidiary
of such specified person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and "under
common control with") when used with respect to any specified person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of Voting Stock, by agreement or otherwise.
1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.5 "Borrowing Base" shall mean, at any time, as to Borrowers, the amount
equal to: (a) eighty-five (85%) percent of the Net Amount of Eligible Accounts
of Borrowers, plus (b) the lesser of: (i) sixty (60%) percent of the Value of
Eligible Inventory of Borrowers consisting of finished goods and raw materials
consisting of uncut finished fabric, or (ii) $12,000,000, less (c) any Reserves.
For purposes only of applying the sublimit on Revolving Loans based on Eligible
Inventory set forth in clause (b)(ii) above, Lender may treat the then undrawn
amounts of outstanding Letter of Credit Accommodations for the purpose of
purchasing Eligible Inventory as Revolving Loans to the extent Lender is in
effect basing the issuance of the Letter of Credit Accommodations on the Value
of the Eligible Inventory being purchased with such Letter of Credit
Accommodations. In determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the outstanding
Revolving Loans and Reserves shall be attributed first to any components of the
lending formulas set forth above that are not subject to such sublimit, before
being attributed to the components of the lending formulas subject to such
sublimit.
1.6 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York, State of Georgia or the State of North
Carolina, and a day on which the Reference Bank and Lender are open for the
transaction of business, except that if a determination of a Business Day shall
relate to any Eurodollar Rate Loans, the term Business Day shall also exclude
any day on which banks are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.
1.7 "Capital Leases" shall mean, as applied to any Person, any lease of (or
any agreement conveying the right to use) any property (whether real, personal
or mixed) by such Person as lessee which in accordance with GAAP, is required to
be reflected as a liability on the balance sheet of such Person.
2
1.8 "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's capital stock, partnership interests or limited liability company
interests at any time outstanding, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or other interests (but
excluding any debt security that is exchangeable for or convertible into such
capital stock).
1.9 "Cash Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of one hundred eighty (180) days or less
issued or directly and fully guaranteed or insured by the United States of
America of any agency or instrumentality thereof; provided, that, the full faith
and credit of the United States of America is pledged in support thereof; (b)
certificates of deposit or bankers' acceptances with a maturity of one hundred
eighty (180) days or less of any financial institution that is a member of the
Federal Reserve System having combined capital and surplus and undivided profits
of not less than $250,000,000; (c) commercial paper (including variable rate
demand notes) with a maturity of one hundred eighty (180) days or less issued by
a corporation (except an Affiliate of any Borrower) organized under the laws of
any State of the United States of America or the District of Columbia and rated
at least A-1 by Standard & Poor's Ratings Service, a division of The XxXxxx-Xxxx
Companies, Inc. or at least P-1 by Xxxxx'x Investors Service, Inc.; (d)
repurchase obligations with a term of not more than thirty (30) days for
underlying securities of the types described in clause (a) above entered into
with any financial institution having combined capital and surplus and undivided
profits of not less than $250,000,000; (e) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit to the
United States of America, in each case maturing within one hundred eighty (180)
days or less from the date of acquisition; provided, that, the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (f)
investments in money market funds and mutual funds which invest substantially
all of their assets in securities of the types described in clauses (a) through
(e) above.
1.10 "Change of Control" shall mean (a) the transfer (in one transaction or
a series of transactions) of all or substantially all of the assets of any
Borrower to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (b) the liquidation or dissolution of any Borrower or the
adoption of a plan by the stockholders of any Borrower relating to the
dissolution or liquidation of Borrower; (c) the acquisition by any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act), except for
one or more Permitted Holders, of beneficial ownership, directly or indirectly,
of fifty (50%) percent or more of the voting power of the total outstanding
Voting Stock of Borrower or the Board of Directors of Borrower; (d) during any
period of two (2) consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of Borrower (together with any new
directors who have been appointed by any Permitted Holder, or whose nomination
for election by the stockholders of Borrower, as the case may be, was approved
by a vote of at least sixty-six and two-thirds (66 2/3%) percent of the
directors then still in office who were either directors at the beginning of
3
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of Borrower then still in office; or (e) the failure of Duck Head to
own one hundred (100%) percent of the voting power of the total outstanding
Voting Stock of Merchandising.
1.11 "Code" shall mean the Internal Revenue Code of 1986, together with all
rules, regulations and interpretations thereunder or related thereto.
1.12 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.13 "Collateral Access Agreement" shall mean an agreement in writing, in
form and substance satisfactory to Lender, from any lessor of premises to any
Borrower, or any other person to whom any Collateral (including Inventory,
Equipment, bills of lading or other documents of title) is consigned or who has
custody, control or possession of any such Collateral or is otherwise the owner
or operator of any premises on which any of such Collateral is located, pursuant
to which such lessor, consignee or other person, inter alia, acknowledges the
first priority security interest of Lender in such Collateral, agrees to waive
any and all claims such lessor, consignee or other person may, at any time, have
against such Collateral, whether for processing, storage or otherwise, and
agrees to permit Lender access to, and the right to remain on, the premises of
such lessor, consignee or other person so as to exercise Lender's rights and
remedies and otherwise deal with such Collateral and in the case of any person
who at any time has custody, control or possession of any bills of lading or
other documents of title, agrees to hold such bills of lading or other documents
as bailee for Lender and to follow all instructions of Lender with respect
thereto.
1.14 "Cost" shall mean, as to Inventory as of any date, the cost of such
Inventory on such date, determined on a first-in-first-out basis principally on
the weighted average cost basis in accordance with GAAP.
1.15 "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender acknowledging
Lender's first priority security interest in the monies due and to become due to
any Borrower (including, without limitation, credits and reserves) under the
Credit Card Agreements, and agreeing to transfer all such amounts to the Blocked
Accounts, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.16 "Credit Card Agreements" shall mean all agreements now or hereafter
entered into by any Borrower with any Credit Card Issuer or any Credit Card
Processor, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, including, but not
limited to, the agreements set forth on Schedule 8.20 hereto.
1.17 "Credit Card Issuer" shall mean any person (other than any Borrower)
who issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank credit or debit
cards issued through MasterCard International,
4
Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover,
Diners Club, Xxxxx Xxxxxxx and other non-bank credit or debit cards, including,
without limitation, credit or debit cards issued by or through American Express
Travel Related Services Company, Inc. and Novus Services, Inc.
1.18 "Credit Card Processor" shall mean any servicing or processing agent
or any factor or financial intermediary who facilitates, services, processes or
manages the credit authorization, billing transfer and/or payment procedures
with respect to any of any Borrower's sales transactions involving credit card
or debit card purchases by customers using credit cards or debit cards issued by
any Credit Card Issuer.
1.19 "Credit Card Receivables" shall mean collectively, (a) all present and
future rights of any Borrower to payment from any Credit Card Issuer, Credit
Card Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such goods or services using a credit
or debit card and (b) all present and future rights of any Borrower to payment
from any Credit Card Issuer, Credit Card Processor or other third party in
connection with the sale or transfer of Accounts arising pursuant to the sale of
goods or rendition of services to customers who have purchased such goods or
services using a credit card or a debit card, including, but not limited to, all
amounts at any time due or to become due from any Credit Card Issuer or Credit
Card Processor under the Credit Card Agreements or otherwise.
1.20 "Customs Brokers" shall mean the persons listed on Schedule 1.20
hereto or such other person as may be selected by Borrowers after the date
hereof and after written notice by Borrower to Lender who is reasonably
acceptable to Lender, provided, that, as to each such person (including those
listed on such Schedule), Borrowers have used their reasonable efforts to obtain
a Collateral Access Agreement duly authorized, executed and delivered by such
person, such agreement is in full force and effect and such person has complied
with the terms thereof.
1.21 "Distribution Agreements" shall mean, individually and collectively,
the Distribution Agreement, dated as of March 15, 2000 by and among Xxxxxxxx, XX
Apparel Company, Inc. and Delta Apparel, Inc. (the "DWI Distribution
Agreement"), bills of sale, quitclaim deeds, assignment and assumption
agreements and such other instruments of transfer as are referred to therein and
all side letters with respect thereto, and all agreements, documents and
instruments executed and/or delivered in connection therewith, as all of the
foregoing now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced; provided, that, the term "Distribution
Agreements" as used herein shall not include any of the "Financing Agreements"
as such term is defined herein.
1.22 "Distribution and Office Facility" shall mean the Real Property and
related assets of Duck Head located in Winder, Georgia, as more particularly
described in the Mortgage covering such Real Property and related assets.
1.23 "EBITDA" shall mean, as to any Person, with respect to any period, an
amount equal to: (a) the Net Income of such Person and its Subsidiaries for such
period on a consolidated basis determined in accordance with GAAP, plus
depreciation, amortization and other non-cash
5
charges (including, but not limited to, imputed interest and deferred
compensation) for such period (to the extent deducted in the computation of Net
Income), all in accordance with GAAP, plus the Interest Expense for such period
(to the extent deducted in the computation of Net Income), plus charges for
Federal, Provincial, State, district, municipal, local and foreign income taxes.
1.24 "Eligible Accounts" shall mean Accounts created by Borrowers which are
and continue to be acceptable to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and delivery of
goods by any Borrower or rendition of services by any Borrower in the ordinary
course of its business which transactions are completed in accordance with the
terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days after the date
of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained in Section
7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment, guaranteed sale,
sale and return, sale on approval, or other terms under which payment by the
account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to such
Accounts is located in the United States of America or Canada (provided, that,
at any time promptly upon Lender's request, Borrowers shall execute and deliver,
or cause to be executed and delivered, such other agreements, documents and
instruments as may be required by Lender to perfect the security interests of
Lender in those Accounts of an account debtor with its chief executive office or
principal place of business in Canada in accordance with the applicable laws of
the Province of Canada in which such chief executive office or principal place
of business is located and take or cause to be taken such other and further
actions as Lender may request to enable Lender as secured party with respect
thereto to collect such Accounts under the applicable Federal or Provincial laws
of Canada) or, at Lender's option, if the chief executive office and principal
place of business of the account debtor with respect to such Accounts is located
other than in the United States of America or Canada, then if either: (i) the
account debtor has delivered to the applicable Borrower an irrevocable letter of
credit issued or confirmed by a bank satisfactory to Lender and payable only in
the United States of America and in U.S. dollars, sufficient to cover such
Account, in form and substance satisfactory to Lender and if required by Lender,
the original of such letter of credit has been delivered to Lender or Lender's
agent and the issuer thereof notified of the assignment of the proceeds of such
letter of credit to Lender, or (ii) such Account is subject to credit insurance
payable to Lender issued by an insurer and on terms and in an amount acceptable
to Lender, or (iii) such Account is otherwise acceptable in all respects to
Lender (subject to such lending formula with respect thereto as Lender may
determine);
6
(f) such Accounts do not consist of progress xxxxxxxx (such that the
obligation of the account debtors with respect to such Accounts is conditioned
upon any Borrower's satisfactory completion of any further performance under the
agreement giving rise thereto), xxxx and hold invoices or retainage invoices,
except as to xxxx and hold invoices, if Lender shall have received an agreement
in writing from the account debtor, in form and substance satisfactory to
Lender, confirming the unconditional obligation of the account debtor to take
the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not asserted a
counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to any right of setoff or recoupment against
such Accounts (but the portion of the Accounts of such account debtor in excess
of the amount at any time and from time to time owed by any Borrower to such
account debtor or claimed owed by such account debtor may be deemed Eligible
Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and perfected
security interest of Lender and any goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any liens except those permitted
in this Agreement;
(j) neither the account debtor nor any officer or employee of the account
debtor with respect to such Accounts is an officer, employee, agent or other
Affiliate of any Borrower;
(k) the account debtors with respect to such Accounts are not any foreign
government, the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, unless, if the account debtor is
the United States of America, any State, political subdivision, department,
agency or instrumentality thereof, upon Lender's request, the Federal Assignment
of Claims Act of 1940, as amended or any similar State or local law, if
applicable, has been complied with in a manner satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or pending
against the account debtors with respect to such Accounts which might result in
any material adverse change in any such account debtor's financial condition;
(m) such Accounts of a single account debtor or its affiliates do not
constitute more than fifteen (15%) percent (the "Percentage Limitation") of all
otherwise Eligible Accounts (but the portion of the Accounts not in excess of
such Percentage Limitation may be deemed Eligible Accounts), provided, that, the
Percentage Limitation in respect of (i) X.X. Xxxxx, Inc. shall be fifty (50%)
percent, (ii) Saks, Inc., shall be twenty (20%) percent and (iii) Goodys, Inc.
shall be twenty (20%) percent subject to increase or decrease as Lender may
determine from time to time in its sole discretion;
7
(n) such Accounts are not owed by an account debtor who has Accounts unpaid
more ninety (90) days after the original invoice date for them which constitute
more than fifty (50%) percent of the total Accounts of such account debtor;
(o) the account debtor is not located in a state requiring the filing of a
Notice of Business Activities Report or similar report in order to permit any
Borrower to seek judicial enforcement in such State of payment of such Account,
unless such Borrower has qualified to do business in such state or has filed a
Notice of Business Activities Report or equivalent report for the then current
year or such failure to file and inability to seek judicial enforcement is
capable of being remedied without any material delay or material cost;
(p) such Accounts do not constitute Credit Card Receivables;
(q) such Accounts are owed by account debtors whose total indebtedness to
such Borrower does not exceed the credit limit with respect to such account
debtors as determined by Borrowers substantially consistent with its current
practices as of the date hereof by more than twenty (20%) percent and as is
reasonably acceptable to Lender (but the portion of the Accounts not in excess
of such credit limit may be deemed Eligible Accounts); and
(r) such Accounts are owed by account debtors deemed creditworthy at all
times by Borrowers consistent with its current practice and who are reasonably
acceptable to Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith based on an event, condition or other
circumstance arising after the date hereof, or existing on the date hereof to
the extent Lender has no written notice thereof from Borrowers, which adversely
affects or could reasonably be expected to adversely affect the Accounts in the
good faith determination of Lender. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.25 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the ordinary course of the business of Borrowers and raw
materials of Duck Head consisting of uncut finished fabric, which are acceptable
to Lender based on the criteria set forth below. In general, Eligible Inventory
shall not include (a) work-in-process; (b) raw materials other than raw
materials consisting of uncut finished fabric; (c) spare parts for equipment;
(d) packaging and shipping materials; (e) supplies used or consumed in each
Borrower's business; (f) Inventory at premises other than those owned and
controlled by a Borrower, except any Inventory which would otherwise be deemed
Eligible Inventory at locations in the United States of America which are not
owned and operated by a Borrower may nevertheless be considered Eligible
Inventory: (i) as to locations which are leased by Borrower if Lender shall have
received a Collateral Access Agreement from the owner and lessor of such
location, duly authorized, executed and delivered by such owner and lessor,
except that notwithstanding that Lender shall not have received such an
agreement for a particular leased location, Lender may consider Inventory at
such leased location which would otherwise be Eligible Inventory to be Eligible
Inventory and in such event, Lender may at any time establish such Reserves as
Lender may determine in respect of amounts at any time payable by Borrower to
the owner or lessor of such
8
location, without limiting any other rights and remedies of Lender under this
Agreement or under the other Financing Agreements with respect to the
establishment of Reserves or otherwise and (ii) as to premises of third parties
(including consignees and processors), Lender shall have received a Collateral
Access Agreement duly authorized, executed and delivered by the owner and
operator of such premises (except that notwithstanding that Lender shall not
have received such an agreement as to a particular third party location, Lender
may consider Inventory at such location which would otherwise be Eligible
Inventory to be Eligible Inventory and in such event, Lender may at any time
establish such Reserves as Lender may determine in respect of amounts at any
time payable by Borrower to such third party, without limiting any other rights
or remedies of Lender under this Agreement or under the other Financing
Agreements with respect to the establishment of Reserves or otherwise), and in
addition, if required by Lender, as to premises of third parties where assets of
Borrower are located: (A) the owner and operator executes appropriate UCC-1
financing statements in favor of Borrower, which are duly assigned to Lender and
(B) any secured lender to the owner and operator is properly notified of the
first priority lien on such Inventory of Lender; (g) Inventory located outside
the United States of America shall only be Eligible Inventory if (i) it is in
transit to either the premises of a Customs Broker in the United States or
premises of Borrower in the United States and as to premises of a Customs Broker
or premises which are not owned and controlled by Borrower only if Lender has
received a Collateral Access Agreement duly authorized, executed and delivered
by such Customs Broker or the owner, lessor and operator of such other premises,
as the case may be, (ii) Lender has a first priority perfected security interest
in and control and possession of all originals of documents of title with
respect to such Inventory, (iii) Lender has received a Collateral Access
Agreement from the Customs Broker dealing with such Inventory, duly authorized,
executed and delivered by such person, and such agreement is in full force and
effect, binding upon such person and such person has complied with the terms
thereof, (iv) Lender has received (A) a copy of the certificate of marine cargo
insurance in connection therewith in which it has been named as an additional
insured and loss payee in a manner acceptable to Lender and (B) a copy of the
invoice and manifest with respect thereto, and (v) such Inventory is not subject
to any Letter of Credit Accommodation; (h) Inventory subject to a security
interest or lien in favor of any person other than Lender except those permitted
in this Agreement; (i) xxxx and hold goods; (j) Inventory which is not subject
to the first priority, valid and perfected security interest of Lender; (k)
damaged and/or defective Inventory which is unsaleable or which any Borrower has
not marked down to its realizable value; (l) samples; (m) Inventory to be
returned to vendors; and (n) Inventory purchased or sold on consignment. General
criteria for Eligible Inventory may be established and revised from time to time
by Lender in good faith based on an event, condition or other circumstance
arising after the date hereof, or existing on the date hereof to the extent
Lender has no written notice thereof from Borrowers, which adversely affects or
could reasonably be expected to adversely affect the Inventory in the good faith
determination of Lender. Any Inventory which is not Eligible Inventory shall
nevertheless be part of the Collateral.
1.26 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between any Borrower and any
Governmental Authority, (a) relating to pollution and the
9
protection, preservation or restoration of the environment (including air, water
vapor, surface water, ground water, drinking water, drinking water supply,
surface land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety, (b) relating to the exposure to, or the
use, storage, recycling, treatment, generation, manufacture, processing,
distribution, transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials, or (c) relating to all
laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. The term "Environmental Laws"
includes (i) the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act,
the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act,
the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of
1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.27 "Equipment" shall mean all of each Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.28 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, together with all rules, regulations and interpretations
thereunder or related thereto.
1.29 "ERISA Affiliate" shall mean any person required to be aggregated with
Borrowers or any of their respective Subsidiaries under Sections 414(b), 414(c),
414(m) or 414(o) of the Code.
1.30 "ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (d) the filing pursuant to Section 412 of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Plan; (e) the occurrence of a "prohibited
transaction" with respect to which any Borrower or any of its Subsidiaries is a
"disqualified person" (within the meaning of Section 4975 of the Code) or with
respect to which any Borrower or any of its Subsidiaries could otherwise be
liable; (f) a complete or partial withdrawal by any Borrower or any ERISA
Affiliate from a Multiemployer Plan or a cessation of operations which is
treated as such a withdrawal or notification that a Multiemployer Plan is in
reorganization; (g) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Section 4041 or 4041A of
10
ERISA, or the commencement of proceedings by the Pension Benefit Guaranty
Corporation to terminate a Plan or Multiemployer Plan; (h) an event or condition
which might reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan or Multiemployer Plan; (i) the imposition of any liability under Title IV
of ERISA, other than the Pension Benefit Guaranty Corporation premiums due but
not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA
Affiliate; and (j) any other event or condition with respect to a Plan or
Multiemployer Plan or any Plan subject to Title IV of ERISA maintained, or
contributed to, by any ERISA Affiliate that could reasonably be expected to
result in liability of any Borrower.
