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SECURITY AGREEMENT
Dated as of February 27, 1997
between
GFSI, INC.
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
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TABLE OF CONTENTS
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SECTION 1. Defined Terms...................................................................................... 1
SECTION 2. Grant of Security.................................................................................. 2
SECTION 3. Authorization...................................................................................... 4
SECTION 4. Grantor Remains Liable............................................................................. 4
SECTION 5. Representations and Warranties..................................................................... 4
SECTION 6. Perfection and Maintenance of Security Interest and Lien........................................... 5
SECTION 7. Financing Statements............................................................................... 6
SECTION 8. Filing Costs....................................................................................... 6
SECTION 9. Schedule of Collateral............................................................................. 6
SECTION 10. Equipment and Inventory............................................................................ 6
SECTION 11. Accounts........................................................................................... 7
SECTION 12. Leased Real Property............................................................................... 8
SECTION 13. General Covenants.................................................................................. 8
SECTION 14. Agent Appointed Attorney-in-Fact................................................................... 8
SECTION 15. Agent May Perform................................................................................... 9
SECTION 16. Agent's Duties...................................................................................... 9
SECTION 17. Remedies............................................................................................ 9
SECTION 18. Exercise of Remedies............................................................................... 10
SECTION 19. License............................................................................................ 10
SECTION 20. Injunctive Relief.................................................................................. 11
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict Construction................................. 11
SECTION 22. Expenses........................................................................................... 11
SECTION 23. Amendments, Etc.................................................................................... 11
SECTION 24. Notices............................................................................................ 11
SECTION 25. Continuing Security Interest; Termination.......................................................... 11
SECTION 26. Severability....................................................................................... 12
SECTION 27. GOVERNING LAW...................................................................................... 12
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL............................................ 12
(A) EXCLUSIVE JURISDICTION................................................................... 12
(B) OTHER JURISDICTIONS...................................................................... 12
(C) SERVICE OF PROCESS....................................................................... 13
(D) WAIVER OF JURY TRIAL..................................................................... 13
(E) WAIVER OF BOND........................................................................... 13
(F) ADVICE OF COUNSEL........................................................................ 13
EXHIBITS AND SCHEDULES
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Exhibits
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EXHIBIT A-1 -- Form of Landlord Agreement
EXHIBIT A-2 -- Form of Mortgagee Agreement
EXHIBIT B-1 -- Form of Landlord Lien Waiver Agreement
EXHIBIT B-2 -- Form of Bailee Letter
EXHIBIT C -- Form of Restricted Account Agreement
Schedules
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Schedule 1 -- Pledged Debt
Schedule 2 -- Locations of Collateral
Schedule 2-A -- Third Party Locations
Schedule 2-B -- Financing Statement Filing Locations
Schedule 3 -- Trade Names
Schedule 4 -- Deposit Accounts
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of February 27, 1997 is
made by GFSI, INC., a Delaware corporation ("Grantor"), in favor of THE FIRST
NATIONAL BANK OF CHICAGO (the "Agent"), for its benefit and for the benefit of
the "Holders of Secured Obligations" (as defined below) who are, or may
hereafter become, parties to the Credit Agreement referred to below. All
references in this agreement to Grantor shall include its successors and
assigns, including a debtor-in-possession on behalf of Grantor.
PRELIMINARY STATEMENT
Grantor has entered into a certain Credit Agreement of even date herewith
among Grantor, the institutions from time to time party thereto as lenders (the
"Lenders") and the Agent, as the contractual representative for the Lenders (as
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "Credit Agreement"), providing for the making of loans, advances
and other financial accommodations (including, without limitation issuing
letters of credit) (all such loans, advances and other financial accommodations
being hereinafter referred to collectively as the "Loans") to or for the benefit
of Grantor. It is a condition precedent to the making of the Loans under the
Credit Agreement that Grantor shall have granted the security interest
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined, and the following terms
shall have the following meanings (such meanings being equally applicable to
both the singular and the plural forms of the terms defined):
"Agreement" shall mean this Security Agreement, as the same may from time
to time be amended, restated, modified or supplemented, and shall refer to this
Agreement as the same may be in effect at the time such reference becomes
operative.