1.31 "Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.32 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.33 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.34 "Excess Availability" shall mean the amount, as determined by Lender,
calculated at any time, equal to: (a) the lesser of: (i) the Borrowing Base and
(ii) the Revolving Loan Limit, minus (b) the sum of: (i) the amount of all then
outstanding and unpaid Obligations (but not including for this purpose the then
outstanding principal amount of the Term Loan), plus (ii) the aggregate amount
of all then outstanding and unpaid trade payables and other obligations of
Borrowers which are more than sixty (60) days past due as of such time, plus
(iii) the amount of checks issued by Borrowers to pay trade payables and other
obligations which are more than sixty (60) days past due as of such time, but
not yet sent.
1.35 "Exchange Act" shall mean the Securities Exchange Act of 1934,
together with all rules, regulations and interpretations thereunder or related
thereto.
1.36 "Excluded Property" shall mean the (a) embroidery equipment listed on
Schedule 1.36 annexed hereto and made a part hereof, and (b) assets of Borrowers
and their Subsidiaries located in Costa Rica on the date hereof. The foregoing
shall not be construed as a waiver of any claims or rights of Lender with
respect to any of the assets described in this definition or to limit or affect
the rights of Lender to at any time take such action as Lender may require, or
to require Borrowers to take such action, so as to preserve, protect or
establish the security interest, lien,
11
claim or other interest of Lender in such assets (whether pursuant to this
Section, Section 9.20 hereof or otherwise) in accordance with the terms of this
Agreement.
1.37 "Existing Letters of Credit" shall mean the letters of credit issued
for the account of Borrowers by Carolina First Bank listed on Schedule 1.37
hereto.
1.38 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrowers
or any Obligor in connection with this Agreement.
1.39 "GECC" shall mean General Electric Capital Corporation.
1.40 "GECC Warehouse Equipment Lease" shall mean the Master Lease Agreement
dated June 21, 1996 (the "Warehouse Equipment Lease") as amended on May __, 2000
by and between Borrower, as lessee and GECC, as lessor, as the same now exists
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced in accordance with the terms of this Agreement.
1.41 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.11 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the most recent audited financial statements delivered to
Lender prior to the date hereof.
1.42 "Governmental Authority" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
1.43 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
12
1.44 "Indebtedness" shall mean, with respect to any Person, any liability,
whether or not contingent, (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof) or evidenced by bonds, notes, debentures or similar
instruments; (b) representing the balance deferred and unpaid of the purchase
price of any property or services (except any such balance that constitutes an
account payable to a trade creditor (whether or not an Affiliate) created,
incurred, assumed or guaranteed by such Person in the ordinary course of
business of such Person in connection with obtaining goods, materials or
services that is not overdue by more than ninety (90) days, unless the trade
payable is being contested in good faith); (c) all obligations as lessee under
leases which have been, or should be, in accordance with GAAP recorded as
Capital Leases; (d) any contractual obligation, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, or any agreement to purchase,
repurchase, or otherwise acquire such indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof,
or to maintain solvency, assets, level of income, or other financial condition;
(e) all obligations with respect to redeemable stock and redemption or
repurchase obligations under any Capital Stock or other equity securities issued
by such Person; (f) all reimbursement obligations and other liabilities of such
Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker's acceptances or similar documents or instruments
issued for such Person's account; and (g) all indebtedness of such Person in
respect of indebtedness of another Person for borrowed money or indebtedness of
another Person otherwise described in this definition which is secured by any
consensual lien, security interest, collateral assignment, conditional sale,
mortgage, deed of trust, or other encumbrance on any asset of such Person,
whether or not such obligations, liabilities or indebtedness are assumed by or
are a personal liability of such Person, all as of such time.
1.45 "Information Certificate" shall mean the Information Certificate of
each Borrower constituting Exhibit A hereto containing material information with
respect to such Borrower, its business and assets provided by or on behalf of
such Borrower to Lender in connection with the preparation of this Agreement and
the other Financing Agreements and the financing arrangements provided for
herein.
1.46 "Intellectual Property" shall mean each Borrower's now owned and
hereafter arising or acquired: patents, patent rights, patent applications,
copyrights, works which are the subject matter of copyrights, copyright
registrations, trademarks, trade names, trade styles, trademark and service xxxx
applications, and licenses and rights to use any of the foregoing; all
extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to xxx for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys,
reports, manuals, and operating standards; goodwill; customer and other lists in
whatever form maintained; and trade secret rights, copyright rights, rights in
works of authorship, and contract rights relating to computer software programs,
in whatever form created or maintained.
1.47 "Interest Expense" shall mean, for any period, as to any Person, all
of the following as determined in accordance with GAAP: (a) total interest
expense, whether paid or accrued
13
during such period (including the interest component of Capital Leases for such
period), including, without limitation, all bank fees, commissions, discounts
and other fees and charges owed with respect to letters of credit (but excluding
amortization of discount and amortization of deferred financing fees paid in
cash in connection with the transactions contemplated hereby, interest paid in
property other than cash and any other interest expense not payable in cash),
minus (b) any net payments received during such period as interest income
received in respect of its investments in cash.
1.48 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), or three (3) months duration as Borrowers may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrowers may
not elect an Interest Period which will end after the last day of the
then-current term of this Agreement.
1.49 "Interest Rate" shall mean,
(a) as to Prime Rate Loans, a rate equal to one-half of one (1/2%) percent
per annum in excess of the Prime Rate and, as to Eurodollar Rate Loans, a rate
of two and one-half (2 1/2%) percent per annum in excess of the Adjusted
Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period
selected by Borrowers as in effect two (2) Business Days after the date of
receipt by Lender of the request of Borrowers for such Eurodollar Rate Loans in
accordance with the terms hereof, whether such rate is higher or lower than any
rate previously quoted to Borrowers);
(b) notwithstanding anything to the contrary set forth in clause (a) above,
the Interest Rate shall mean as to Prime Rate Loans, a rate equal to one-quarter
(1/4%) percent per annum in excess of the Prime Rate, as to Eurodollar Rate
Loans, a rate equal to two and one- quarter (2 1/4%) percent per annum in excess
of the Adjusted Eurodollar Rate (calculated as described in clause (a) above),
effective as of the first day of the month after each of the following
conditions is satisfied as determined by Lender in good faith: (i) the EBITDA of
Duck Head and its Subsidiaries for the immediately preceding fiscal year
(commencing with the fiscal year ending on June 30, 2000) calculated based on
the audited financial statements of Duck Head and its Subsidiaries for such
fiscal year delivered to Lender, together with the unqualified opinion of the
independent certified accountants, in accordance with Section 9.6 hereof, shall
equal or exceed $5,000,000, and (ii) no Event of Default or any act, condition
or event which, with notice or passage of time or both would constitute an Event
of Default shall exist or have occurred and be continuing; provided, that, in
the event that the Interest Rate is reduced as provided in this clause (b), if
in any subsequent fiscal year thereafter the condition set forth in clause
(b)(i) is not satisfied, effective as of the first day of the month after the
receipt by Lender of the audited financial statements of Duck Head and its
Subsidiaries for such fiscal year, the Interest Rate shall increase to those
rates set forth in clause (a) above; and
(c) notwithstanding anything to the contrary contained in clauses (a) and
(b) above, the Interest Rate shall mean the rate of two and one-half (2 1/2%)
percent per annum in excess of the Prime Rate as to Prime Rate Loans and the
rate of four and one-half (4 1/2%) percent per
14
annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at
Lender's option, without notice, (d) either (i) for the period on and after the
date of termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid and satisfied in full, or (ii) for the period from and after
the date of the occurrence of any Event of Default, and for so long as such
Event of Default is continuing as determined by Lender and (e) on the Revolving
Loans at any time outstanding in excess of the amounts available to Borrowers
under Section 2 (whether or not such excess(es) arise or are made with or
without Lender's knowledge or consent and whether made before or after an Event
of Default).
1.50 "Inventory" shall mean all of each Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.51 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of any Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed to
the issuer the performance by any Borrower of its obligations to such issuer
(including without limitation, the Existing Letters of Credit).
1.52 "Loans" shall mean the Revolving Loans and the Term Loan.
1.53 "Material Contract" shall mean (a) any contract or other agreement
(other than the Financing Agreements), written or oral, of any Borrower
involving monetary liability of or to any Person in an amount in excess of
$1,000,000 in any fiscal year and (b) any other contract or other agreement
(other than the Financing Agreements), whether written or oral, to which any
Borrower is a party as to which the breach, nonperformance, cancellation or
failure to renew by any party thereto would have a material adverse effect on
the business, assets, condition (financial or otherwise) or results of
operations or prospects of such Borrower or the validity or enforceability of
this Agreement, any of the other Financing Agreements, or any of the rights and
remedies of Lender hereunder or thereunder.
1.54 "Maximum Credit" shall mean the amount of $20,760,000 as the same may
be increased pursuant to Section 2.3(b) hereof.
1.55 "Maximum Interest Rate" shall mean the maximum non-usurious rate of
interest under applicable Federal or State law as in effect from time to time
that may be contracted for, taken, reserved, charged or received in respect of
the indebtedness of Borrowers to Lender, or to the extent that at any time such
applicable law may thereafter permit a higher maximum non- usurious rate of
interest, then such higher rate. Notwithstanding any other provision hereof, the
Maximum Interest Rate shall be calculated on a daily basis (computed on the
actual number of days elapsed over a year of three hundred sixty-five (365) or
three hundred sixty-six (366) days, as the case may be).
15
1.56 "Mortgages" shall mean, the Deed to Secure Debt and Security
Agreement, dated of even date herewith, by Duck Head in favor of Lender with
respect to the Real Property and related assets of Duck Head located in Winder,
Georgia.
1.57 "Multiemployer Plan" shall mean a "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding six (6) years contributed to by any Borrower or any
ERISA Affiliate.
1.58 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.59 "Net Income" shall mean, with respect to any Person, for any period,
the aggregate of the net income (loss) of such Person and its Subsidiaries, on a
consolidated basis, for such period (excluding to the extent included therein
any extraordinary, one-time or non-recurring gains) after deducting all charges
which should be deducted before arriving at the net income (loss) for such
period and after deducting the Provision for Taxes for such period, all as
determined in accordance with GAAP; provided, that, (a) the net income of any
Person that is not a wholly-owned Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid or payable to such Person or a wholly-owned
Subsidiary of such Person; (b) the effect of any change in accounting principles
adopted by such Person or its Subsidiaries after the date hereof shall be
excluded; and (c) the net income (if positive) of any wholly-owned Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such wholly-owned Subsidiary to such Person or to any other wholly-owned
subsidiary of such Person is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such wholly-owned Subsidiary shall
be excluded. For the purpose of this definition, net income excludes any gain
(but not loss) together with any related Provision for Taxes for such gain (but
not loss) realized upon the sale or other disposition of any assets that are not
sold in the ordinary course of business (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or of any Capital
Stock of such Person or a Subsidiary of such Person and any net income realized
as a result of changes in accounting principles or the application thereof to
such Person.
1.60 "Net Recovery Percentage" shall mean the fraction, expressed as a
percentage, (a) the numerator of which is the amount equal to the orderly
liquidation value of the Inventory as set forth in the most recent acceptable
appraisal of Inventory received by Lender in accordance with Section 7.3, net of
operating expenses, liquidation expenses and commissions, and (b) the
denominator of which is the original cost of the aggregate amount of the
Inventory subject to such appraisal.
1.61 "Obligations" shall mean any and all Revolving Loans, the Term Loan,
Letter of Credit Accommodations and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by any Borrower to
Lender and/or its affiliates, including principal,
16
interest, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, whether arising under this
Agreement or otherwise, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to any Borrower
under the United States Bankruptcy Code or any similar statute (including the
payment of interest and other amounts which would accrue and become due but for
the commencement of such case, whether or not such amounts are allowed or
allowable in whole or in part in such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and however acquired by
Lender.
1.62 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than any Borrower.
1.63 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.64 "Permits" shall have the meaning set forth in Section 8.7 hereof.
1.65 "Permitted Holders" shall mean the persons listed on Schedule 1.65
hereto and their respective successors and assigns.
1.66 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Code), limited liability company, limited liability
partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.67 "Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which any Borrower sponsors, maintains, or to which it makes, is making,
or is obligated to make contributions, or in the case of a Multiemployer Plan
has made contributions at any time during the immediately preceding six (6) plan
years.
1.68 "Prime Rate" shall mean the rate from time to time publicly announced
by First Union National Bank, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.
1.69 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.70 "Provision for Taxes" shall mean an amount equal to all taxes imposed
on or measured by net income, whether Federal, State, Provincial, municipal or
local, and whether foreign or domestic, that are paid or payable by any Person
in respect of any period in accordance with GAAP.
17
1.71 "Real Property" shall mean all now owned and hereafter acquired real
property of any Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located, including the
real property and related assets more particularly described in the Mortgages.
1.72 "Receivables" shall mean: (a) all Accounts; (b) all amounts at any
time payable to any Borrower in respect of the sale or other disposition by such
Borrower of any Account or other obligation for the payment of money; (c) all
interest, fees, late charges, penalties, collection fees and other amounts due
or to become due or otherwise payable in connection with any Account; (d) all
letters of credit, indemnities, guarantees, security or other deposits and
proceeds thereof issued payable to any Borrower or otherwise in favor of or
delivered to any Borrower in connection with any Account; or (e) all other
contract rights, chattel paper, instruments, notes, general intangibles and
other forms of obligations owing to any Borrower, whether from the sale and
lease of goods or other property, licensing of any property (including
Intellectual Property or other general intangibles), rendition of services or
from loans or advances by any Borrower or to or for the benefit of any third
person (including loans or advances to any Affiliates or Subsidiaries) or
otherwise associated with any Accounts, Inventory or general intangibles of any
Borrower (including, without limitation, choses in action, causes of action, tax
refunds, tax refund claims, any funds which may become payable to any Borrower
in connection with the termination of any Plan or other employee benefit plan
and any other amounts payable to any Borrower from any Plan or other employee
benefit plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, casualty
or any similar types of insurance and any proceeds thereof and proceeds of
insurance covering the liens of employees on which any Borrower is beneficiary.
1.73 "Records" shall mean all of each Borrower's present and future books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of any Borrower
with respect to the foregoing maintained with or by any other person).
1.74 "Reference Bank" shall mean First Union National Bank, or such other
bank as Lender may from time to time designate.
1.75 "Renewal Date" shall the meaning set forth in Section 12.1 hereof.
1.76 "Reserves" shall mean as of any date of determination, such amounts as
Lender may from time to time establish and revise in good faith reducing the
amount of Revolving Loans and Letter of Credit Accommodations which would
otherwise be available to Borrowers under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks arising after
the date of this Agreement or of which Lender had no actual knowledge as of such
date, which, as determined by Lender in good faith, adversely affect, or would
have a reasonable
18
likelihood of adversely affecting, either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the assets,
business or financial condition of Borrowers or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Lender's
good faith belief that any collateral report or financial information furnished
by or on behalf of Borrowers or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect; or (c) to reflect
outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof;
or (d) to reflect inventory shrinkage; (e) $375,000 in respect of deferred
compensation liabilities of Borrowers for their employees and those of any
member of the Duck Head Employee Group (as such term is defined in the DWI
Distribution Agreement)such reserve to terminate upon Lender's receipt of
evidence, in form and substance satisfactory to it that the option provided to
members of the Duck Head Employee Group to receive a distribution of deferred
compensation benefits in connection with the transactions contemplated by the
Distribution Agreement has expired; or (f) to reflect amounts owing by Borrowers
to Credit Card Issuers or Credit Card Processors in connection with the Credit
Card Agreements; or (g) in respect of any state of facts which Lender determines
in good faith constitutes an Event of Default or may, with notice or passage of
time or both, constitute an Event of Default. To the extent Lender may revise
the lending formulas used to determine the Borrowing Base or establish new
criteria or revise existing criteria for Eligible Accounts or Eligible Inventory
so as to address any circumstances, condition, event or contingency in an manner
satisfactory to Lender, Lender shall not establish a Reserve for the same
purpose. The amount of any Reserve established by Lender shall have a reasonable
relationship to the event, condition or other matter which is the basis for such
reserve as determined by Lender in good faith.
1.77 "Revolving Loan Limit" shall mean $15,000,000.
1.78 "Revolving Loans" shall mean the loans now or hereafter made by Lender
to or for the benefit of Borrowers on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2.1 hereof.
1.79 "Subsidiary" or "subsidiary" shall mean, with respect to any Person,
any corporation, limited liability company, limited liability partnership or
other limited or general partnership, trust, association or other business
entity of which an aggregate of at least a majority of the outstanding Capital
Stock or other interests entitled to vote in the election of the board of
directors of such corporation (irrespective of whether, at the time, Capital
Stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency), managers, trustees
or other controlling persons, or an equivalent controlling interest therein, of
such Person is, at the time, directly or indirectly, owned by such Person and/or
one or more subsidiaries of such Person.
1.80 "Term Loan" shall mean the term loan made by Lender to Borrowers as
provided for in Section 2.3 hereof.
19
1.81 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in first-out
basis in accordance with GAAP or (b) market value.
1.82 "Voting Stock" shall mean with respect to any Person, (a) one (1) or
more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
1.83 "Warehouse Equipment" shall mean the leased equipment of Duck Head as
described in Schedule Nos. 001 and 002 to the GECC Warehouse Equipment Lease,
whether or not the GECC Warehouse Equipment Lease is in full force and effect,
such schedules being annexed hereto as Exhibit 1.83.
1.84 "Woodside" shall mean Delta Woodside Industries, Inc., a South
Carolina corporation, and its successors and assigns.
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Revolving Loans.
----------------
(a) Subject to and upon the terms and conditions contained herein, Lender
agrees to make Revolving Loans to Borrowers from time to time in amounts
requested by Borrowers up to the amount equal to the lesser of: (i) the
Borrowing Base or (ii) the Revolving Loan Limit.
(b) Lender may, in its discretion, from time to time, upon not less than
five (5) days prior notice to Borrower, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in good faith
that (A) the dilution with respect to the Accounts for any period (based on the
ratio of (1) the aggregate amount of reductions in Accounts other than as a
result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has materially declined or (ii) reduce the
lending formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed or (B) the advance percentage in the lending formula is more
than eighty-five (85%) percent of the Net Recovery Percentage with respect to
Eligible Inventory as set forth in the most recent appraisal thereof received by
Lender, or (C) the nature, quality or mix of the Inventory has materially
deteriorated. The amount of any decrease in the lending formulas shall have a
reasonable relationship to the event, condition or circumstance which is the
basis for such decrease as determined by Lender in good faith. In determining
whether to reduce the lending formula(s), Lender may consider events,
conditions, contingencies or risks which are also considered in determining
Eligible Accounts, Eligible Inventory or in establishing Reserves.