"Collateral" shall mean all property and rights in property now owned or
hereafter at any time acquired by Grantor in or upon which a Lien is granted in
favor of the Agent by Grantor or a Subsidiary of Grantor under this Agreement,
including, without limitation, the property described in Section 2.
Notwithstanding any provision to the contrary contained in this Agreement or any
other Loan Document, license agreements under which Grantor is licensee shall be
excluded from the Collateral.
"Embroidery Affiliate Notes" shall mean, collectively, that certain
promissory note in the original principal amount of $700,000 dated August 12,
1996 between Impact Design, Inc. and Winning Ways, Inc. and that certain
promissory note in the original principal amount of $150,000 dated August 12,
1996 between Kansas Custom Embroidery and Winning Ways, Inc.
"Restricted Account" shall mean (i) any deposit account that is maintained
with the Agent, or (ii) any deposit account listed on Schedule 4 with respect to
which the Grantor has entered into a Restricted Account Agreement in the form of
Exhibit C hereto with the financial institution at which such deposit account is
maintained.
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of Illinois; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Agent's and the Holders of Secured Obligations'
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of Illinois, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
SECTION 2. Grant of Security. To secure the prompt and complete payment,
observance and performance of the Secured Obligations, Grantor hereby assigns
and pledges to Agent, for the benefit of itself and the Holders of Secured
Obligations, and hereby grants to Agent, for the benefit of itself and the
Holders of Secured Obligations, a security interest in all of Grantor's right,
title and interest in and to the following, whether now owned or existing or
hereafter arising or acquired and wheresoever located:
ACCOUNTS: All "accounts" as such term is defined in Section 9-106 of the
UCC, whether now owned or hereafter acquired or arising; Grantor intends that
the term "accounts", as used herein, be construed in its broadest sense, and
such term shall include, without limitation, all present and future accounts,
accounts receivable and other rights of Grantor to payment for goods sold or
leased or for services rendered (except those evidenced by instruments or
chattel paper), whether now existing or here after arising and wherever arising,
and whether or not they have been earned by performance (collectively,
"Accounts");
INVENTORY: All "inventory" as defined in Section 9-109(4) of the UCC,
whether now owned or hereafter acquired or arising; Grantor intends that the
term "inventory", as used herein, be construed in its broadest sense, and such
term shall include, without limitation, all goods now owned or hereafter
acquired by Grantor (wherever located, whether in the possession of Grantor or
of a bailee or other person for sale, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts, components,
supplies, materials, or consigned, returned or repossessed goods) which are held
for sale or lease, which are to be furnished (or have been furnished) under any
contract of service or which are raw materials, work in process or materials
used or consumed in Grantor's business (collectively, "Inventory");
EQUIPMENT: All "equipment" as such term is defined in Section 9-109(2) of
the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "equipment", as used herein, be construed in its broadest sense,
and such term shall include, without limitation, all machinery, all
manufacturing, distribution, selling, data processing and office equipment, all
furniture, furnishings, appliances, fixtures and trade fixtures, tools, tooling,
molds, dies, vehicles, vessels, trucks, buses, motor vehicles and all other
goods of every type and description (other than Inventory), in each instance
whether now owned or hereafter acquired by Grantor and wherever located
(collectively, "Equipment");
GENERAL INTANGIBLES: All "general intangibles" as defined in Section 9-106
of the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "general intangibles", as used herein, be construed in its
broadest sense, and such term shall include, without limitation, all rights,
interests, choses in action, causes of actions, claims and all other intangible
property of Grantor of every
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kind and nature (other than Accounts), in each instance whether now owned or
hereafter acquired by Grantor and however and whenever arising, including,
without limitation, all corporate and other business records; all loans,
royalties, and other obligations receivable; customer lists, credit files,
correspondence, and advertising materials; firm sale orders, other contracts and
contract rights; all interests in partnerships and joint ventures; all tax