20
(c) Except in Lender's discretion, (i) the aggregate amount of the
Revolving Loans outstanding at any time shall not exceed the Revolving Loan
Limit, (ii) the aggregate amount of the Loans and the Letter of Credit
Accommodations outstanding at any time shall not exceed the Maximum Credit,
(iii) the aggregate amount of Revolving Loans and Letter of Credit
Accommodations based on Eligible Inventory consisting of uncut finished fabric
of Borrowers shall not exceed $750,000, and (iv) the aggregate amount of
Revolving Loans and Letter of Credit Accommodations based on Eligible Inventory
consisting of Eligible Inventory of Merchandising outstanding at any time shall
not exceed twenty (20%) percent of the aggregate amount of all outstanding
Revolving Loans and Letter of Credit Accommodations based on Eligible Inventory
to all Borrowers. In the event that the outstanding amount of any component of
the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
Revolving Loan Limit, the sublimits for Letter of Credit Accommodations set
forth in Section 2.2(e) or the Maximum Credit, as applicable, such event shall
not limit, waive or otherwise affect any rights of Lender in that circumstance
or on any future occasions and Borrower shall, upon demand by Lender, which may
be made at any time or from time to time, immediately repay to Lender the entire
amount of any such excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
--------------------------------
(a) Subject to and upon the terms and conditions contained herein, at the
request of a Borrower, Lender agrees to provide or arrange for Letter of Credit
Accommodations for the account of such Borrower containing terms and conditions
acceptable to Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the Letter of Credit
Accommodations shall constitute additional Revolving Loans to such Borrower
pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations, Borrowers shall
pay to Lender a letter of credit fee at a rate equal to one and one-half (1
1/2%) percent per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable in
arrears as of the first day of each succeeding month, except that Borrowers
shall pay to Lender such letter of credit fee, at Lender's option, without
notice, at a rate equal to three and one-half (3 1/2%) percent per annum on such
daily outstanding balance for: (i) the period from and after the date of
termination or non-renewal hereof until Lender has received full and final
payment of all Obligations (notwithstanding entry of a judgment against any
Borrower) and (ii) the period from and after the date of the occurrence of an
Event of Default for so long as such Event of Default is continuing as
determined by Lender. Such letter of credit fee shall be calculated on the basis
of a three hundred sixty (360) day year and actual days elapsed and the
obligation of Borrower to pay such fee shall survive the termination or
non-renewal of this Agreement.
(c) Borrowers shall give Lender two (2) Business Days' prior written of any
Borrower's request for the issuance of a Letter of Credit Accommodation. Such
notice shall be irrevocable and shall specify the original face amount of the
Letter of Credit Accommodation
21
requested, the effective date (which date shall be a Business Day) of issuance
of such requested Letter of Credit Accommodation, whether such Letter of Credit
Accommodations may be drawn in a single or in partial draws, the date on which
such requested Letter of Credit Accommodation is to expire (which date shall be
a Business Day), the purpose for which such Letter of Credit Accommodation is to
be issued, and the beneficiary of the requested Letter of Credit Accommodation.
Borrowers shall attach to such notice the proposed form of the Letter of Credit
Accommodation.
(d) In addition to being subject to the satisfaction of the applicable
conditions precedent contained in Section 4 hereof and the other terms and
conditions contained herein, no Letter of Credit Accommodations shall be
available unless each of the following conditions precedent have been satisfied
in a manner satisfactory to Lender: (i) Borrowers shall have delivered to the
proposed issuer of such Letter of Credit Accommodation at such times and in such
manner as such proposed issuer may require, an application in form and substance
satisfactory to such proposed issuer and Lender for the issuance of the Letter
of Credit Accommodation and such other documents as may be required pursuant to
the terms thereof, and the form and terms of the proposed Letter of Credit
Accommodation shall be satisfactory to Lender and such proposed issuer, (ii) as
of the date of issuance, no order of any court, arbitrator or other Governmental
Authority shall purport by its terms to enjoin or restrain money center banks
generally from issuing letters of credit of the type and in the amount of the
proposed Letter of Credit Accommodation, and no law, rule or regulation
applicable to money center banks generally and no request or directive (whether
or not having the force of law) from any Governmental Authority with
jurisdiction over money center banks generally shall prohibit, or request that
the proposed issuer of such Letter of Credit Accommodation refrain from, the
issuance of letters of credit generally or the issuance of such Letters of
Credit Accommodation; and (iii) the Excess Availability, prior to giving effect
to any Reserves with respect to such Letter of Credit Accommodations, on the
date of the proposed issuance of any Letter of Credit Accommodations, shall be
equal to or greater than: (A) if the proposed Letter of Credit Accommodation is
for the purpose of purchasing Eligible Inventory, the sum of (1) forty (40%)
percent multiplied by the Value of such Eligible Inventory, plus (2) freight,
taxes, duty and other amounts which Lender estimates must be paid by a Borrower
in connection with such Inventory upon arrival and for delivery to one of such
Borrower's locations for Eligible Inventory within the United States of America
and (iv) if the proposed Letter of Credit Accommodation is for any other
purpose, an amount equal to one hundred (100%) percent of the face amount
thereof and all other commitments and obligations made or incurred by Lender
with respect thereto. Effective on the issuance of each Letter of Credit
Accommodation, a Reserve shall be established in the applicable amount set forth
in Section 2.2(d)(iii)(A) or Section 2.2(d)(iii)(B).
(e) Except in Lender's discretion, the amount of all outstanding Letter of
Credit Accommodations and all other commitments and obligations made or incurred
by Lender in connection therewith shall not at any time exceed $10,000,000. At
any time an Event of Default exists or has occurred and is continuing, upon
Lender's request, Borrowers will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations.
22
(f) Each Borrower shall indemnify and hold Lender harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation. Each Borrower assumes all risks with respect to the acts
or omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Each Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Each Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions, whether caused
by any Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation, except for the gross negligence
or wilful misconduct of Lender as determined pursuant to a final, non-appealable
order of a court of competent jurisdiction. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(g) In connection with Inventory purchased pursuant to Letter of Credit
Accommodations, Borrowers will, at Lender's request, instruct all suppliers,
carriers, forwarders, customs brokers, warehouses or others receiving or holding
cash, checks, Inventory, documents or instruments in which Lender holds a
security interest to deliver them to Lender and/or subject to Lender's order,
and if they shall come into any Borrower's possession, to deliver them, upon
Lender's request, to Lender in their original form. Each Borrower shall also, at
Lender's request, designate Lender as the consignee on all bills of lading and
other negotiable and non-negotiable documents.
(h) Each Borrower hereby irrevocably authorizes and directs any issuer of a
Letter of Credit Accommodation to name such Borrower as the account party
therein and to deliver to Lender all instruments, documents and other writings
and property received by issuer pursuant to the Letter of Credit Accommodations
and to accept and rely upon Lender's instructions and agreements with respect to
all matters arising in connection with the Letter of Credit Accommodations or
the applications therefor. Nothing contained herein shall be deemed or construed
to grant any Borrower any right or authority to pledge the credit of Lender in
any manner. Lender shall have no liability of any kind with respect to any
Letter of Credit Accommodation provided by an issuer other than Lender unless
Lender has duly executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such Letter of Credit
Accommodation. Each Borrower shall be bound by any interpretation made in good
faith by Lender, or any other issuer or correspondent under or in connection
with any Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of such Borrower. Lender shall have the sole and exclusive
right and authority to, and no Borrower shall: (i) at any time an Event of
Default exists or has occurred and is continuing, (A) approve or resolve any
questions of non-compliance of documents, (B) give any instructions as to
acceptance or rejection of any documents or goods or (C) execute any and all
applications for steamship or airway guaranties, indemnities or delivery orders,
and (ii) at all times, (A) grant any
23
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents, and (B) agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letter of Credit Accommodations,
or documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral. Lender may take such actions either in its own name or in any
Borrower's name.
(i) Any rights, remedies, duties or obligations granted or undertaken by
any Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommoda tion, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by such Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by such Borrower to
Lender and to apply in all respects to such Borrower.
2.3 Term Loan. (a) Lender is making a Term Loan to Borrowers in the
-----------
original principal amount of $5,760,000. The Term Loan is (i) evidenced by a
Term Promissory Note in such original principal amount duly executed and
delivered by Borrowers to Lender concurrently herewith; (ii) to be repaid,
together with interest and other amounts, in accordance with this Agreement, the
Term Promissory Note, and the other Financing Agreements and (iii) secured by
all of the Collateral. Borrowers may not reborrow any principal amounts paid
pursuant to the Term Promissory Note except as provided for in Section 2.3(b)
below.
(b) At any time on or after the second anniversary of the date of this
Agreement, upon the written request of Borrowers, which shall be irrevocable
(and which shall only be made once), the outstanding principal amount of the
Term Loan may be increased by an amount equal to the difference between the (i)
then outstanding principal amount of the Term Loan and (ii) sixty (60%) percent
of the fair market value of the Distribution and Office Facility (calculated
based on the updated appraisal as described below); provided, that, any such
increase in the outstanding principal amount of the Term Loan shall only be
effective if each of the following conditions is satisfied as determined by
Lender: (A) Lender shall have received the written request of Borrowers for such
increase after the second anniversary of the date hereof, (B) no Event of
Default, or act, condition or event which with notice or passage of time or both
would constitute an Event of Default shall exist or have occurred and be
continuing on the proposed date of any such increase of the Term Loan, (C)
Lender shall have received an updated appraisal in respect of the Distribution
and Office Facility by an independent appraiser acceptable to Lender and in
form, scope and methodology acceptable to Lender and addressed to Lender and on
which Lender is expressly permitted to rely, which appraisal is conducted no
earlier than forty-five (45) days prior to the effective date of such increase,
(D) Lender shall have received such appraisal not less than twenty (20) days
prior to the applicable effective date and (E) Lender shall have received (1) an
Amended and Restated Term Promissory Note (the "Amended Term Note"), (2)
Amendments to the Mortgages (the "Mortgage Amendments"), (3) an endorsement to
the existing title policy issued for the benefit of Lender, in form and
substance, acceptable to Lender,
24
each in form and substance satisfactory to Lender, duly executed and delivered
by Borrower, and in the case of the Mortgage Amendments, recorded in the
applicable real estate records. Upon the satisfaction of all of the conditions
set forth in the immediately preceding sentence, the indebtedness of Borrowers
to Lender arising pursuant to the Term Loan and including the additional advance
provided for in this Section 2.3(b) herein shall (a) be deemed amended and
restated as set forth in the Amended Term Note and evidenced thereby and herein
and in the other Financing Agreements, and (b) be deemed secured by all of the
Collateral . Borrower may not reborrow any principal amounts paid pursuant to
the Amended Term Note.
2.4 Joint and Several Liability. Borrowers shall be liable for all amounts
----------------------------
due to Lender under this Agreement, regardless of which Borrower actually
receives the Loans or other extensions of credit hereunder or the amount of such
Loans received or the manner in which Lender accounts for such Loans, Letter of
Credit Accommodations or other extensions of credit on its books and records.
The Obligations with respect to Loans made to a Borrower, and the Obligations
arising as a result of the joint and several liability of a Borrower hereunder,
with respect to Loans made to the other Borrower hereunder, shall be separate
and distinct obligations, but all such other Obligations shall be primary
obligations of all Borrowers. The Obligations arising as a result of the joint
and several liability of a Borrower hereunder with respect to Loans, Letter of
Credit Accommodations or other extensions of credit made to the other Borrower
hereunder shall, to the fullest extent permitted by law, be unconditional
irrespective of (a) the validity or enforceability, avoidance or subordination
of the Obligations of the other Borrower or of any promissory note or other
document evidencing all or any part of the Obligations of the other Borrowers,
(b) the absence of any attempt to collect the Obligations from the other
Borrower, any Obligor or any other security therefor, or the absence of any
other action to enforce the same, (c) the waiver, consent, extension,
forbearance or granting of any indulgence by Lender with respect to any
provisions of any instrument evidencing the Obligations of the other Borrower,
or any part thereof, or any other agreement now or hereafter executed by the
other Borrower and delivered to Lender, (d) the failure by Lender to take any
steps to perfect and maintain its security interest in, or to preserve its
rights and maintain its security or collateral for the Obligations of the other
Borrower, (e) the election of Lender in any proceeding instituted under the
Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy
Code, (f) the disallowance of all or any portion of the claim(s) of Lender for
the repayment of the Obligations of the other Borrower under Section 502 of the
Bankruptcy Code, or (g) any other circumstances which might constitute a legal
or equitable discharge or defense of any Obligor or of the other Borrower, other
than the wilful misconduct, gross negligence or bad faith of Lender as
determined pursuant to a final, non-appealable order of a court of competent
jurisdiction. With respect to the Obligations arising as a result of the joint
and several liability of a Borrower hereunder with respect to Loans, Letter of
Credit Accommodations or other extensions of credit made to the other Borrower
hereunder, each Borrower waives, until the Obligations shall have been paid in
full and this Agreement shall have been terminated, any right to enforce any
right of subrogation or any remedy which Lender now has or may hereafter have
against Borrowers, any endorser or any guarantor of all or any part of the
Obligations, and any benefit of, and any right to participate in, any security
or collateral given to Lender. Upon any Event of Default and for so long as the
same is continuing, Lender may proceed directly and at once, without notice,
against any Borrower to collect and recover the full amount, or any portion of
the Obligations, without
25
first proceeding against the other Borrower or any other Person, or against any
security or collateral for the Obligations. Each Borrower consents and agrees
that Lender shall be under no obligation to xxxxxxxx any assets in favor of
Borrower(s) or against or in payment of any or all of the Obligations.
SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest.
---------
(a) Borrowers shall pay to Lender interest on the outstanding principal
amount of the Loans at the Interest Rate. All interest accruing hereunder on and
after the date of any Event of Default or termination or non-renewal hereof or
on the principal amount of the Revolving Loans at any time outstanding in excess
of the amounts available to Borrowers under Section 2 (whether or not such
excess(es), arise or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default) shall be payable ON DEMAND.
(b) Borrowers may from time to time request that Prime Rate Loans be
converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrowers shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, two (2) Business Days after receipt by Lender of such a
request from Borrowers, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, (i) no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default shall
exist or have occurred and be continuing, (ii) no party hereto shall have sent
any notice of termination or non-renewal of this Agreement, (iii) Borrowers
shall have complied with such customary procedures as are established by Lender
and specified by Lender to Borrower from time to time for requests by Borrower
for Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $3,000,000 or an integral multiple of
$1,000,000 in excess thereof, and (vi) Lender shall have determined that the
Interest Period or Adjusted Eurodollar Rate is available to Lender through the
Reference Bank and can be readily determined as of the date of the request for
such Eurodollar Rate Loan by Borrowers. Any request by Borrower to convert Prime
Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate
Loans shall be irrevocable. Notwithstanding anything to the contrary contained
herein, Lender and Reference Bank shall not be required to purchase United
States Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions
hereof shall be deemed to apply as if Lender and Reference Bank had purchased
such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate
Loans upon the last day of the applicable Interest Period, unless Lender has
received and approved a request to continue such Eurodollar Rate Loan at least
two (2) Business Days prior to such last
26
day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at
Lender's option, upon notice by Lender to Borrower, convert to Prime Rate Loans
in the event that this Agreement shall terminate or not be renewed. Borrower
shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge
any loan account of Borrowers) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as a result of
the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of
the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly in arrears not
later than the first day of each calendar month and shall be calculated on the
basis of a three hundred sixty (360) day year and actual days elapsed. Each
Borrower acknowledges and understands that the calculation of interest on the
basis of the actual days elapsed over the period of a three hundred sixty (360)
day year as opposed to a year of three hundred sixty-five (365) or three hundred
sixty-six (366) days results in a higher effective rate of interest. The
interest rate on non-contingent obligations (other than Eurodollar Rate Loans)
shall increase or decrease by an amount equal to each increase or decrease in
the Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs.
(e) On the date hereof, the Prime Rate is nine (9 %) percent and therefore
the rate of interest in effect hereunder for Prime Rate Loans outstanding on the
date of this Agreement, expressed in simple interest terms, is nine and one-half
(9 1/2%) percent per annum.
3.2 Closing Fee. Borrowers shall pay to Lender as a closing fee the amount
------------
of $103,800 which shall be fully earned and payable as of the date hereof. Such
closing fee shall not be subject to rebate upon any prepayment of the
Obligations except to the extent required by Section 3.6 of this Agreement or
applicable law. Such closing fee shall compensate Lender for the costs
associated with the origination, structuring, processing, approving and closing
of the transactions contemplated by this Agreement, exclusive of any expenses
for which Borrowers have agreed to reimburse Lender pursuant to any other
provision of this Agreement or the other Financing Agreements (such as
attorneys' fees).
3.3 Servicing Fee. Borrowers shall pay to Lender monthly a servicing fee in
--------------
an amount equal to $2,000 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each month
hereafter.
3.4 Unused Line Fee. Borrowers shall pay to Lender monthly an unused line
----------------
fee at a rate equal to one-quarter of one (1/4%) percent per annum calculated
upon the amount by which $15,000,000 exceeds the average daily principal balance
of the outstanding Revolving Loans and Letter of Credit Accommodations during
the immediately preceding month (or part thereof) while this Agreement is in
effect and for so long thereafter as any of the Obligations are outstanding,
which fee shall be payable on the first day of each month in arrears.
27
3.5 Changes in Laws and Increased Costs of Loans.
---------------------------------------------
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant with Lender to
make or maintain Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, or (B) shall result in the increase
in the costs to Lender, Reference Bank or any participant of making or
maintaining any Eurodollar Rate Loans by an amount deemed by Lender to be
material, or (C) reduce the amounts received or receivable by Lender in respect
thereof, by an amount deemed by Lender to be material or (ii) the cost to
Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to
be material. Borrower shall pay to Lender, upon demand by Lender (or Lender may,
at its option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of the foregoing, including, without limitation, any such
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrower and shall be conclusive,
absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate Loans
are received by Lender other than on the last day of the applicable Interest
Period (whether pursuant to acceleration, upon maturity or otherwise), including
any payments pursuant to the application of collections under Section 6.3 or any
other payments made with the proceeds of Collateral, Borrowers shall pay to
Lender upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrowers) any amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any additional loss (including loss of
anticipated profits), cost or expense incurred by such person as a result of
such prepayment or payment, including, without limitation, any loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such person to make or maintain such Eurodollar Rate
Loans or any portion thereof.
3.6 Maximum Interest.
-----------------
(a) Notwithstanding anything to the contrary contained in this Agreement or
any of the other Financing Agreements, in no event whatsoever shall the
aggregate of all amounts that are contracted for, charged or received by Lender
pursuant to the terms of this Agreement or any of the other Financing Agreements
and that are deemed interest under applicable law exceed the Maximum Interest
Rate (including, to the extent applicable, the provisions of Section 5197 of the
Revised Statutes of the United States of America as amended, 12 U.S.C.
Section 85, as amended). No agreements, conditions, provisions or stipulations
contained in this Agreement or any of the other Financing Agreements, or any
Event of Default, or the exercise by Lender of the right to accelerate the
payment or the maturity of all or any portion of the Obligations, or the
28
exercise of any option whatsoever contained in this Agreement or any of the
other Financing Agreements, or the prepayment by Borrowers of any of the
Obligations, or the occurrence of any event or contingency whatsoever, shall
entitle Lender to contract for, charge or receive in any event, interest or any
charges, amounts, premiums or fees deemed interest by applicable law in excess
of the Maximum Interest Rate. In no event shall any Borrower be obligated to pay
interest or such amounts as may be deemed interest under applicable law in
amounts which exceed the Maximum Interest Rate. All agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel any Borrower to pay interest or such amounts which
are deemed to constitute interest in amounts which exceed the Maximum Interest
Rate shall be without binding force or effect, at law or in equity, to the
extent of the excess of interest or such amounts which are deemed to constitute
interest over such Maximum Interest Rate.