refunds and tax refund claims; all right, title and interest under leases,
subleases, licenses and concessions and other agreements relating to real or
personal property; all payments due or made to Grantor in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of any property
by any person or governmental authority; all deposit accounts (general or
special) with any bank or other financial institution, including, without
limitation, any deposits or other sums at any time credited by or due to Grantor
from any of the Holders of Secured Obligations or any of their respective
Affiliates with the same rights therein as if the deposits or other sums were
credited by or due from such Holder of Secured Obligations; all credits with and
other claims against carriers and shippers; all rights to indemnification; all
patents, and patent applications (including all reissues, divisions,
continuations and extensions); all service marks and service xxxx applications;
all trade secrets and inventions; all copyrights and copyright applications
(including all computer software and related documentation); all rights and
interests in and to trademarks, trademark registrations and applications
therefor, trade names, corporate names, brand names, slogans, all goodwill
associated with the foregoing; all license agreements and franchise agreements,
all reversionary interests in pension and profit sharing plans and reversionary,
beneficial and residual interest in trusts; all proceeds of insurance of which
Grantor is beneficiary; and all letters of credit, guaranties, liens, security
interests and other security held by or granted to Grantor; and all other
intangible property, whether or not similar to the foregoing;
LAB PROCESSING AND ENGINEERING INFORMATION: All rights and interests in and
to processes, lab journals, and notebooks, data, trade secrets, know-how,
product formulae and information, manufacturing, engineering and other drawings
and manuals, technology, blueprints, research and development reports, agency
agreements, technical information, technical assistance, engineering data,
design and engineering specifications, and similar materials recording or
evidencing expertise used in or employed by Grantor (including any license for
the foregoing);
CONTRACT RIGHTS: All rights and interests in and to any pending or
executory contracts, requests for quotations, invitations for bid, agreements,
leases and arrangements of which Grantor is a party to or in which Grantor has
an interest, excluding any license agreement under which the Grantor is the
licensee, but including, without limitation, all right and interest to receive
monies due, or to become due, under that certain Agreement for Purchase and Sale
of Stock dated as of January 24, 1997 made by and among GFSI Holdings, Inc., the
Grantor and certain parties thereto as "Sellers";
CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel paper, leases, all
instruments, including, without limitation, the notes and debt instruments
described in Schedule 1 (the "Pledged Debt"), but excluding the Management Notes
and the Embroidery Affiliate Notes, and all payments thereunder and instruments
and other property from time to time delivered in respect thereof or in exchange
therefor, and all bills of sale, bills of lading, warehouse receipts and other
documents of title, in each instance whether now owned or hereafter acquired by
Grantor;
INTEREST AND CURRENCY CONTRACTS: Any and all interest rate, commodity or
currency exchange agreements or derivative agreements, including without
limitation, cap, collar, floor, forward or similar agreements or other rate,
currency or price protection arrangements; and
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OTHER PROPERTY: All property or interests in property now owned or
hereafter acquired by Grantor which now may be owned or hereafter may come into
the possession, custody or control of Agent or any of the Holders of Secured
Obligations or any agent or Affiliate of any of them in any way and for any
purpose (whether for safekeeping, deposit, custody, pledge, transmission,
collection or otherwise); and all rights and interests of Grantor, now existing
or hereafter arising and however and wherever arising, in respect of any and all
(i) notes, drafts, letters of credit, stocks, bonds, and debt and equity
securities, whether or not certificated, investment property (as defined in
Section 9-115(1)(f) of the UCC) and warrants, options, puts and calls and other
rights to acquire or otherwise relating to the same; (ii) money; (iii) proceeds
of loans, including, without limitation, loans made under the Credit Agreement;
and (iv) insurance proceeds and books and records relating to any of the
property covered by this Agreement; together, in each instance, with all
accessions and additions thereto, substitutions therefor, and replacements,
proceeds and products thereof.