(b) In the event any Interest is charged or received in excess of the
Maximum Interest Rate ("Excess"), each Borrower acknowledges and stipulates that
any such charge or receipt shall be the result of an accident and bona fide
error, and that any Excess received by Lender shall be applied, first, to the
payment of the then outstanding and unpaid principal hereunder; second to the
payment of the other Obligations then outstanding and unpaid; and third,
returned to such Borrower, it being the intent of the parties hereto not to
enter into a usurious or otherwise illegal relationship. The right to accelerate
the maturity of any of the Obligations does not include the right to accelerate
any interest that has not otherwise accrued on the date of such acceleration,
and Lender does not intend to collect any unearned interest in the event of any
such acceleration. Each Borrower recognizes that, with fluctuations in the rates
of interest set forth in Section 3.1 of this Agreement and the Maximum Interest
Rate, such an unintentional result could inadvertently occur. All monies paid to
Lender hereunder or under any of the other Financing Agreements, whether at
maturity or by prepayment, shall be subject to any rebate of unearned interest
as and to the extent required by applicable law.
(c) By the execution of this Agreement, each Borrower agrees that (A) the
credit or return of any Excess shall constitute the acceptance by Borrower of
such Excess, and (B) Borrower shall not seek or pursue any other remedy, legal
or equitable, against Lender, based in whole or in part upon contracting for,
charging or receiving any interest or such amounts which are deemed to
constitute interest in excess of the Maximum Interest Rate. For the purpose of
determining whether or not any Excess has been contracted for, charged or
received by Lender, all interest at any time contracted for, charged or received
from Borrowers in connection with this Agreement or any of the other Financing
Agreements shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread during the entire term of this Agreement in
accordance with the amounts outstanding from time to time hereunder and the
Maximum Interest Rate from time to time in effect in order to lawfully charge
the maximum amount of interest permitted under applicable laws.
(d) Each Borrower and Lender shall, to the maximum extent permitted under
applicable law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as interest and (ii) exclude voluntary prepayments and the
effects thereof.
29
(e) The provisions of this Section 3.6 shall be deemed to be incorporated
into each of the other Financing Agreements (whether or not any provision of
this Section is referred to therein). Each of the Financing Agreements and
communications relating to any interest owed by Borrowers and all figures set
forth therein shall, for the sole purpose of computing the extent of the
Obligations, be automatically recomputed by Borrower, and by any court
considering the same, to give effect to the adjustments or credits required by
this Section.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans and Letter of Credit
---------------------------------------------------------------------
Accommodations. Each of the following is a condition precedent to Lender making
--------------
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, evidence that the Distribution Agreements have been duly executed and
delivered by and to the appropriate parties thereto and all of the transactions
contemplated under the terms of the Distribution Agreements, including, without
limitation, all of the reorganization events described in Section 2.1 of the DWI
Distribution Agreement have been consummated prior to or contemporaneously with
the execution of this Agreement and that each Borrower has good and marketable
title to all of the assets used in the operations and business of the Duck Head
Apparel Company division of Woodside;
(b) Lender shall have received a summary of the opinion, in form and
substance satisfactory to Lender, addressed and delivered to the Board of
Directors of Woodside as to the solvency of Duck Head and its Subsidiaries at
the time of the distribution contemplated by the Distribution Agreements;
(c) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the existing lenders to
Borrowers of their respective financing arrangements with Borrowers and the
termination and release by it or them, as the case may be, of any interest in
and to any assets and properties of each Borrower and each Obligor, duly
authorized, executed and delivered by it or each of them, including, but not
limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and any Borrower or any Obligor, as debtor and (ii) satisfactions and discharges
of any mortgages, deeds of trust or deeds to secure debt by Borrower or any
Obligor in favor of such existing lender or lenders, in form acceptable for
recording with the appropriate Governmental Authority;
(d) all requisite corporate action and proceedings in connection with the
transactions contemplated by the Distribution Agreements, this Agreement and the
other Financing Agreements shall be satisfactory in form and substance to
Lender, and Lender shall have received all information and copies of all
documents, including records of requisite corporate action and proceedings which
Lender may have requested in connection therewith,
30
such documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or Governmental Authorities;
(e) no material adverse change shall have occurred in the assets, business
or financial condition of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of any Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(f) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrowers (including,
without limitation, current perpetual inventory records and/or roll-forwards of
Accounts and Inventory through the date of closing and test counts of the
Inventory in a manner satisfactory to Lender, together with such supporting
documentation as may be necessary or appropriate, and other documents and
information that will enable Lender to accurately identify and verify the
Collateral), the results of which each case shall be satisfactory to Lender, not
more than three (3) Business Days prior to the date hereof;
(g) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, Collateral Access Agreements by
owners and lessors of leased premises of any Borrower and by warehouses at which
Collateral is located;
(h) the Excess Availability as determined by Lender, as of the date hereof,
shall be not less than $8,000,000 after giving effect to the initial Loans made
or to be made and Letter of Credit Accommodations issued or to be issued in
connection with the initial transactions hereunder;
(i) Lender shall have received, in form and substance satisfactory to
Lender, all agreements with the depository banks and Borrowers with respect to
the Blocked Accounts as Lender may require pursuant to Section 6.3 hereof, duly
authorized, executed and delivered by such depository banks and Borrowers and
(i) evidence that all local banks used by Borrowers for collections from retail
store locations have been irrevocably authorized and directed in writing to
remit such amounts to the Blocked Accounts;
(j) Lender shall have received evidence, in form and substance satisfactory
to Lender, that Lender has a valid perfected first priority security interest in
all of the Collateral other than the Excluded Property;
(k) Lender shall have received and reviewed UCC search results for all
jurisdictions in the United States and Canada which assets of any Borrower are
located, which search results shall be in form and substance satisfactory to
Lender;
31
(l) Lender shall have received an environmental audit of Duck Head's Real
Property and related assets located in Winder, Georgia conducted by an
independent environmental engineering firm acceptable to Lender, and in form,
scope and methodology satisfactory to Lender, confirming (i) Duck Head is in
compliance with all material applicable Environmental Laws and (ii) the absence
of any material potential or actual liability of Duck Head for any remedial
action with respect to any environmental condition or any other material
environmental problems;
(m) Lender shall have received, in form and substance satisfactory to
Lender, a valid and effective title insurance policy issued by a company and
agent acceptable to Lender (i) insuring the priority, amount and sufficiency of
the Mortgages, (ii) insuring against matters that would be disclosed by surveys
and (iii) containing any legally available endorsements, assurances or
affirmative coverage requested by Lender for protection of its interests;
(n) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(o) Lender shall have received, in form and substance satisfactory to
Lender, duly authorized, executed and delivered by Woodside and Duck Head the
agreement of Woodside consenting to the collateral assignment by Duck Head to
Lender of all of its rights and remedies and claims for damages and other relief
under the Distribution Agreements and granting Lender such other rights as
Lender may require, duly authorized, executed and delivered by Woodside;
(p) Lender shall have received, in form and substance satisfactory to
Lender, a pro-forma consolidated balance sheet of Duck Head and its Subsidiaries
reflecting the initial transactions contemplated under the Distribution
Agreements and hereunder, including, but not limited to, (i) the consummation of
the transfer of the assets by Woodside to Duck Head and the other transactions
contemplated by the Distribution Agreements and (ii) the Loans and Letter of
Credit Accommodations provided by Lender to Borrowers on the date hereof and the
use of the proceeds of the initial Loans as provided herein, accompanied by a
certificate, dated of even date herewith, of the chief financial officer of Duck
Head stating that such pro-forma balance sheet annexed thereto represents the
reasonable, good faith opinion of such officer as to the subject matter thereof
as of the date of such certificate;
(q) Lender shall have received Credit Card Acknowledgments in each case,
duly authorized, executed and delivered by the Credit Card Issuers and Credit
Card Processors;
(r) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrowers with respect to the
Distribution Agreements, the Financing Agreements and such other matters as
Lender may request; and
32
(s) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.
-----------------------------------------------------------------------
Each of the following is an additional condition precedent to Lender making
Loans and/or providing Letter of Credit Accommodations to Borrowers, including
the initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the other
Financing Agreements shall be true and correct in all material respects with the
same effect as though such representations and warranties had been made on and
as of the date of the making of each such Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto, except to the extent that
such representations and warranties expressly relate solely to an earlier date
(in which case such representations and warranties shall have been true and
accurate on and as of such earlier date);
(b) no law, regulation, order, judgment or decree of any Governmental
Authority shall exist, and no action, suit, investigation, litigation or
proceeding shall be pending or threatened in any court or before any arbitrator
or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or
otherwise affect (A) the making of the Loans or providing the Letter of Credit
Accommodations, or (B) the consummation of the transactions contemplated
pursuant to the terms hereof or the other Financing Agreements or (ii) has or
could reasonably be expected to have a material adverse effect on the assets,
business or prospects of any Borrower or would impair the ability of any
Borrower to perform its obligations hereunder or under any of the other
Financing Agreements or of Lender to enforce any Obligations or realize upon any
of the Collateral; and
(c) no Event of Default and no act, condition or event which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. GRANT OF SECURITY INTEREST
--------------------------
To secure payment and performance of all Obligations, each Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of such Borrower, whether now owned or
hereafter acquired or existing, and wherever located (together with all other
collateral security for the Obligations at any time granted to or held or
acquired by Lender, collectively, the "Collateral"):
5.1 Receivables;
33
5.2 all other present and future general intangibles (including
Intellectual Property and existing and future leasehold interests in equipment,
real estate and fixtures), chattel paper, documents, instruments, investment
property (including securities, whether certificated or uncertificated,
securities accounts, security entitlements, commodity contracts or commodity
accounts), letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities and other investment
property, credit balances, deposits, deposit accounts and other property of
Borrower now or hereafter held or received by or in transit to Lender or its
Affiliates or at any other depository or other institution from or for the
account of Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Receivables and
other Collateral, including (a) rights and remedies under or relating to
guaranties, contracts of suretyship, letters of credit and credit and other
insurance related to the Collateral, (b) rights of stoppage in transit,
replevin, repossession, reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party, (c) goods described in invoices, documents,
credit card sales drafts, credit card sale slips or charge slips or receipts and
other forms of store receipts, contracts or instruments with respect to, or
otherwise representing or evidencing, Receivables or other Collateral, including
returned, repossessed and reclaimed goods, and (d) deposits by and property of
account debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Real Property;
5.7 Records; and
5.8 all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
5.9 Notwithstanding anything to the contrary contained in Section 5.1
through 5.8 above, the types or items of Collateral described in such Section
shall not include any Equipment which is, or at the time of Borrower's
acquisition thereof shall be, subject to a purchase money mortgage or other
purchase money lien or security interest (including capitalized or finance
leases) permitted under Section 9.8 hereof if: (a) the valid grant of a security
interest or lien to Lender in such item of Equipment is prohibited by the terms
of the agreement between Borrower and the holder of such purchase money mortgage
or other purchase money lien or security interest or under applicable law and
such prohibition has not been or is not waived, or the consent of the holder of
the purchase money mortgage or other purchase money lien or security interest
has not been or is not otherwise obtained, or under applicable law such
prohibition cannot be waived and (b) the purchase money mortgage or other
purchase money lien or security interest on such item of Equipment is or shall
become valid and perfected .
34
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 Borrowers' Loan Account. Lender shall maintain one or more loan
--------------------------
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrowers and (c) all other appropriate debits and
credits as provided in this Agreement, including fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Duck Head, as agent for Borrowers,
-----------
each month a statement setting forth the balance in the Borrowers' loan
account(s) maintained by Lender for Borrower pursuant to the provisions of this
Agreement, including principal, interest, fees, costs and expenses. Each such
statement shall be subject to subsequent adjustment by Lender but shall, absent
manifest errors or omissions, be considered correct and deemed accepted by
Borrowers and conclusively binding upon Borrower as an account stated except to
the extent that Lender receives a written notice from Borrowers of any specific
exceptions of Borrower thereto within thirty (30) days after the date such
statement has been mailed by Lender. Until such time as Lender shall have
rendered to Borrower a written statement as provided above, the balance in
Borrowers' loan account(s) shall be presumptive evidence of the amounts due and
owing to Lender by Borrowers.
6.3 Collection of Accounts.
-----------------------
(a) Each Borrower shall establish and maintain, at its expense, deposit
account arrangements and merchant payment arrangements with the banks set forth
on Schedule 6.3 hereto and after prior written notice to Lender, subject to
Section 9.13, such other banks as each Borrower may hereafter select as are
acceptable to Lender. The banks set forth on Schedule 6.3 constitute all of the
banks with whom each Borrower has deposit account arrangements and merchant
payment arrangements as of the date hereof and identifies each of the deposit
accounts at such banks to a retail store location of such Borrower or otherwise
describes the nature of the use of such deposit account by such Borrower.
(i) Each Borrower shall deposit all proceeds from sales of Inventory in
every form, including, without limitation, cash, checks, credit card sales
drafts, credit card sales or charge slips or receipts and other forms of daily
store receipts, from each retail store location of such Borrower on each
Business Day into the deposit accounts of such Borrower used solely for such
purpose and identified to each retail store location as set forth on Schedule
6.3 (together with any other deposit accounts at any time established or used by
Borrower for receiving such store receipts from any retail store location,
collectively, the "Store Bank Accounts") or as otherwise provided in Section
6.3(a)(ii) below. Each Borrower shall, authorize and direct, and shall use its
best efforts to cause, all available funds deposited into the Store Bank
Accounts to be sent by wire transfer or by transfer using the automated
clearinghouse network ("ACH transfer") not less frequently than once each
calendar week, and all other proceeds of Collateral to be sent by wire transfer
or by ACH transfer, to the Blocked Account as provided in Section 6.3(a)(ii)
below. Each Borrower shall irrevocably authorize and direct in writing, in form
and substance
35
satisfactory to Lender, each of the banks into which proceeds from sales of
Inventory from each retail store location of such Borrower are at any time
deposited as provided above to (a) honor all wire or ACH transfer requests,
provided that any and all amounts released and/or transferred by such bank
pursuant to such requests are sent to the Blocked Account and (b) follow any
contrary instructions sent to such banks by Lender. Such authorization and
direction shall not be rescinded, revoked or modified without the prior written
consent of Lender. In the event any of such banks fails to send such funds to
the Blocked Account as provided herein, such Borrower shall pursue all of its
rights and remedies, as requested by Lender, as a result of such failure.
Notwithstanding the foregoing, for those Store Bank Accounts that transfer funds
weekly by ACH transfer initiated by Borrower's store management notifying a
third party processor, Borrower shall irrevocably authorize and direct in
writing, in form and substance satisfactory to Lender, the third party processor
that establishes the routing and executes the ACH transfer to send funds only to
the Blocked Accounts and to agree to do so at any time upon Lender's request and
Lender shall receive an agreement from such third party processor confirming its
agreement to do so. Such authorization and direction shall not be rescinded,
revoked or modified without the prior written consent of Lender.
(ii) Each Borrower shall establish and maintain, at its expense, deposit
accounts with such banks as are acceptable to Lender (the "Blocked Accounts")
into which Borrower shall promptly either cause all amounts on deposit in its
Store Bank Accounts to be sent as provided in Section 6.3(a)(i) above or shall
itself deposit or cause to be deposited all proceeds from sales of Inventory,
all amounts payable to such Borrower from Credit Card Issuers and Credit Card
Processors and all other proceeds of Collateral. The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance
satisfactory to Lender, providing that all items received or deposited in the
Blocked Accounts are the property of Lender, that the depository bank has no
lien upon, or right of setoff against, the Blocked Accounts, the items received
for deposit therein, or the funds from time to time on deposit therein and that
the depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into the Blocked
Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all amounts
deposited in such Blocked Accounts or in the Store Bank Accounts or other funds
received and collected by Lender, whether as proceeds of Inventory or other
Collateral or otherwise shall be treated as payments to Lender in respect of the
Obligations and therefore shall constitute property of Lender to the extent of
the then outstanding Obligations.
(b) For the purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) Business Day following the date of
receipt of immediately available funds by Lender in the Payment Account. For
purposes of calculating the amount of the Revolving Loans available to Borrower,
such payments will be applied (conditional upon final collection) to the
Obligations on the Business Day of receipt by Lender of immediately available
funds in the Payment Account, if such payments are received in sufficient time
(in accordance with Lender's usual and customary practices as in effect from
time to time) to credit Borrower's loan account on such day, and if not, then on
the next Business Day.
36
(c) Each Borrower and all of its shareholders, directors, employees,
agents, Subsidiaries or other Affiliates shall, acting as trustee for Lender,
receive, as the property of Lender, any cash, checks, credit card sales drafts,
credit card sales slips or receipts, notes, drafts, all forms of store receipts,
monies, checks, notes, drafts or any other payment relating to and/or proceeds
of Accounts or other Collateral which come into their possession or under their
control and immediately upon receipt thereof, shall deposit or cause the same to
be deposited in the Blocked Accounts, or remit the same or cause the same to be
remitted, in kind, to Lender. In no event shall the same be commingled with such
Borrower's own funds. Each Borrower agrees to reimburse Lender on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or indemnification of such
bank or person. The obligation of each Borrower to reimburse Lender for such
amounts pursuant to this Section 6.3 shall survive the termination or
non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
---------
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender shall apply payments received or collected from Borrowers or for
the account of Borrowers (including the monetary proceeds of collections or of
realization upon any Collateral) as follows: first, to pay any fees, indemnities
or expense reimbursements then due to Lender from Borrowers; second, to pay
interest due in respect of any Loans; third, to pay principal due in respect of
the Loans; fourth, to pay or prepay any other Obligations whether or not then
due, in such order and manner as Lender determines. Notwithstanding anything to
the contrary contained in this Agreement, unless so directed by Borrowers, or
unless an Event of Default shall exist or have occurred and be continuing,
Lender shall not apply any payments which it receives to any Eurodollar Rate
Loans, except (a) on the expiration date of the Interest Period applicable to
any such Eurodollar Rate Loans, or (b) in the event that there are no
outstanding Prime Rate Loans. At Lender's option, all principal, interest, fees,
costs, expenses and other charges provided for in this Agreement or the other
Financing Agreements may be charged directly to the loan account(s) of
Borrowers. Borrowers shall make all payments to Lender on the Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrowers shall be liable to pay to Lender, and does
hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans and
----------------------------
provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of any Borrower or
other authorized person or, at the
37
discretion of Lender, if such Loans are necessary to satisfy any Obligations.
All requests for Loans or Letter of Credit Accommodations hereunder shall
specify the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business Day) and the
amount of the requested Loan. Requests received after 11:00 a.m. Atlanta,
Georgia time on any day shall be deemed to have been made as of the opening of
business on the immediately following Business Day. All Loans and Letter of
Credit Accommodations under this Agreement shall be conclusively presumed to
have been made to, and at the request of and for the benefit of, Borrowers when
deposited to the credit of any Borrower or otherwise disbursed or established in
accordance with the instructions of any Borrower or in accordance with the terms
and conditions of this Agreement.
6.6 Use of Proceeds. The initial Revolving Loan under this Agreement shall
----------------
be in an amount that is not less than $250,000. Borrowers shall use the initial
proceeds of the Loans provided by Lender to Borrowers hereunder only for: (a)
payments to each of the persons listed in the disbursement direction letter
furnished by Borrowers to Lender on or about the date hereof and (b) costs,
expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements. All other Loans
made or Letter of Credit Accommodations provided by Lender to Borrowers pursuant
to the provisions hereof shall be used by Borrowers only for general operating,
working capital and other proper corporate purposes of Borrowers not otherwise
prohibited by the terms hereof. None of the proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security or for
the purposes of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the Loans to be considered a "purpose credit" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended.
6.7 Appointment of Agent for Requesting Loans and Receipts of Loans and
----------------------------------------------------------------------
Statements.
-----------
(a) Each Borrower hereby irrevocably appoints and constitutes Duck Head as
its agent to request and receive Loans and Letter of Credit Accommodations
pursuant to this Agreement and the other Financing Agreements from Lender in the
name or on behalf of such Borrower. Lender may disburse the Loans to such bank
account of a Borrower or Duck Head or otherwise make such Loans to a Borrower
and provide such Letter of Credit Accommodations to a Borrower as Duck Head may
designate or direct, without notice to any other Borrower or Obligor.
(b) Duck Head hereby accepts the appointment by Borrowers to act as the
agent of Borrowers pursuant to this Section 6.7. Duck Head shall ensure that the
disbursement of any Loans to each Borrower requested by or paid to Duck Head or
the issuance of any Letter of Credit Accommodations for a Borrower hereunder
shall be paid to or for the account of such Borrower.
38
(c) Each Borrower hereby irrevocably appoints and constitutes Duck Head as
its agent to receive statements on account and all other notices from Lender
with respect to the Obligations or otherwise under or in connection with this
Agreement and the other Financing Agreements.
(d) No purported termination of the appointment of Duck Head as agent as
aforesaid shall be effective, except after ten (10) days' prior written notice
to Lender.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting.
---------------------
(a) Borrowers shall provide Lender with the following documents in a form
satisfactory to Lender:
(i) on a weekly basis, or more frequently as required by Lender, a
schedule of sales made, credits issued and cash received;
(ii) on a monthly basis or more frequently as Lender may request, (A)
perpetual inventory reports, (B) inventory reports by location and
category, (C) agings of accounts payable (and including information
indicating the status of payments to owners and lessors of the leased
premises of Borrowers) and (D) agings of accounts receivable (together with
a reconciliation to the previous month's aging and general ledger);
(iii) upon Lender's request, (A) copies of customer statements and
credit memos, remittance advices and reports, and copies of deposit slips
and bank statements, (B) copies of shipping and delivery documents,
(C) copies of purchase orders, invoices and delivery documents for
Inventory and Equipment acquired by each Borrower; (D) reports on sales and
use tax collections, deposits and payments, including monthly sales and use
tax accruals, and (E) reports by retail store location of sales and
operating profits for each such retail store location;
(iv) as soon as available, but in any event not later than five (5)
days after receipt by any Borrower, the monthly statements received by any
Borrower from any Credit Card Issuers or Credit Card Processors, together
with such additional information with respect thereto as shall be
sufficient to enable Lender to monitor the transactions pursuant to the
Credit Card Agreements;
(v) as soon as possible, but in any event not later than two (2) days
prior to the removal of any Equipment currently located in the United
States to a location of Borrower outside of the United States, in
accordance with Section 7.4(e), a description of such item of moved
Equipment together with the net book value of such item of Equipment; and
39
(vi) such other reports as to the Collateral as Lender shall request
from time to time; and
(b) If any of any Borrower's records or reports of the Collateral are
prepared or maintained by an accounting service, contractor, shipper or other
agent, each Borrower hereby irrevocably authorizes such service, contractor,
shipper or agent to deliver such records, reports, and related documents to
Lender and to follow Lender's instructions with respect to further services at
any time that an Event of Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
-------------------
(a) Borrowers shall notify Lender promptly of: (i) any material delay in
any Borrower's performance of any of its obligations to any account debtor
involving an Account exceeding $100,000 or the assertion of any claims, offsets,
defenses or counterclaims by any account debtor involving an amount exceeding
$100,000 or any disputes with account debtors, or any settlement, adjustment or
compromise thereof involving an amount exceeding $100,000, (ii) all material
adverse information relating to the financial condition of any account debtor
and (iii) any event or circumstance which, to Borrower's knowledge would cause
Lender to consider any then existing Accounts as no longer constituting Eligible
Accounts, (iv) any notice of a material default by Borrower under any of the
Credit Card Agreements or of any default which might result in the Credit Card
Issuer or Credit Card Processor ceasing to make payments or suspending payments
to any Borrower, (v) any notice from any Credit Card Issuer or Credit Card
Processor that such person is ceasing or suspending, or will cease or suspend,
any present or future payments due or to become due to Borrower from such
person, or that such person is terminating or will terminate any of the Credit
Card Agreements, and (vi) the failure of any Borrower to comply with any
material terms of the Credit Card Agreements or any terms thereof which might
result in the Credit Card Issuer or Credit Card Processor ceasing or suspending
payments to any Borrower. No credit, discount, allowance or extension or
agreement for any of the foregoing shall be granted to any account debtor
without Lender's consent, except in the ordinary course of any Borrower's
business in accordance with practices and policies previously disclosed in
writing to Lender. So long as no Event of Default exists or has occurred and is
continuing, Borrowers shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor. At any time that an Event of
Default exists or has occurred and is continuing, Lender shall, at its option,
have the exclusive right to settle, adjust or compromise any claim, offset,
counterclaim or dispute with account debtors or grant any credits, discounts or
allowances.
(b) Without limiting the obligation of Borrowers to deliver any other
information to Lender, each Borrower shall promptly report to Lender any return
of Inventory by any one account debtor if the Inventory so returned in such case
has a value in excess of $50,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, each Borrower shall,
upon Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and
40
(iv) not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments immediately
delivered to Lender pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor except as reported to Lender in accordance with
this Agreement and except for credits, discounts, allowances or extensions made
or given in the ordinary course of each Borrower's business in accordance with
practices and policies previously disclosed to Lender, (iv) there shall be no
setoffs, deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Lender in accordance with
the terms of this Agreement, (v) none of the transactions giving rise thereto
will violate any applicable State or Federal laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(d) Lender shall have the right at any time or times, in Lender's name or
in the name of a nominee of Lender, to verify the validity, amount or any other
matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(e) Each Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to such Borrower, all
chattel paper and instruments which such Borrower now owns or may at any time
acquire immediately upon Borrower's receipt thereof, except as Lender may
otherwise agree.
(f) Lender may, at any time or times that an Event of Default exists or has
occurred and is continuing, (i) notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors, Credit Card Issuers
and Credit Card Processors to make payment of Accounts directly to Lender, (ii)
extend the time of payment of, compromise, settle or adjust for cash, credit,
return of merchandise or otherwise, and upon any terms or conditions, any and
all Accounts or other obligations included in the Collateral and thereby
discharge or release the account debtor or any other party or parties in any way
liable for payment thereof without affecting any of the Obligations, (iii)
demand, collect or enforce payment of any Accounts or such other obligations,
but without any duty to do so, and Lender shall not be liable for its failure to
collect or enforce the payment thereof nor for the negligence of its agents or
attorneys with respect thereto and (iv) take whatever other action Lender may
deem necessary or desirable for the protection of its interests. At any time
that an Event of Default exists or has occurred and is continuing, at Lender's
request, all invoices and statements sent to any account debtor, Credit Card
Issuer and Credit Card Processor shall state that the Accounts and such other
obligations have been assigned to Lender and are payable directly and only to
Lender and each Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
41
7.3 Inventory Covenants. With respect to the Inventory: (a) each Borrower
--------------------
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) each Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) each Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of such Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location and except for Inventory shipped from
the manufacturer thereof to such Borrower which is in transit to the locations
set forth or permitted herein; (d) upon Lender's request, each Borrower shall,
at its expense, twice in any twelve (12) month period, but at any time or times
as Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Inventory in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender and upon which Lender is expressly permitted to
rely; (e) each Borrower shall produce, use, store and maintain the Inventory
with all reasonable care and caution and in accordance with applicable standards
of any insurance and in conformity with applicable laws (including the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto); (f) each Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) each Borrower shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate such Borrower to repurchase such Inventory
except for the right of return given to customers of such Borrower consistent
with its current policies as of the date hereof; (h) each Borrower shall keep
the Inventory in good and marketable condition; and (i) Borrower shall not,
acquire or accept any Inventory on consignment or approval.
7.4 Equipment and Real Property Covenants. With respect to the Equipment
----------------------------------------
and Real Property: (a) upon Lender's request, Borrowers shall, at their expense,
no more than once in any twelve (12) month period, but at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Equipment and/or the
Real Property in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender and upon which Lender is
expressly permitted to rely; (b) each Borrower shall keep the Equipment in good
order, repair, running and marketable condition (ordinary wear and tear
excepted); (c) each Borrower shall use the Equipment and Real Property with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with all applicable laws; (d) the Equipment is and
shall be used in each Borrower's business and not for personal, family,
household or farming use; (e) each Borrower shall not remove any Equipment from
the locations set forth or permitted herein, except to the extent necessary to
have any Equipment repaired or maintained in the ordinary course of the business
of such Borrower or to move Equipment directly from one location set forth or
permitted herein to another such location and except for the movement of motor
vehicles used by or for the benefit of each Borrower in the ordinary
42
course of business and no Borrower shall remove any Equipment currently located
in the United States to any location outside of the United States, except, that,
Borrower may remove Equipment currently located in the United States to any
location outside of the United States so long as at the time of such movement of
Equipment each of the following conditions is satisfied: (i) Borrower notifies
Lender of its intention to move such Equipment, (ii) the net book value of all
such item of Equipment when aggregated with the net book value of all other
Equipment moved out of the United States pursuant to this Section does not
exceed $500,000, and (iii) as of the date of any such movement of Equipment and
after giving effect thereto, no Event of Default or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing; (f) the Equipment is now and
shall remain personal property and each Borrower shall not permit any of the
Equipment to be or become a part of or affixed to real property so as to become
a fixture or an accession to real property unless it is attached to the Real
Property subject to a Mortgage; and (g) each Borrower assumes all responsibility
and liability arising from the use of the Equipment and Real Property.
7.5 Power of Attorney. Each Borrower hereby irrevocably designates and
------------------
appoints Lender (and all persons designated by Lender) as such Borrower's true
and lawful attorney-in- fact, and authorizes Lender, in such Borrower's or
Lender's name, to: (a) at any time an Event of Default or act, condition or
event which with notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing (i) demand payment on
Receivables or other Collateral, (ii) enforce payment of Receivables by legal
proceedings or otherwise, (iii) exercise all of such Borrower's rights and
remedies to collect any Receivable or other Collateral, (iv) sell or assign any
Receivable upon such terms, for such amount and at such time or times as the
Lender deems advisable, (v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Receivable, (vii) prepare, file and sign
such Borrower's name on any proof of claim in bankruptcy or other similar
document against an account debtor other obligor in respect of any Receivables
or other Collateral, (viii) notify the post office authorities to change the
address for delivery of remittances from account debtors or other obligors in
respect of Receivables or other proceeds of Collateral to an address designated
by Lender, and open and dispose of all mail addressed to such Borrower and
handle and store all mail relating to the Collateral; and (ix) do all acts and
things which are necessary, in Lender's determination, to fulfill such
Borrower's obligations under this Agreement and the other Financing Agreements
and (b) at any time to (i) take control in any manner of any item of payment in
respect of Receivables or constituting Collateral or otherwise received in or
for deposit in the Blocked Accounts or otherwise received by Lender, (ii) have
access to any lockbox or postal box into which remittances from account debtors
or other obligors in respect of Receivables or other proceeds of Collateral are
sent or received, (iii) endorse such Borrower's name upon any items of payment
in respect of Receivables or constituting Collateral or otherwise received by
Lender and deposit the same in Lender's account for application to the
Obligations, (iv) endorse such Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Receivable
or any goods pertaining thereto or any other Collateral, including any warehouse
or other receipts, or bills of lading and other negotiable or non-negotiable
documents, (v) clear Inventory the purchase of which was financed with Letter of
Credit Accommodations through U.S. Customs in Borrower's name, Lender's name or
the name of Lender's designee, and to sign and deliver to customs officials
powers of attorney in such Borrower's name for such
43
purpose, and to complete in Borrower's or Lender s name, any order, sale or
transaction, obtain the necessary documents in connection therewith and collect
the proceeds thereof, (vi) sign such Borrower's name on any verification of
Receivables and notices thereof to account debtors or other obligors in respect
thereof and (vii) execute in such Borrower's name and file any UCC financing
statements or amendments thereto. Each Borrower hereby releases Lender and its
officers, employees and designees from any liabilities arising from any act or
acts under this power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's own gross negligence or
wilful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) upon notice to Borrowers,
--------------
cure any default by any Borrower under any material agreement with a third party
which affects the Collateral, its value or the ability of Lender to collect,
sell or otherwise dispose of the Collateral or the rights and remedies of Lender
therein or the ability of any Borrower to perform its obligations under the
other Financing Agreements, (b) pay or bond on appeal any judgment entered
against Borrower, (c) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and (d) pay any amount, incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve, protect, insure or maintain
the Collateral and the rights of Lender with respect thereto. Lender may add any
amounts so expended to the Obligations and charge any Borrower's account
therefor, such amounts to be repayable by Borrowers on demand. Lender shall be
under no obligation to effect such cure, payment or bonding and shall not, by
doing so, be deemed to have assumed any obligation or liability of Borrowers.
Any payment made or other action taken by Lender under this Section shall be
without prejudice to any right to assert an Event of Default hereunder and to
proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
-------------------
cost and expense of Borrowers (a) Lender or its designee shall have complete
access to all of Borrower' premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrowers if an Event
of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrowers' books
and records, including the Records, and (b) each Borrower shall promptly furnish
to Lender such copies of such books and records or extracts therefrom as Lender
may request, and (c) Lender or its designee may use during normal business hours
such of each Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing (provided, that, Borrowers shall make
such personnel, equipment, supplies and premises available to Lender or its
designee in such manner so as to minimize any interference with the operations
of Borrowers and so as to enable Lender or its designee to comply with
applicable health and safety procedures and regulations) and if an Event of
Default exists or has occurred and is continuing for the collection of Accounts
and realization of other Collateral.
7.8 Bills of Lading and Other Documents of Title. In the event that any
------------------------------------------------
Inventory which would otherwise be Eligible Inventory located outside the United
States of America which is in transit to premises of a Customs Broker in the
United States or premises of a Borrower as described in the definition of
Eligible Inventory, constitutes Eligible Inventory then (a) each
44
Borrower shall cause all bills of lading and other documents of title relating
to goods being purchased by such Borrower which are outside the United States
and in transit to the premises of such Borrower or the premises of a Customs
Broker in the United States to name such Borrower as consignee, unless and until
Lender may direct otherwise; (b) at such time and from time to time as Lender
may direct, each Borrower shall cause Lender or such financial institution or
other person as Lender may specify to be named as consignee; (c) without
limiting any other rights of Lender hereunder, Lender shall have the right to
endorse and negotiate on behalf of, and as attorney-in-fact for, each Borrower
any xxxx of lading or other document of title with respect to such goods naming
such Borrower as consignee to Lender; (d) there shall be three (3) originals of
each of such xxxx of lading or other document of title which unless and until
Lender shall direct otherwise shall be delivered as follows: (i) one (1)
original to such Customs Broker as each Borrower may specify (so long as Lender
has received a Collateral Access Agreement duly authorized, executed and
delivered by such Customs Broker), and (ii) two (2) originals to Lender or to
such other person as Lender may designate for such purpose; (e) such Borrower
shall obtain a copy (but not the originals) of such xxxx of lading or other
documents from the Customs Broker; and (f)such Borrower shall cause all bills of
lading or other documents of title relating to goods purchased by such Borrower
which are outside the United States and in transit to the premises of such
Borrower or the premises of a Customs Broker in the United States to be issued
in a form so as to constitute negotiable documents as such term is defined in
the Uniform Commercial Code.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Each Borrower hereby, jointly and severally, represents and warrants to
Lender the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which are a continuing condition of the
making of Loans and providing Letter of Credit Accommodations by Lender to
Borrowers.
8.1 Corporate Existence, Power and Authority; Subsidiaries. Each Borrower
--------------------------------------------------------
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on such Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within each Borrower's corporate powers, have been duly authorized and
are not in contravention of law or the terms of such Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which such Borrower is a party or by which such
Borrower or its property are bound. This Agreement and the other Financing
Agreements constitute legal, valid and binding obligations of each Borrower
enforceable against it in accordance with their respective terms. Borrowers do
not have any Subsidiaries except as set forth on the Information Certificate.
45
8.2 Financial Statements; No Material Adverse Change. (a) All financial
----------------------------------------------------
statements relating to Borrowers which have been or may hereafter be delivered
by Borrowers to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrowers as at
the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by Borrowers to Lender prior to the date
of this Agreement, there has been no material adverse change in the assets,
liabilities, properties and condition, financial or otherwise, of Borrowers,
since the date of the most recent audited financial statements furnished by
Borrowers to Lender prior to the date of this Agreement.
(b) The pro forma balance sheets and future cash flow projections attached
as Schedule 8.2 for Duck Head and its Subsidiaries (together with the summaries
of assumptions and projected assumptions, based on historical performance with
respect thereto) furnished by Duck Head to Lender prior to the date of this
Agreement represent the reasonable, good faith opinion of Duck Head and its
management as to the subject matter thereof.
8.3 Chief Executive Office; Collateral Locations. The chief executive
-------------------------------------------------
office of each Borrower and such Borrower's Records concerning Accounts are
located only at the addresses set forth on the signature page hereto and its
only other places of business and the only other locations of Collateral, if
any, are the addresses set forth in the Information Certificate, subject to the
right of each Borrower to establish new locations in accordance with Section 9.2
below. The Information Certificates correctly identifies any of such locations
which are not owned by Borrowers and sets forth the owners and/or operators
thereof and to the best of each Borrower's knowledge, the holders of any
mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
-----------------------------------------
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof (other than as to
specific items of Collateral as to which the security interest of Lender is not
required as of the date hereof to be perfected consisting of the Excluded
Property). Each Borrower has good and marketable title to all of its properties
and assets subject to no liens, mortgages, pledges, security interests,
encumbrances or charges of any kind, except those granted to Lender and such
others as are specifically listed on Schedule 8.4 hereto or permitted under
Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
-------------
timely manner all tax returns, reports and declarations which are required to be
filed by it. All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Each Borrower has paid or caused
to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, and has collected, deposited and remitted in
accordance with all applicable laws all sales and/or use taxes applicable to the
conduct of its business, except taxes the validity of which are being contested
in good faith by appropriate proceedings diligently pursued and available to
each Borrower and with respect to which adequate reserves have been set aside on
its books. Adequate provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not yet
due and payable and whether or not disputed. Each Borrower has collected and
deposited in a separate bank
46
account or remitted to the appropriate tax authority all sales and/or use taxes
applicable to its business required to be collected under the laws of the United
States and each possession or territory thereof, and each State or political
subdivision thereof, including any State in which each Borrower owns any
Inventory or owns or leases any other property.
8.6 Litigation. Except as set forth on the Information Certificate, there
-----------
is no present investigation by any Governmental Authority pending, or to the
best of any Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of any Borrower's knowledge threatened, against
such Borrower or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which if adversely determined
against such Borrower would result in any material adverse change in the assets,
business or prospects of such Borrower or would impair the ability of such
Borrower to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce any
Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
-----------------------------------------------------
(a) Each Borrower is not in default in any material respect under, or in
violation in any respect of any of the terms of, any agreement, contract,
instrument, lease or other commitment to which it is a party or by which it or
any of its assets are bound. Each Borrower is in compliance in all material
respects with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority relating to its business, including,
without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards
Act of 1938, as amended, ERISA, the Code, as amended, and the rules and
regulations thereunder, all Federal, State and local statutes, regulations,
rules and orders relating to consumer credit (including, without limitation, as
each has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act,
the Equal Credit Opportunity Act and the Fair Credit Reporting Act, and
regulations, rules and orders promulgated thereunder), all Federal, State and
local states, regulations, rules and orders pertaining to sales of consumer
goods (including, without limitation, the Consumer Products Safety Act of 1972,
as amended, and the Federal Trade Commission Act of 1914, as amended, and all
regulations, rules and orders promulgated thereunder).