SECTION 3. Authorization. Grantor hereby authorizes Agent to retain and
each Holder of Secured Obligations, and each Affiliate of Agent and of each
Holder of Secured Obligations, to pay or deliver to Agent, for the benefit of
the Holders of Secured Obligations, without any necessity on any Holder of
Secured Obligation's part to resort to other security or sources of
reimbursement for the Secured Obligations, at any time following the occurrence
and during the continuance of any Designated Default, and without further notice
to Grantor (such notice being expressly waived), any of the deposits referred to
in Section 2 (whether general or special, time or demand, provisional or final)
or other sums or property held by such Person, for application against any
portion of the Secured Obligations, irrespective of whether any demand has been
made or whether such portion of the Secured Obligations is mature. Agent will
promptly notify Grantor of Agent's receipt of such funds or other property for
application against the Secured Obligations, but failure to do so will not
affect the validity or enforceability thereof. Agent may give notice of the
above grant of security interest and assignment of the aforesaid deposits and
other sums, and authorization, to, and make any suitable arrangements with, any
such Holder of Secured Obligations for effectuation thereof, and Grantor hereby
irrevocably appoints Agent as its attorney to collect, following the occurrence
and during the continuance of a Designated Default, any and all such deposits or
other sums to the extent any such payment is not made to Agent by such Holder of
Secured Obligations or Affiliate thereof.
SECTION 4. Grantor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Grantor shall remain solely liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Agent of any of its rights
hereunder shall not release Grantor from any of its duties or obligations under
the contracts and agreements included in the Collateral, and (c) neither Agent
nor the Holders of Secured Obligations shall have any responsibility, obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Agent or the Holders of Secured Obligations
be required or obligated, in any manner, to (i) perform or fulfill any of the
obligations or duties of Grantor thereunder, (ii) make any payment, or make any
inquiry as to the nature or sufficiency of any payment received by Grantor or
the sufficiency of any performance by any party under any such contract or
agreement or (iii) present or file any claim, or take any action to collect or
enforce any claim for payment assigned hereunder.
SECTION 5. Representations and Warranties. Grantor represents and warrants,
as of the date of this Agreement and as of each date hereafter (except for
changes permitted or contemplated by this Agreement) until termination of this
Agreement pursuant to Section 25:
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(a) The correct corporate name of Grantor is set forth in the first
paragraph of this Agreement. The locations listed on Schedule 2 constitute all
locations at which Inventory and/or Equipment is located and Grantor has
exclusive possession and control of such Equipment and Inventory, except in each
case for such Inventory and Equipment which is (i) temporarily in transit
between such locations, or (ii) tem porarily stored with third parties or held
by third parties for storage, processing, manufacturing, engineering,
evaluation, or repair, the value of which does not exceed in the aggregate at
any one time $500,000, the proper corporate names of which third parties, the
location of such Inventory and/or Equipment, and the nature of the relationship
between Grantor and such third parties is set forth in Schedule 2-A. Schedule
2-A may be amended to reflect additional locations. The chief place of business
and chief executive office of Grantor are located at the address of Grantor set
forth below the Grantor's signature on the Credit Agreement. All records
concerning any Accounts and all originals of all chattel paper which evidence
any Account are located at the addresses listed on Schedule 2 and none of the
Accounts is evidenced by a promissory note or other instrument except for such
notes and other instru ments delivered to Agent as Pledged Debt listed on
Schedule 1.
(b) Grantor is the legal and beneficial owner of the Collateral free and
clear of all Liens except for Liens permitted by the Credit Agreement. Grantor
currently conducts business under the name GFSI, Inc. and, in certain areas and
for certain operations, the trade names listed on Schedule 3. The Grantor uses
no trade names or fictitious names, except as set forth on Schedule 3.
(c) This Agreement creates in favor of Agent a legal, valid and enforceable
security interest in the Collateral. When financing statements have been filed
in the appropriate offices against Grantor in the locations listed on Schedule
2-B, Agent will have a fully perfected first priority lien on, and security
interest in, the Collateral in which a security interest may be perfected by
such filing, subject only to Liens permitted by the Credit Agreement.
(d) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority that has not already been taken or made
and which is in full force and effect, is required (i) for the grant by Grantor
of the security interest in the Collateral granted hereby; (ii) for the
execution, delivery or performance of this Agreement by Grantor; or (iii) for
the exercise by Agent of any of its rights or remedies hereunder.
(e) The Pledged Debt issued by any Affiliate of Grantor, and to the best of
Grantor's knowledge, all other Pledged Debt, has been duly authorized, issued
and delivered, and is the legal, valid, binding and enforceable obligation of
the respective issuer thereof.
(f) Schedule 4 contains a complete list of all of the deposit accounts of
Grantor as of the Closing Date and Grantor will amend and update Schedule 4 by
delivering supplemental reports to Agent promptly following the establishment of
any additional deposit accounts in accordance with the terms of Section
6.3(D)(iv) and 6.3(S) of the Credit Agreement, and at any time requested by
Agent. Each deposit account so scheduled is a Restricted Account or a deposit
account permitted by the terms of the Credit Agreement.
SECTION 6. Perfection and Maintenance of Security Interest and Lien.
Grantor agrees that until all of the Secured Obligations (other than contingent
indemnity Obligations) have been fully satisfied and the Credit Agreement has
been terminated, Agent's security interests in and Liens on and against the
Collateral and all proceeds and products thereof, shall continue in full force
and effect. Grantor shall perform any and all steps reasonably requested by
Agent to perfect, maintain and protect Agent's security interests in and Liens
on and against the Collateral granted or purported to be granted hereby or to
enable
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Agent to exercise its rights and remedies hereunder with respect to any
Collateral, including, without limitation, (i) executing and filing financing or
continuation statements, or amendments thereof, in form and substance reasonably
satisfactory to Agent, (ii) executing and filing all Intellectual Property
Agreements in form and substance reasonably satisfactory to the Agent, (iii)
delivering to Agent all certificates, notes and other instruments (including,
without limitation, all letters of credit on which Grantor is named as a
beneficiary) representing or evidencing Collateral, which certificates, notes
and other instruments have been duly endorsed and are accompanied by duly
executed instruments of transfer or assignment, including, but not limited to,
note powers, all in form and substance satisfactory to Agent, (iv) delivering to
Agent warehouse receipts covering that portion of the Collateral, if any,
located in warehouses and for which warehouse receipts are issued, (v) after the
occurrence and during the continuance of a Designated Default, transferring
Inventory and Equipment to warehouses designated by Agent or taking such other
steps as are reasonably deemed necessary by Agent to maintain Agent's control of
the Inventory and Equipment, (vi) obtaining with respect to clauses (a), (b) and
(c) below, and using commercially reasonable efforts to obtain with respect to
clause (d) below:
(a) waivers of Liens and access agreements in substantially the form of
Exhibit A-1 hereto (or such other form as may be agreed to by Agent) from
landlords with respect to Grantor's leased premises where the Agent reasonably
determines that the value of the leasehold in respect of the premises leased by
Grantor from such landlord is material to the operations of Grantor or (2) deem
such leased premises to be integral to the Grantor's day-to-day operations, (b)
mortgagee agreements in substantially the form of Exhibit A-2 hereto (or such
other form as may be agreed to by Agent) from mortgagees with respect to all
leases executed after the Closing Date where the Agent reasonably determines
such leasehold to be material based on the value of the leasehold or such leased
premises is integral to Grantor's day-to-day operations, (c) waivers of Liens