(b) Each Borrower has obtained all material permits, licenses, approvals,
consents, certificates, orders or authorizations of any governmental agency
required for the lawful conduct of its business. Schedule 8.7 hereto sets forth
all material permits, licenses, approvals, consents, certificates, orders or
authorizations (the "Permits") issued to or held by Borrowers as of the date
hereof by any Federal, State or local governmental agency and any applications
pending by Borrowers with such federal, state or local governmental agency. The
Permits constitute all permits, licenses, approvals, consents, certificates,
orders or authorizations necessary for each Borrower to own and operate its
business as presently conducted or proposed to be conducted where the failure to
have such Permits would have a material adverse effect on the business,
performance, operations or properties of such Borrower or the legality, validity
or enforceability of this Agreement or the other Financing Agreements or the
ability of Borrower to perform its
47
obligations under the Agreement or any of the other Financing Agreements or the
rights and remedies of Lender under this Agreement or any of the other Financing
Agreements. All of the Permits are valid and subsisting and in full force and
effect. There are no actions, claims or proceedings pending or threatened that
seek the revocation, cancellation, suspension or modification of any of the
Permits.
8.8 Environmental Compliance.
-------------------------
(a) Except as set forth on Schedule 8.8 hereto, each Borrower and any
Subsidiary have not generated, used, stored, treated, transported, manufactured,
handled, produced or disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time violates any
applicable Environmental Law or any license, permit, certificate, approval or
similar authorization thereunder and the operations of such Borrower and any
Subsidiary complies in all material respects with all Environmental Laws and all
licenses, permits, certificates, approvals and similar authorizations
thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any Governmental Authority or any other person nor is any pending or
to the best of each Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
any Borrower and any Subsidiary or the release, spill or discharge, threatened
or actual, of any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects
such Borrower or its business, operations or assets or any properties at which
such Borrower has transported, stored or disposed of any Hazardous Materials.
(c) Each Borrower and its Subsidiaries have no material liability
(contingent or otherwise) in connection with a release, spill or discharge,
threatened or actual, of any Hazardous Materials or the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials.
(d) Each Borrower and its Subsidiaries have all licenses, permits,
certificates, approvals or similar authorizations required to be obtained or
filed in connection with the operations of such Borrower under any Environmental
Law and all of such licenses, permits, certificates, approvals or similar
authorizations are valid and in full force and effect.
8.9 Employee Benefits.
------------------
(a) Each Plan is in material compliance with the applicable provisions of
ERISA, the Code and other federal or state law. Each Plan which is intended to
qualify under Section 401(a) of the Code has received a favorable determination
letter from the Internal Revenue Service and to the best knowledge of each
Borrower, nothing has occurred which would cause the loss of such qualification.
Each Borrower and its ERISA Affiliates have made all required contributions to
any Plan subject to Section 412 of the Code, and no application for a funding
48
waiver or an extension of any amortization period pursuant to Section 412 of the
Code has been made with respect to any Plan.
(b) There are no pending or to the best knowledge of any Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan. There has been no prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan that has not been
fully cured by reversal of the transaction or otherwise, including payment in
full of any applicable fees or penalties.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur;
(ii) the current value of each Plan's assets (determined in accordance with the
assumptions used for funding such Plan pursuant to Section 412 of the Code) do
not exceed such Plan's liabilities under Section 4001(a)(16) of ERISA;
(iii) each Borrower and its ERISA Affiliate have not incurred and do not
reasonably expect to incur, any liability under Title IV of ERISA with respect
to any Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) each Borrower and its ERISA Affiliates have not incurred and do not
reasonably expect to incur, any liability (and no event has occurred which, with
the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) each Borrower and its ERISA Affiliates have not engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
8.10 Bank Accounts. All of the deposit accounts, investment accounts or
--------------
other accounts in the name of or used by each Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.10 hereto, subject to
the right of each Borrower to establish new accounts in accordance with Section
9.13 below.
8.11 Intellectual Property. Borrower owns or licenses or otherwise has the
----------------------
right to use all Intellectual Property necessary for the operation of its
business as presently conducted or proposed to be conducted. As of the date
hereof, Borrower does not have any Intellectual Property registered, or subject
to pending applications, in the United States Patent and Trademark Office or any
similar office or agency in the United States, any State thereof, any political
subdivision thereof or in any other country, other than those described in
Schedule 8.11 hereto and has not granted any licenses with respect thereto other
than as set forth in Schedule 8.11 hereto. No event has occurred which permits
or would permit after notice or passage of time or both, the revocation,
suspension or termination of such rights. To the best of the knowledge of
Borrower, no slogan or other advertising device, product, process, method,
substance or other Intellectual Property or goods bearing or using any
Intellectual Property presently contemplated to be sold by or employed by
Borrower infringes any patent, trademark, servicemark, tradename, copyright,
license or other Intellectual Property owned by any other Person presently and
no claim or litigation is pending or threatened against or affecting Borrower
contesting its right to sell or use any such Intellectual Property. Schedule
8.11 sets forth all of the agreements or other arrangements of Borrower pursuant
to which Borrower has a license or other right to use any trademarks, logos,
designs, representations or other Intellectual Property owned by another person
as in effect on the date hereof and the dates of the expiration of such
agreements or other arrangements of Borrower as in effect on the date hereof. No
trademark, servicemark or other
49
Intellectual Property at any time used by Borrower which is owned by another
person, or owned by Borrower subject to any security interest, lien, collateral
assignment, pledge or other encumbrance in favor of any person other than
Lender, is affixed to any Eligible Inventory, except to the extent permitted
under the term of the license agreements listed on Schedule 8.11 hereto.
8.12 Acquisition of Assets.
----------------------
(a) The Distribution Agreements and the transactions contemplated
thereunder have been duly executed, delivered and performed (except to the
extent that the Distribution Agreements as in effect on the date hereof
expressly contemplate performance after the date hereof) in accordance with
their terms by the respective parties thereto in all material respects,
including the fulfillment of all conditions precedent set forth therein and
giving effect to the terms of the Distribution Agreements and the assignments to
be executed and delivered by Woodside (or any of its affiliates or subsidiaries)
thereunder, each Borrower has acquired and has good and marketable title to the
assets, free and clear of all claims, liens, pledges and encumbrances of any
kind, except as permitted hereunder. Duck Head has acquired all of the assets
consisting of the Duck Head Apparel Company division of all of the various
subsidiaries of Woodside.
(b) All actions and proceedings, required by the Distribution Agreements in
respect of the Intercompany Reorganization (as such term is defined in the DWI
Distribution Agreement), applicable law or regulation (including, but not
limited to, compliance with the Xxxx-Xxxxx-Xxxxxx Anti-Trust Improvements Act of
1976, as amended if applicable) to be taken or have been taken and the
transactions required thereunder have been duly and validly taken and
consummated hereof (except for those provisions thereof that are solely for the
benefit of Woodside and not for Duck Head and do not otherwise affect or relate
to Duck Head).
(c) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Distribution Agreements and no governmental or
other action or proceeding has been threatened or commenced, seeking any
injunction, restraining order or other order which seeks to void or otherwise
modify the transactions described in the Distribution Agreements.
(d) Borrowers has delivered, or caused to be delivered, to Lender, true,
correct and complete copies of the Distribution Agreements.
8.13 Capitalization.
---------------
(a) All of the issued and outstanding shares of Capital Stock of
Merchandising are directly and beneficially owned and held by Duck Head.
(b) Each Borrower is solvent and will continue to be solvent after the
creation of the Obligations, the security interests of Lender and the other
transaction contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will
50
continue to have) sufficient capital (and not unreasonably small capital) to
carry on its business and all businesses in which it is about to engage. The
assets and properties of each Borrower at a fair valuation and at their present
salable value are, and will be, greater than the Indebtedness of such Borrower,
and including subordinated and contingent liabilities computed at the amount
which, to the best of each Borrower's knowledge, represents an amount which can
reasonably be expected to become an actual or mature liability.
8.14 Labor Disputes.
---------------
(a) Set forth on Schedule 8.14 hereto is a list (including dates of
termination) of all collective bargaining or similar agreements between or
applicable to each Borrower and any union, labor organization or other
bargaining agent in respect of the employees of each Borrower on the date
hereof.
(b) There is (i) no significant unfair labor practice complaint pending
against any Borrower or, to the best of the knowledge of Borrowers, threatened
against it, before the National Labor Relations Board, and no significant
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is pending on the date hereof against any
Borrower or, to best of the knowledge of each Borrower, threatened against it,
and (ii) no significant strike, labor dispute, slowdown or stoppage is pending
against any Borrower or, to the best of the knowledge of Borrowers, threatened
against any Borrower.
8.15 Corporate Name; Prior Transactions. Each Borrower has not, during
-------------------------------------
the past five years, been known by or used by any other corporate or fictitious
name or been a party to any merger or consolidation, or acquired all or
substantially all of the assets of any Person, or acquired any of its property
or assets out of the ordinary course of business, except as set forth in the
Information Certificate.
8.16 Restrictions on Subsidiaries. Except for restrictions contained in
------------------------------
this Agreement or any other agreement with respect to Indebtedness of Borrowers
permitted hereunder as in effect on the date hereof, there are no contractual or
consensual restrictions on any Borrower or any of its Subsidiaries which
prohibit or otherwise restrict (a) the transfer of cash or other assets
(i) between Borrower and any of its Subsidiaries or (ii) between any
Subsidiaries of Borrowers or (b) the ability of any Borrower or any of its
Subsidiaries to incur Indebtedness or grant security interests to Lender in the
Collateral.
8.17 Material Contracts. Schedule 8.17 hereto sets forth all Material
--------------------
Contracts to which any Borrower is a party or is bound as of the date hereof.
Each Borrower has delivered true, correct and complete copies of such Material
Contracts to Lender on or before the date hereof. Each Borrower is not in breach
of or in default under any Material Contract and has not received any notice of
the intention of any other party thereto to terminate any Material Contract.
8.18 Accuracy and Completeness of Information. All information furnished by
-----------------------------------------
or on behalf of Borrowers in writing to Lender in connection with this Agreement
or any of the other Financing Agreements or any transaction contemplated hereby
or thereby, including all
51
information on the Information Certificate is true and correct in all material
respects on the date as of which such information is dated or certified and does
not omit any material fact necessary in order to make such information not
misleading. No event or circumstance has occurred which has had or could
reasonably be expected to have a material adverse affect on the business, assets
or prospects of any Borrower, which has not been fully and accurately disclosed
to Lender in writing.
8.19 Survival of Warranties; Cumulative. All representations and warranties
-----------------------------------
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Lender on the date of each additional borrowing or other
credit accommodation hereunder and shall be conclusively presumed to have been
relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
each Borrower shall now or hereafter give, or cause to be given, to Lender.
8.20 Credit Card Agreements. Set forth in Schedule 8.20 hereto is a correct
-----------------------
and complete list of (a) all of the Credit Card Agreements and all other
agreements, documents and instruments existing as of the date hereof between or
among any Borrower, any of its affiliates, the Credit Card Issuers, the Credit
Card Processors and any of their affiliates, (b) the percentage of each sale
payable to the Credit Card Issuer or Credit Card Processor under the terms of
the Credit Card Agreements, (c) all other fees and charges payable by each
Borrower under or in connection with the Credit Card Agreements and (d) the term
of such Credit Card Agreements. The Credit Card Agreements constitute all of
such agreements necessary for each Borrower to operate its business as presently
conducted with respect to credit cards and debit cards and no Accounts of
Borrower arise from purchases by customers of Inventory with credit cards or
debit cards, other than those which are issued by Credit Card Issuers with whom
any Borrower has entered into one of the Credit Card Agreements set forth on
Schedule 8.20 hereto or with whom each Borrower has entered into a Credit Card
Agreement in accordance with Section 9.21 hereof. Each of the Credit Card
Agreements constitutes the legal, valid and binding obligations of such Borrower
and to the best of Borrower's knowledge, the other parties thereto, enforceable
in accordance with their respective terms and are in full force and effect. No
default or event of default, or act, condition or event which after notice or
passage of time or both, would constitute a default or an event of default under
any of the Credit Card Agreements exists or has occurred. Each Borrower and the
other parties thereto have complied with all of the terms and conditions of the
Credit Card Agreements to the extent necessary for such Borrower to be entitled
to receive all payments thereunder. Each Borrower has delivered, or caused to be
delivered to Lender, true, correct and complete copies of all of the Credit Card
Agreements.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Each Borrower shall at all times preserve,
-------------------------
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to
52
be conducted. Each Borrower shall give Lender thirty (30) days prior written
notice of any proposed change in its corporate name, which notice shall set
forth the new name and such Borrower shall deliver to Lender a copy of the
amendment to the Certificate of Incorporation of such Borrower providing for the
name change certified by the Secretary of State of the jurisdiction of
incorporation of such Borrower as soon as it is available.
9.2 New Collateral Locations. Each Borrower may open any new location
---------------------------
within the continental United States provided such Borrower (a) gives Lender
fifteen (15) days prior written notice of the intended opening of any such new
location and (b) executes and delivers, or causes to be executed and delivered,
to Lender such agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the Collateral at
such location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
---------------------------------------
(a) Each Borrower shall, and shall cause any Subsidiary to, at all times,
comply in all material respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly observe all requirements
of any Federal, State or local Governmental Authority, including ERISA, the
Code, the Occupational Safety and Health Act of 1970, as amended, the Fair Labor
Standards Act of 1938, as amended, and all statutes, rules, regulations, orders,
permits and stipulations relating to environmental pollution and employee health
and safety, including all of the Environmental Laws.
(b) At the reasonable request of Lender and in any event, to the extent
required by applicable law, each Borrower shall establish and maintain, at its
expense, a system to assure and monitor its continued compliance with all
Environmental Laws in all of its operations, which system shall include annual
reviews of such compliance by employees or agents of such Borrower who are
familiar with the requirements of the Environmental Laws. Copies of all
environmental surveys, audits, assessments, feasibility studies and results of
remedial investigations shall be promptly furnished, or caused to be furnished,
by such Borrower to Lender. Each Borrower shall take prompt and appropriate
action to respond to any non- compliance with any of the Environmental Laws and
shall regularly report to Lender on such response.
(c) Each Borrower shall give both oral and written notice to Lender
immediately upon such Borrower's receipt of any notice of, or such Borrower's
otherwise obtaining knowledge of, (i) the occurrence of any event involving the
release, spill or discharge, threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of
any Environmental Law by such Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material or (C) the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other environmental, health or
safety matter, which affects Borrower or its business, operations or assets or
any properties at which Borrower transported, stored or disposed of any
Hazardous Materials.
53
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of any Borrower in order to avoid any
material non-compliance, with any Environmental Law, Borrower shall, at Lender's
request and Borrowers' expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where such Borrower's
non-compliance or alleged non-compliance with such Environmental Laws has
occurred as to such non-compliance and prepare and deliver to Lender a report as
to such non- compliance setting forth the results of such tests, a proposed plan
for responding to any environmental problems described therein, and an estimate
of the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's response
thereto or the estimated costs thereof, shall change in any material respect.
(e) Each Borrower shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including attorneys' fees and legal expenses) directly or indirectly
arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
any Borrower and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Each Borrower shall, and shall cause any
----------------------------
Subsidiary to, duly pay and discharge all taxes, assessments, contributions and
governmental charges upon or against it or its properties or assets, except for
taxes the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to such Borrower or such
Subsidiary, as the case may be, and with respect to which adequate reserves have
been set aside on its books. Each Borrower shall be liable for any tax or
penalties imposed on Lender as a result of the financing arrangements provided
for herein and each Borrower agrees to indemnify and hold Lender harmless with
respect to the foregoing, and to repay to Lender on demand the amount thereof,
and until paid by Borrowers such amount shall be added and deemed part of the
Loans, provided, that, nothing contained herein shall be construed to require
Borrower to pay any income or franchise taxes attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 Insurance. Each Borrower shall, and shall cause any Subsidiary to, at
----------
all times, maintain with financially sound and reputable insurers insurance with
respect to the Collateral against loss or damage and all other insurance of the
kinds and in the amounts customarily insured against or carried by corporations
of established reputation engaged in the same or similar businesses and
similarly situated. Said policies of insurance shall be satisfactory to Lender
as to form, amount and insurer. Each Borrower shall furnish certificates,
policies or endorsements to Lender as Lender shall require as proof of such
insurance, and, if such Borrower fails to do so, Lender is authorized, but not
required, to obtain such insurance at the expense of
54
Borrowers. All policies shall provide for at least thirty (30) days prior
written notice to Lender of any cancellation or reduction of coverage and that
Lender may act as attorney for any Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Each Borrower shall cause Lender to be
named as a loss payee and an additional insured (but without any liability for
any premiums) under such insurance policies and such Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its Affiliates. At
its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
-------------------------------------------
(a) Each Borrower shall, and shall cause any Subsidiary to, keep proper
books and records in which true and complete entries shall be made of all
dealings or transactions of or in relation to the Collateral and the business of
Borrower and its Subsidiaries in accordance with GAAP. Borrower shall promptly
furnish to Lender all such financial and other information as Lender shall
reasonably request relating to the Collateral and the assets, business and
operations of each Borrower, and to notify the auditors and accountants of each
Borrower that Lender is authorized to obtain such information directly from
them. Without limiting the foregoing, Borrowers shall furnish or cause to be
furnished to Lender, the following: (i) within thirty (30) days after the end of
each fiscal month (other than the end of a fiscal quarter), monthly unaudited
consolidated financial statements (including in each case balance sheets,
statements of income and loss, statements of cash flow, and statements of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Duck Head and its Subsidiaries as
of the end of and through such fiscal month, certified to be correct by the
chief financial officer of Duck Head, subject to normal year-end adjustments,
(ii) within forty-five (45) days after the end of each fiscal quarter (other
than at the end of the fiscal year), unaudited consolidated financial statements
(including in each case balance sheets, statements of income and loss,
statements of cash flow, and statements of shareholders' equity) and (iii)
within ninety (90) days after the end of each fiscal year, audited consolidated
financial statements of Duck Head and its Subsidiaries (including in each case
balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Duck Head and its Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Duck Head and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrower and its Subsidiaries
as of the end of and for the fiscal year then ended.
55
(b) Each Borrower shall promptly notify Lender in writing of the details of
(i) any loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or any other property which is security for the Obligations or
which would result in any material adverse change in such Borrower's business,
properties, assets, goodwill or condition, financial or otherwise, (ii) any
Material Contract of any Borrower being terminated or amended or any new
Material Contract entered into (in which event such Borrower shall provide
Lender with a copy of such Material Contract), (iii) any order, judgment or
decree in excess of $500,000 shall have been entered against any Borrower or any
of its properties or assets, (iv) any notification of violation of laws or
regulations received by any Borrower, (v) any ERISA Event, and (vi) the
occurrence of any Event of Default or act, condition or event which, with notice
or the passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrowers shall promptly after the sending or filing thereof furnish or
cause to be furnished to Lender copies of all reports which any Borrower sends
to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Without limiting the rights of Lender under any other provision of this
Agreement, as soon as available, but in any event not later than three (3) days
after the end of each calendar month, each Borrower shall deliver to Lender, in
form and substance satisfactory to Lender, in each case certified by the chief
financial officer of such Borrower as true and correct: (i) a statement
confirming the payment of rent and other amounts due to owners and lessors of
real property used by such Borrower in the immediately preceding month (subject
to year-end or periodic adjustments) which have not executed Collateral Access
Agreements, and (ii) the addresses of existing retail store locations closed, in
each case since the date of the most recent certificate delivered to Lender
containing the information required under this clause.
(e) Borrowers shall deliver, or cause to be delivered, to Lender, within
ninety (90) days from the date hereof, an opening unaudited consolidated balance
sheet of Duck Head and its Subsidiaries after giving effect to the transactions
contemplated by this Agreement and the Distribution Agreements which present
fairly the financial condition of Borrower as of such date.
(f) Each Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of such Borrower, as Lender may, from time to time, reasonably
request. Lender is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business of any Borrower to
any court or other Governmental Authority to the extent required by statute,
rule, regulation, subpoena or court order or to any participant or assignee or
prospective participant or assignee. Each Borrower hereby irrevocably authorizes
and directs all accountants or auditors to deliver to Lender, at Borrowers'
expense, copies of the financial statements of Borrowers and any reports or
management letters prepared by such accountants or auditors on behalf of
Borrowers and to disclose to Lender such information as they may have regarding
the business of Borrowers. Any documents, schedules, invoices or other papers
delivered to Lender may be
56
destroyed or otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each Borrower
---------------------------------------------------------
shall not, and shall not permit any Subsidiary to, directly or indirectly,
(a) merge into or with or consolidate with any other Person or permit any
other Person to merge into or with or consolidate with it except that any
Borrower may merge with and into or consolidate with the other Borrower,
provided, that, each of the following conditions is satisfied as determined by
Lender: (i) Lender shall have received not less than ten (10) days prior written
notice of the intention of such Borrower to so merge or consolidate and such
information with respect thereto as Lender may request, (ii) as of the effective
date of the merger or consolidation and after giving effect thereto, no Event of
Default or act, condition or event which with notice or passage of time or both
would constitute an Event of Default, shall exist or have occurred and be
continuing, (iii) Lender shall have received true, correct and complete copies
of all agreements, documents and instruments relating to such merger or
consolidation, including, but not limited to, the certificate or certificates of
merger or consolidation to be filed with each appropriate Secretary of State or
other Governmental Authority (and promptly after such merger or consolidation is
effective, as such certificate or certificates of merger or consolidation have
been filed with each appropriate Secretary of State or other Governmental
Authority), and (iv) each Obligor shall ratify and confirm that its guarantees
of the Obligations shall apply to the Obligations as assumed by such surviving
entity; or
(b) sell, assign, lease, transfer, abandon or otherwise dispose of any
Capital Stock or Indebtedness to any other Person or any of its assets to any
other Person, except for
(i) sales of Inventory in the ordinary course of business,
(ii) the disposition of any of the embroidery equipment listed on
Schedule 1.36 hereto and the Real Property of Borrower located at Planta
Jupiter, Contigua al Motel Amar, San Francisco de Dos Xxxx, San Xxxx, Costa
Rica,
(iii) the disposition of worn-out or obsolete Equipment so long as
such disposition shall not, in the good faith determination of Lender, have
a material adverse effect on the condition (financial or otherwise),
business, performance, operations or properties of such Borrower; the
ability of Borrower to repay the Obligations or of such Borrower to perform
its obligations under this Agreement or any of the other Financing
Agreements,
(iv) the issuance and sale by Duck Head of Capital Stock of Duck Head
after the date hereof; provided, that, (A) Lender shall have received not
less than ten (10) Business Days prior written notice of such issuance and
sale by Duck Head, which notice shall specify the parties to whom such
shares are to be sold, the terms of such sale, the total amount which it is
anticipated will be realized from the issuance and sale of such stock and
the net cash proceeds which it is anticipated will be received by Borrower
from such sale, (B) Borrower shall not be required to pay any cash
dividends or repurchase or redeem such Capital Stock or make any other
57
payments in respect thereof except as permitted in Section 9.11 hereof, (C)
the terms of such Capital Stock, and the terms and conditions of the
purchase and sale thereof, shall not include any terms that include any
limitation on the right of Duck Head to request or receive Loans or Letter
of Credit Accommodations or the right of Duck Head to amend or modify any
of the terms and conditions of this Agreement or any of the other Financing
Agreements or otherwise in any way relate to or affect the arrangements of
Duck Head with Lender are more restrictive or burdensome to Duck Head than
the terms of any Capital Stock in effect on the date hereof, and (D) as of
the date of such issuance and sale and after giving effect thereto, no
Event of Default or act, condition or event which with notice or passage of
time or both would constitute an Event of Default shall exist or have
occurred;
(v) the issuance of Capital Stock of Duck Head consisting of common
stock pursuant to (A) a stock option plan, 401(k) plan or incentive stock
award plan of Duck Head for the benefit of its employees, directors and
consultants, provided, that, in no event shall Duck Head be required to
issue, or shall Duck Head issue, Capital Stock pursuant to such stock
option plan, 401(k) plan or incentive stock award plan which would result
in an Event of Default, (B) the option granted to Xxxxxx X. Xxxxxx to
purchase up to 1,000,000 shares of DH Apparel Company, Inc. common stock on
the date six (6) months after the distribution of DH Apparel Company's
stock to the shareholder's of Woodside at a purchase price equal to the
average daily closing stock price for DH Apparel Company, Inc. common stock
for the six (6) month period following the distribution;
(c) form or acquire any Subsidiaries other than those listed on the
Information Certificate;
(d) wind up, liquidate or dissolve; or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Each Borrower shall not, and shall permit any Subsidiary
-------------
to, create, incur, assume or suffer to exist any security interest, mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever on any of its
assets or properties, including the Collateral, except:
(a) the security interests and liens of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower or such Subsidiary, as the
case may be and with respect to which adequate reserves have been set aside on
its books;
(c) non-consensual statutory liens (other than liens securing the payment
of taxes) arising in the ordinary course of such Borrower's or such Subsidiary's
business to the extent: (i) such liens secure Indebtedness which is not overdue
or (ii) such liens secure Indebtedness relating to claims or liabilities which
are fully insured and being defended at the sole cost and
58
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to such Borrower or
such Subsidiary, in each case prior to the commencement of foreclosure or other
similar proceedings and with respect to which adequate reserves have been set
aside on its books;
(d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of Real Property which do not interfere in any
material respect with the use of such Real Property or ordinary conduct of the
business of such Borrower or such Subsidiary as presently conducted thereon or
materially impair the value of the Real Property which may be subject thereto;
(e) purchase money security interests in Equipment (including Capital
Leases) and purchase money mortgages on Real Property to secure Indebtedness
permitted under Section 9.9(b) hereof;
(f) a first and only deed to secure debt (a "Security Deed") on the
Distribution and Office Facility arising after the second anniversary of this
Agreement so long as each of the following conditions is satisfied in the
determination of Lender: (i) Lender shall have received not less than forty-five
(45) days prior written notice of the intention of Duck Head to grant such
security interest and incur such Indebtedness, (ii) the Indebtedness secured by
such Real Property, arises from loans in cash or other immediately available
funds provided to Duck Head, the proceeds of which are used, first, to pay, the
entire outstanding amount of all principal and all accrued interest on the Term
Loan, and second, to repay the outstanding principal amount of Revolving Loans
which amounts may be reborrowed, (iii) such Security Deed and does not apply to
any property of Duck Head other than the Distribution and Office Facility, (iv)
as of the date of the incurrence of such Indebtedness and the creation of such
Security Deed and after giving effect thereto, the Excess Availability shall be
not less than $4,000,000, (v) such Security Deed shall be in form and substance
satisfactory to Lender, (vi) Lender shall have received a Collateral Access
Agreement, duly executed by such new lender, in form and substance satisfactory
to Lender, and (vii) as of the date of the granting of any such Security Deed
and incurrence of such Indebtedness and after giving effect thereto, no Event of
Default or act, condition or event which with notice, lapse of time or both
would constitute an Event of Default shall exist or have occurred; to the extent
that each of the foregoing conditions has been satisfied in the determination of
Lender, Lender shall, at the request of Duck Head, at Borrowers' expense,
execute and deliver a release of Deed to Secure Debt and such other release of
lien as requested by the new lender, provided, that, such releases shall each be
in form and substance satisfactory to Lender;
(g) setoff or credit balances of any Borrower with Credit Card Issuers, but
not liens on or rights of setoff against any other property or assets of such
Borrower pursuant to the Credit Card Agreements (as in effect on the date
hereof) to secure the obligations of such Borrower to the Credit Card Issuers as
a result of fees and chargebacks; or
(h) the security interests and liens set forth on Schedule 8.4 hereto.
59
9.9 Indebtedness. Each Borrower shall not, and shall not permit any
-------------
Subsidiary to, incur, create, assume, become or be liable in any manner with
respect to, or permit to exist, any Indebtedness, except:
(a) the Obligations;
(b) purchase money Indebtedness (including Capital Leases) to the extent
secured by purchase money security interests in Equipment (including Capital
Leases) so long as such security interests do not apply to any property of such
Borrower other than the Equipment so acquired, and the Indebtedness secured
thereby does not exceed the cost of the Equipment so acquired; except, that,
with respect to the Warehouse Equipment, Duck Head may refinance the Warehouse
Equipment which was previously financed under the GECC Warehouse Equipment Lease
(the "Refinancing Indebtedness") so long as each of the following conditions is
satisfied in the determination of Lender: (A) the principal amount of such
Refinancing Indebtedness shall not exceed the lesser of (1) $1,550,000 or (2)
the fair market value of the Warehouse Equipment (plus the amount of reasonable
refinancing fees and expenses incurred in connection therewith on the date of
such refinancing), (B) as of the date of any such refinancing and after giving
effect thereto, the Excess Availability of Duck Head shall not be less than
$8,000,000, (C) the Refinancing Indebtedness shall only be secured by the
Warehouse Equipment, (D) Lender shall have received true, correct and complete
copies of all agreements, documents and instruments evidencing or otherwise
related to such Refinancing Indebtedness, each in form and substance
satisfactory to Lender and as duly authorized, executed and delivered by the
parties thereto, and (E) as of the date of incurring such Indebtedness and after
giving effect thereto, no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing; to the extent that each of the
foregoing conditions has been satisfied in the determination of Lender, Lender
shall, at the request of Duck Head, at Borrowers' expense, execute and deliver a
UCC-3 Partial Release with respect to the Warehouse Equipment subject to such
refinancing and such other release of lien as shall be reasonably requested by
the new lender, provided, that, such releases shall each be in form and
substance satisfactory to Lender;
(c) Indebtedness of Duck Head arising after the second anniversary of the
date of this Agreement to the extent secured by a Security Deed on the
Distribution and Office Facility permitted under Section 9.8 (f) above;
(d) Indebtedness of any Borrower under interest swap agreements, interest
rate cap agreements, interest rate collar agreements, interest rate exchange
agreements and similar contractual agreements entered into for the purpose of
protecting a Person against fluctuations in interest rates; provided, that, such
arrangements are with banks or other financial institutions that have combined
capital and surplus and undivided profits of not less than $100,000,000 and are
not for speculative purposes and such Indebtedness shall be unsecured;
(e) the Indebtedness set forth on Schedule 9.9 hereto; provided, that, (i)
Borrower may only make regularly scheduled payments of principal and interest in
respect of such Indebtedness in accordance with the terms of the agreement or
instrument evidencing or giving
60
rise to such Indebtedness as in effect on the date hereof, (ii) such Borrower
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such Indebtedness or any agreement, document or instrument related thereto as
in effect on the date hereof except, that, such Borrower may, after prior
written notice to Lender, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof, or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or (B) redeem, retire, defease, purchase or otherwise
acquire such Indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and (iii) such Borrower shall furnish to Lender all notices or
demands in connection with such Indebtedness either received by Borrower or on
its behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Each Borrower shall not, and
---------------------------------------
shall not permit any Subsidiary to, directly or indirectly, make any loans or
advance money or property to any person, or invest in (by capital contribution,
dividend or otherwise) or purchase or repurchase the Capital Stock or
Indebtedness or all or a substantial part of the assets or property of any
person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the Indebtedness, performance, obligations or dividends
of any Person, or form or acquire any Subsidiaries, or agree to do any of the
foregoing, except:
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(b) investments in cash or Cash Equivalents, provided, that, (i) no
Revolving Loans are then outstanding and (ii) as to any of the foregoing, unless
waived in writing by Lender, each Borrower shall take such actions as are deemed
necessary by Lender to perfect the security interest of Lender in such
investments;
(c) the existing equity investments of each Borrower as of the date hereof
in its Subsidiaries, provided, that, Borrower shall have any obligation to make
any other investment in, or loans to, or other payments in respect of, any such
Subsidiaries;
(d) guarantees by any Subsidiaries of any Borrower of the Obligations in
favor of Lender;
(e) stock or obligations issued to a Borrower by any Person (or the
representative of such Person) in respect of Indebtedness of such Person owing
to such Borrower in connection with the insolvency, bankruptcy, receivership or
reorganization of such Person or a composition or readjustment of the debts of
such Person; provided, that, the original of any such stock or instrument
evidencing such obligations shall be promptly delivered to Lender, upon Lender's
request, together with such stock power, assignment or endorsement by such
Borrower as Lender may request;
61
(f) obligations or account debtors to a Borrower arising from Accounts
which are past due evidenced by a promissory note made by such account debtor
payable to such Borrower; provided, that, promptly upon the receipt of the
original of any such promissory note by any Borrower, such promissory note shall
be endorsed to the order of Lender by such Borrower and promptly delivered to
Lender as so endorsed;
(g) the loans, advances and guarantees set forth on Schedule 9.10 hereto;
provided, that, as to such loans, advances and guarantees, (i) each Borrower
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such loans, advances or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire the obligations arising pursuant to such guarantees, or set
aside or otherwise deposit or invest any sums for such purpose, and (ii) each
Borrower shall furnish to Lender all notices or demands in connection with such
loans, advances or guarantees or other Indebtedness subject to such guarantees
either received by such Borrower or on its behalf, promptly after the receipt
thereof, or sent by such Borrower or on its behalf, concurrently with the
sending thereof, as the case may be; and
(h) unsecured loans by any Borrower to any other Borrower to the extent
permitted under Section 9.12 hereof; provided, that, as to any such loan, (i)
each month Borrowers shall provide to Lender a report in form and substance
reasonably satisfactory to Lender of the amount of such loans made in the
immediately preceding month and any repayments in connection therewith, and (ii)
the Indebtedness arising pursuant to any such loan shall not be evidenced by a
promissory note or other instrument, unless the single original of such note or
other instrument is delivered to Lender to hold as part of the Collateral, with
such endorsement and/or assignment by the payee of such note or other instrument
as Lender may reasonably require.
9.11 Dividends and Redemptions. Each Borrower shall not, directly or
----------------------------
indirectly, declare or pay any dividends on account of any shares of class of
Capital Stock of such Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of Capital Stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing except
(a) any Subsidiary of a Borrower may pay dividends to such Borrower;
(b) Duck Head may pay cash dividends or distributions from legally
available funds therefor, to its shareholders from time to time in amounts such
that the aggregate amount paid to shareholders does not exceed twenty-five (25%)
percent of its cumulative Net Income (calculated from the date of this Agreement
to date of determination), provided, that, (i) Lender shall have received ten
(10) days prior to any payment thereof, a certificate signed by Borrower's chief
financial officer (A) setting forth Duck Head's cumulative Net Income with
respect to which the dividend or distribution is to be made and providing full
information and computations with respect thereto and (B) such dividend or
distribution is not in violation of applicable law or any other agreement to
which Duck Head is a party or by which it is bound, (ii) as of the date of any
62
such payment and after giving effect thereto, the Excess Availability shall be
not less than $6,000,000, and (iii) as of the date of any such payment and after
giving effect thereto, no Event of Default or any act, condition or event which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred;
(c) Duck Head may repurchase its Capital Stock consisting of common stock,
provided, that, as to (i) any such repurchase, each of the following conditions
is satisfied: (A) as of the date of the payment for such repurchase and after
giving effect thereto, no Event of Default or any act, condition or event which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing, (B) such repurchase shall be
paid with funds legally available therefor, (C)such repurchase shall not violate
any law or regulation or the terms of any indenture, agreement or undertaking to
which such Borrower is a party or by which such Borrower or its property is
bound, (D) as of the date of any such payment for such repurchase and after
giving effect thereto, the Excess Availability shall be not less than
$6,000,000, and (E) the aggregate amount of all payments for such repurchases
during the term of this Agreement shall not exceed $3,000,000.
9.12 Transactions with Affiliates. Each Borrower shall not, and shall not
------------------------------
permit any Subsidiary to, directly or indirectly,
(a) purchase, acquire or lease any property from, or sell, transfer or
lease any property to, any officer, director, agent or other person affiliated
with such Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of such Borrower's business and upon fair and reasonable
terms no less favorable to such Borrower than such Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person; or
(b) make any payments of management, consulting or other fees for
management or similar services, or of any Indebtedness owing to any officer,
employee, shareholder, director or other Affiliate of such Borrower except:
(i) reasonable compensation to officers, employees and directors for
services rendered to Borrower in the ordinary course of business;
(ii) dividends permitted under Section 9.11 (b) above; and
(iii) payments by any Borrower to Cargud, S.A. for (A) actual and
necessary reasonable out-of-pocket administrative, operating and capital
expenditures of Cargud, S.A. for the business of Borrower as presently
conducted in the ordinary course of business (including lease payments,
payroll, insurance, franchise taxes and similar items), provided, that, the
amount of all such payments permitted under Section 9.12 (iii)(A) in
respect of capital expenditures shall not exceed $100,000 in the aggregate
for all Borrowers in any fiscal year of Borrowers, and (B) actual and
necessary reasonable out-of-pocket legal, accounting, insurance (including
premiums for such insurance), marketing, payroll and similar types of
services paid for by Cargud, S.A. in the ordinary course of its business as
conducted as of the date hereof or as the same may be directly attributable
to such Borrower; provided, that, (1) such expenses are in the ordinary
63
course of and pursuant to the reasonable requirements of such Borrower's
business as conducted on the date hereof, and (2) to the extent such
expenses are payable to Cargud, S.A., such expenses shall be payable upon
terms no less favorable to such Borrower, than such Borrower, could obtain
in a comparable arm's length transaction with a person who is not an
Affiliate.
9.13 Additional Bank Accounts. Each Borrower shall not, directly or
---------------------------
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.10 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish and (b) as to any accounts used by any Borrower to make payments
of payroll, taxes or other obligations to third parties, after prior written
notice to Lender.
9.14 Compliance with ERISA. Each Borrower shall and shall cause each of its
----------------------
ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other Federal and
State law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; (c) not terminate any of such Plans so as
to incur any liability to the Pension Benefit Guaranty Corporation; (d) not
allow or suffer to exist any prohibited transaction involving any of such Plans
or any trust created thereunder which would subject any Borrower or such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under Section 4975 of the Code or ERISA; (e) make all required
contributions to any Plan which it is obligated to pay under Section 302 of
ERISA, Section 412 of the Code or the terms of such Plan; (f) not allow or
suffer to exist any accumulated funding deficiency, whether or not waived, with
respect to any such Plan; or (g) allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any such Plan that
is a single employer plan, which termination could result in any liability to
the Pension Benefit Guaranty Corporation.
9.15 End of Fiscal Years: Fiscal Quarters. Each Borrower shall, for
----------------------------------------
financial reporting purposes, cause its, and each of its Subsidiaries'(a) fiscal
years to end the Saturday closest to June 30 of each year and (b) fiscal
quarters to end on the last day of the thirteenth (13th) week following the end
of the immediately preceding fiscal quarter, provided, that, the end of the
fourth fiscal quarter shall be on the last day of the fourteenth (14th) week
following the end of the third fiscal quarter whenever necessary to have the
fourth fiscal quarter end on the Saturday closest to June 30.
9.16 Change in Business. Each Borrower shall not engage in any business
--------------------
other than the business of such Borrower on the date hereof and any business
reasonably related, ancillary or complimentary to the business in which such
Borrower is engaged on the date hereof.
9.17 Limitation of Restrictions Affecting Subsidiaries. Each Borrower
-----------------------------------------------------
shall not, directly, or indirectly, create or otherwise cause or suffer to exist
any encumbrance or restriction which prohibits or limits the ability of any
Subsidiary of such Borrower to (a) pay dividends or
64
make other distributions or pay any Indebtedness owed to any Borrower or any
Subsidiary of any Borrower; (b) make loans or advances to any Borrower or any
Subsidiary of any Borrower, (c) transfer any of its properties or assets to any
Borrower or any Subsidiary of any Borrower; or (d) create, incur, assume or
suffer to exist any lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, other than encumbrances and restrictions
arising under (i) applicable law, (ii) this Agreement, (iii) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of any Borrower or any of its Subsidiaries, (iv) customary
restrictions on dispositions of real property interests found in reciprocal
easement agreements of each Borrower or its Subsidiary, (v) any agreement
relating to permitted Indebtedness incurred by a Subsidiary of any Borrower
prior to the date on which such Subsidiary was acquired by any Borrower and
outstanding on such acquisition date, and (vi) the extension or continuation of
contractual obligations in existence on the date hereof; provided, that, any
such encumbrances or restrictions contained in such extension or continuation
are no less favorable to Lender than those encumbrances and restrictions under
or pursuant to the contractual obligations so extended or continued.
9.18 After Acquired Real Property. If any Borrower hereafter acquires any
-----------------------------
Real Property, fixtures or any other property that is of the kind or nature
described in the Mortgage and such Real Property, fixtures or other property at
any one location has a fair market value in an amount equal to or greater than
$500,000 (or if an Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default exists,
then regardless of the fair market value of such assets), without limiting any
other rights of Lender, or duties or obligations of any Borrower, upon Lender's
request, such Borrower shall execute and deliver to Lender a mortgage, deed of
trust or deed to secure debt, as Lender may determine, in form and substance
substantially similar to the Mortgages and as to any provisions relating to
specific state laws satisfactory to Lender and in form appropriate for recording
in the real estate records of the jurisdiction in which such Real Property or
other property is located granting to Lender a first and only lien and mortgage
on and security interest in such Real Property, fixtures or other property
(except as such Borrower would otherwise be permitted to incur hereunder or
under the Mortgages or as otherwise consented to in writing by Lender) and such
other agreements, documents and instruments as Lender may require in connection
therewith.
9.19 Costs and Expenses. Borrowers shall pay to Lender on demand all costs,
-------------------
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) costs and expenses and
fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees, costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (c) charges,
65
fees or expenses charged by any bank or issuer in connection with the Letter of
Credit Accommodations; (d) costs and expenses of preserving and protecting the
Collateral; (e) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (f) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrowers'
operations, plus a per diem charge at the rate of $650 per person per day for
Lender's examiners in the field and office; and (g) the fees and disbursements
of counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.20 Further Assurances. At the request of Lender at any time and from time
-------------------
to time, Borrowers shall, at their expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of any
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, each Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
9.21 Credit Card Agreements. Each Borrower shall (a) observe and perform
------------------------
all material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
(b) not do, permit, suffer or refrain from doing anything, as a result of which
there could be a default under or breach of any of the terms of any of the
Credit Card Agreements and (c) at all times maintain in full force and effect
the Credit Card Agreements and not terminate, cancel, surrender, modify, amend,
waive or release any of the Credit Card Agreements, or consent to or permit to
occur any of the foregoing; except, that, (i) any such Borrower may terminate or
cancel any of the Credit Card Agreements in the ordinary course of the business
of such Borrower; provided, that, such Borrower shall give Lender not less than
fifteen (15) days prior written notice of its intention to so terminate or
cancel any of the Credit Card Agreements; (d) not enter into any new Credit Card
Agreements with any new Credit Card Issuer unless (i) Lender shall have received
not less than thirty (30) days prior written notice of the intention of such
Borrower to enter into such agreement (together with such other information with
respect thereto as Lender may request) and (ii) such Borrower delivers, or
causes to be delivered to Lender, a Credit Card Acknowledgment in favor of
Lender; (e) give Lender immediate written notice of any Credit Card Agreement
entered into by such Borrower after the date hereof, together with a true,
correct and complete copy thereof and such other information with respect
thereto as Lender may request; and (f) furnish to Lender, promptly upon
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the request of Lender, such information and evidence as Lender may require from
time to time concerning the observance, performance and compliance by such
Borrower or the other party or parties thereto with the terms, covenants or
provisions of the Credit Card Agreements.
9.22 Year 2000 Compliance. Each Borrower shall take all action which may be
---------------------
required so that its computer-based information systems, including, without
limitation, all of its proprietary computer hardware and software (and whether
supplied by others or with which Borrower's systems interface) are able to
operate effectively and correctly process data using dates on or after January
1, 2000. Compliance with the foregoing shall mean that the systems will operate
and correctly process data without human intervention such that (a) there is
correct century recognition, (b) calculations properly accommodate same century
and multi-century formulas and date values, and (c) all leap years shall be
calculated correctly. Upon Lender's request, Borrowers shall certify to Lender
in writing that its information systems have been modified, updated and
programmed as required by this Section. On and after January 1, 2000, the
computer-based information systems of each Borrower shall be, and with ordinary
course upgrading and maintenance, will continue to be sufficient to permit
Borrower to conduct its business without any adverse effect as a result of the
year 2000.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or more of
------------------
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) any Borrower fails to pay any of the Obligations within three (3)
Business Days after the same becomes due and payable or (ii) any Borrower or any
Obligor fails to perform any of the covenants contained in Sections 9.3, 9.4,
9.6, 9.13, 9.14, 9.16, or 9.22 or of this Agreement and such failure shall
continue for ten (10) days; provided, that, such ten (10) day period shall not
apply in the case of: (A) any failure to observe any such covenant which is not
capable of being cured at all or within such ten (10) day period or which has
been the subject of a prior failure within a six (6) month period or (B) an
intentional breach of any Borrower or any Obligor of any such covenant or (iii)
any Borrower fails to perform any of the terms, covenants, conditions or
provisions contained in this Agreement or any of the other Financing Agreements
other than those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by any Borrower
to Lender in this Agreement, the other Financing Agreements or any other
agreement, schedule, confirmatory assignment or otherwise shall when made or
deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the terms,
covenants, conditions or provisions of any guarantee, endorsement or other
agreement of such party in favor of Lender;
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(d) any judgment for the payment of money is rendered against any Borrower
or any Obligor in excess of $500,000 in any one case or in excess of $2,000,000
in the aggregate and shall remain undischarged or unvacated for a period in
excess of thirty (30) days or execution shall at any time not be effectively
stayed, or any judgment other than for the payment of money, or injunction,
attachment, garnishment or execution is rendered against any Borrower or any
Obligor or any of their assets having a value in excess of $500,000 in the
aggregate;
(e) any Obligor (being a natural person or a general partner of an Obligor
which is a partnership) dies or any Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Any Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against any Borrower or any Obligor or all or any part of its properties
and such petition or application is not dismissed within forty-five (45) days
after the date of its filing or any Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by any Borrower or any Obligor or for all or any part of its property; or
(i) any default by any Borrower or any Obligor under any agreement,
document or instrument relating to any Indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
Indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $500,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any material default
under any of the Distribution Agreements by any Borrower, Woodside, Delta
Apparel, Inc. or any other party thereto or under any other material contract,
lease, license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto or any Credit Card Issuer or Credit Card Processor withholds payment of
amounts otherwise payable to any Borrower to fund a reserve account or otherwise
hold as collateral, or shall require any Borrower to pay funds into a reserve
account or for such Credit Card Issuer or Credit Card Processor to otherwise
hold as collateral, or any Borrower shall provide a letter of credit, guarantee,
indemnity or similar instrument to or in favor of such Credit Card Issuer or
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Credit Card Processor such that in the aggregate all of such funds in the
reserve account, other amounts held as collateral and the amount of such letters
of credit, guarantees, indemnities or similar instruments shall exceed $500,000
or any Credit Card Issuer or Credit Card Processor shall debit or deduct any
amounts from any deposit account of any Borrower;
(j) any Credit Card Issuer or Credit Card Processor shall send notice to
any Borrower that it is ceasing to make or suspending payments to such Borrower
of amounts due or to become due to Borrower or shall cease or suspend such
payments, or shall send notice to any Borrower that it is terminating its
arrangements with such Borrower or such arrangements shall terminate as a result
of any event of default under such arrangements, which continues for more than
the applicable cure period, if any, with respect thereto, unless such Borrower
shall have entered into arrangements with another Credit Card Issuer or Credit
Card Processor, as the case may be, within thirty (30) days after the date of
any such notice;
(k) an ERISA Event shall occur which results in or could reasonably be
expected to result in liability of any Borrower in an aggregate amount in excess
of $500,000;
(l) any Change of Control;
(m) the indictment by any Governmental Authority, or as Lender may
reasonably and in good faith determine, the threatened indictment by any
Governmental Authority of any Borrower of which such Borrower or Lender receives
notice, in either case, as to which there is a reasonable possibility of an
adverse determination, in the good faith determination of Lender, under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceedings against any Borrower, pursuant to which statute or proceedings
the penalties or remedies sought or available include forfeiture of (i) any of
the Collateral with an aggregate value of $500,000 or (ii) any other property of
such Borrower which is necessary or material to the conduct of its business;
(n) there shall be a material adverse change in the business, assets or
prospects of any Borrower or any Obligor after the date hereof; or
(o) there shall be an event of default under any of the other Financing
Agreements.
10.2 Remedies.
---------
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by any Borrower or any Obligor, except as such notice or consent
is expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of
69
equity for an injunction to restrain a breach or threatened breach by any
Borrower of this Agreement or any of the other Financing Agreements. Lender may,
at any time or times, proceed directly against any Borrower or any Obligor to
collect the principal balance of the Obligations and all interest accrued
thereon without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default exists
or has occurred and is continuing, Lender may, in its discretion and without
limitation, (i) accelerate the payment of the principal balance of the
Obligations and all interest accrued thereon and demand immediate payment
thereof to Lender (provided, that, upon the occurrence of any Event of Default
described in Sections 10.1(g) and 10.1(h), the principal balance of the
Obligations and all interest accrued thereon shall automatically become
immediately due and payable), (ii) with or without judicial process or the aid
or assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(iii) require any Borrower, at Borrowers' expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of
any and all Collateral (including, without limitation, entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the Lender having
the right to purchase the whole or any part of the Collateral at any such public
sale, all of the foregoing being free from any right or equity of redemption of
any Borrower, which right or equity of redemption is hereby expressly waived and
released by each Borrower and/or (vii) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for future delivery,
the Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Lender. If notice of disposition of Collateral is
required by law, five (5) days prior notice by Lender to Borrowers 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 each Borrower waives any other notice. In the
event Lender institutes an action to recover any Collateral or seeks recovery of
any Collateral by way of prejudgment remedy, each Borrower waives the posting of
any bond which might otherwise be required.
(c) For the purpose of enabling Lender to exercise the rights and remedies
hereunder, each Borrower hereby grants to Lender, to the extent assignable, an
irrevocable, non- exclusive license (exercisable without payment of royalty or
other compensation to any Borrower) to use, assign, license or sublicense any of
the trademarks, service-marks, trade names, business names, trade styles,
designs, logos and other source of business identifiers and other Intellectual
Property and general intangibles now owned or hereafter acquired by such
Borrower, wherever the same maybe located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof.
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(d) Lender may apply the cash proceeds of Collateral actually received by
Lender from any sale, lease, foreclosure or other disposition of the Collateral
to payment of the Obligations, in whole or in part and in such order as Lender
may elect, whether or not then due. Each Borrower shall remain liable to Lender
for the payment of any deficiency with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
attorneys' fees and legal expenses.
(e) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrowers and/or (ii) terminate any provision of
this Agreement providing for any future Loans or Letter of Credit Accommodations
to be made by Lender to Borrowers.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
------------------------------------------------------------
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
----------------------------------------------------------------------
(a) The validity, interpretation and enforcement of this Agreement and the
other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of Georgia (without giving
effect to principles of conflicts of law).
(b) Each Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Superior Court of Xxxxxx County, Georgia and
the United States District Court for the Northern District of Georgia and waive
any objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against any Borrower or its property in
the courts of any other jurisdiction which Lender deems necessary or appropriate
in order to realize on the Collateral or to otherwise enforce its rights against
any Borrower or its property).
(c) Each Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, each
Borrower shall appear
71
in answer to such process, failing which such Borrower shall be deemed in
default and judgment may be entered by Lender against such Borrower for the
amount of the claim and other relief requested.
(d) EACH BORROWER AND LENDER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH BORROWER AND LENDER HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrowers (whether in tort,
contract, equity or otherwise) for losses suffered by any Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a final and non- appealable
judgment or court order binding on Lender, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct. In any
such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
------------------
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on any Borrower which Lender may elect to give shall entitle such
Borrower to any other or further notice or demand in the same, similar or other
circumstances. Without limiting the generality of the foregoing, each Borrower
waives (i) notice prior to Lender's taking possession or control of any of the
Collateral or any bond or security which might be required by any court prior to
allowing Lender to exercise any of Lender's remedies, including the issuance of
an immediate writ of possession and (ii) the benefit of all valuation,
appraisement and exemption laws.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
------------------------
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of each
Borrower. Lender shall not, by any act, delay, omission or otherwise
72
be deemed to have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of any right, power and/or
remedy on any one occasion shall not be construed as a bar to or waiver of any
such right, power and/or remedy which Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Each Borrower waives all rights to interpose
------------------------
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Each Borrower shall indemnify and hold Lender, and
----------------
its directors, agents, employees and counsel, harmless from and against any and
all losses, claims, damages, liabilities, costs or expenses imposed on, incurred
by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel, except for such losses, claims, damages, liabilities, costs or expenses
resulting from the gross negligence or wilful misconduct of Lender, its
directors, agents, employees or counsel as determined pursuant to a final,
non-appealable order of a court of competent jurisdiction. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in this Section
may be unenforceable because it violates any law or public policy, each Borrower
shall pay the maximum portion which it is permitted to pay under applicable law
to Lender in satisfaction of indemnified matters under this Section. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
----
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof. Lender or Borrowers may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrowers shall pay to Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure Lender from
loss, cost, damage or expense, including attorneys'
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fees and legal expenses, in connection with any contingent Obligations,
including issued and outstanding Letter of Credit Accommodations and checks or
other payments provisionally credited to the Obligations and/or as to which
Lender has not yet received final and indefeasible payment. Such payments in
respect of the Obligations and cash collateral shall be remitted by wire
transfer in Federal funds to such bank account of Lender, as Lender may, in its
discretion, designate in writing to Borrowers for such purpose. Interest shall
be due until and including the next Business Day, if the amounts so paid by
Borrower to the bank account designated by Lender are received in such bank
account later than 12:00 noon, Atlanta, Georgia time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge Borrowers of their respective duties, obligations and
covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end of the
then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrowers agree to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount equal
to one (1%) percent of the Maximum Credit. For purposes of calculating the
foregoing early termination fee, the term "Maximum Credit" shall be deemed to
be, on such date of determination, the sum of (i) the Revolving Loan Limit and
(ii) the original principal amount of the Term Loan but only in the event that
such Term Loan has not been paid out in accordance with the provisions of
Section 9.9 (c) hereof. Such early termination fee shall be presumed to be the
amount of damages sustained by Lender as a result of such early termination and
each Borrower agrees that it is reasonable under the circumstances currently
existing. In addition, Lender shall be entitled to such early termination fee
upon the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h) hereof, even if Lender does not exercise its right to terminate this
Agreement, but elects, at its option, to provide financing to Borrowers or
permit the use of cash collateral under the United States Bankruptcy Code. The
early termination fee provided for in this Section 12.1 shall be deemed included
in the Obligations.
(d) Notwithstanding anything to the contrary contained in Section 12.1(c)
above, in the event of the termination of this Agreement at the request of
Borrower prior to the end of the term of this Agreement and the full and final
repayment of all Obligations and the receipt by Lender of cash collateral all as
provided in Section 12.1(a) above, Borrower shall not be required to pay to
Lender an early termination fee if such payments are made to Lender with the
initial proceeds of a financing transaction provided or underwritten by First
Union National Bank to Borrower.
12.2 Interpretative Provisions.
--------------------------
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(a) All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement.
(b) All references to the plural herein shall also mean the singular and to
the singular shall also mean the plural unless the context otherwise requires.
(c) All references to Borrower and Lender pursuant to the definitions set
forth in the recitals hereto, or to any other person herein, shall include their
respective successors and assigns.
(d) The words "hereof", "herein", "hereunder", "this Agreement" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not any particular provision of this Agreement and as this Agreement
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(e) The word "including" when used in this Agreement shall mean "including,
without limitation".
(f) An Event of Default shall exist or continue or be continuing until such
Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender.
(g) Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given in accordance with
GAAP, and all financial computations hereunder shall be computed unless
otherwise specifically provided herein, in accordance with GAAP as consistently
applied and using the same method for inventory valuation as used in the
preparation of the financial statements of Borrower most recently received by
Lender prior to the date hereof.
(h) In the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including", the words "to" and
"until" each mean "to but excluding" and the word "through" means "to and
including".
(i) Unless otherwise expressly provided herein, (i) references herein to
any agreement, document or instrument shall be deemed to include all subsequent
amendments, modifications, supplements, extensions, renewals, restatements or
replacements with respect thereto, but only to the extent the same are not
prohibited by the terms hereof or of any other Financing Agreement, and
(ii) references to any statute or regulation are to be construed as including
all statutory and regulatory provisions consolidating, amending, replacing,
recodifying, supplementing or interpreting the statute or regulation.
(j) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
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(k) This Agreement and other Financing Agreements may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(l) This Agreement and the other Financing Agreements are the result of
negotiations among and have been reviewed by counsel to Lender and the other
parties, and are the products of all parties. Accordingly, this Agreement and
the other Financing Agreements shall not be construed against Lender merely
because of Lender's involvement in their preparation.
12.3 Notices. All notices, requests and demands hereunder shall be in
--------
writing and (a) made to Lender at its address set forth below and to each
Borrower at its chief executive office set forth below, or to such other address
as either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.4 Partial Invalidity. If any provision of this Agreement is held to be
--------------------
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.5 Successors. This Agreement, the other Financing Agreements and any
-----------
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that no Borrower may assign its rights under this
Agreement, the other Financing Agreements and any other document referred to
herein or therein without the prior written consent of Lender. Lender may, after
notice to Borrowers, assign its rights and delegate its obligations under this
Agreement and the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.6 Entire Agreement. This Agreement, the other Financing Agreements, any
-----------------
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral
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or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.
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IN WITNESS WHEREOF, Lender and Borrowers have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION DH APPAREL COMPANY, INC.
(SOUTHERN)
By: Xxxxxx Cott By: K. Xxxxx Xxxxxxxxx
------------------------- ------------------------
Title: Executive Vice President Title: Sr. Vice President & CFO
Address: Chief Executive Office:
000 Xxxxxxxx Xxxxxxx 0000-X Xxxxxx Xxxxxxxxxx Xxxxxxx
Xxxxx 0000 Xxxxxx, Xxxxxxx 00000
Xxxxxxx, Xxxxxxx 00000
DELTA MERCHANDISING, INC.
By: K. Xxxxx Xxxxxxxxx
---------------------------
Title: Sr. Vice President & CFO
Chief Executive Office:
0000-X Xxxxxx Xxxxxxxxxx Xxxxxxx
Xxxxxx, Xxxxxxx 00000
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