and access agreements in substantially the form of Exhibit B-1 hereto (or such
other form as may be agreed to by Agent) from landlords and waivers of Liens and
access agreements in substantially the form of Exhibit B-2 hereto (or such other
form as may be agreed to by Agent) from the appropriate Person with respect to
all arrangements pursuant to which Inventory will be temporarily held by third
parties for storage, processing, engineering, evaluation, or repair after the
Closing Date (in connection with which Grantor shall be permitted to and hereby
required to update Schedule 2-A ) where: (1) the Equipment located at any one
premises owned or operated by any such Person has a value in the aggregate of
$500,000 or greater or (2) the aggregate value of the Equipment located at all
premises owned or operated by any such Person is $2,500,000 or greater, and (d)
waivers of Liens and access agreements in substantially the form of Exhibit B-1
hereto (or such other form as may be agreed to by Agent) from landlords and
waivers of Liens and access agreements in substantially the form of Exhibit B-2
hereto (or such other form as may be agreed to by Agent) from the appropriate
Person with respect to all arrangements pursuant to which Inventory will be
temrporarily held by third parties for storage, processing, engineering,
evaluation, or repair after the Closing Date (in connection with which Grantor
shall be permitted to and hereby required to update Schedule 2-A) where: (1) the
Inventory and Equipment located at any one premises owned or operated by any
such Person has a value in the aggregate of $500,000 or greater or (2) the
aggregate value of the Equipment located at all premises owned or operated by
any such Person is $2,500,000 or greater, and (vii) executing and delivering all
further instruments and documents, and taking all further action, as Agent may
reasonably request.
SECTION 7. Financing Statements. To the extent permitted by applicable law,
Grantor hereby authorizes Agent to file one or more financing or continuation
statements and amendments thereto, disclosing the security interest granted to
Agent under this Agreement without Grantor's signature appearing thereon and
Agent agrees to notify Grantor when such a filing has been made. Grantor agrees
that a carbon, photographic, photostatic, or other reproduction of this
Agreement or of a financing
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statement is sufficient as a financing statement. If any Inventory or Equipment
is in the possession or control of any warehouseman or Grantor's agents or
processors, Grantor shall, upon Agent's written request, notify such
warehouseman, agent or processor of Agent's security interest in such Inventory
and Equipment and, upon Agent's request, instruct them to hold all such
Inventory or Equipment for Agent's account and subject to Agent's instructions.
SECTION 8. Filing Costs. Grantor shall pay the costs of, or incidental to,
all recordings or filings of all financing statements, including, without
limitation, any filing expenses incurred by Agent pursuant to Section 7.
SECTION 9. Schedule of Collateral. Grantor shall, at the written request of
the Agent, furnish to Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Agent may reasonably request, all in reasonable detail.
SECTION 10. Equipment and Inventory. Grantor covenants and agrees with
Agent that from the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, Grantor shall:
(a) Keep the Equipment and Inventory (other than Equipment or Inventory
sold or disposed of as permitted by the Credit Agreement or in the ordinary
course of business) at the places specified in Section 5(a), except for
Equipment and Inventory (i) temporarily in transit between such locations or
(ii) temporarily held by third parties for storage, processing, engineering,
manufacturing, evaluation, or repair and set forth on Schedule 2-A in amounts
not in excess of $500,000 and in connection with which the Grantor has complied
with the requirements set forth in Section 6, and deliver written notice to
Agent at least thirty (30) days prior to establishing any other location at
which or third party with which it reasonably expects to maintain Inventory
and/or Equipment in which location or with which third party all action required
by this Agreement shall have been taken with respect to all such Equipment and
Inventory;
(b) Maintain or cause to be maintained in good repair, working order and
condition, excepting ordinary wear and tear and damage due to casualty, all of
the Equipment, and make or cause to be made all appropriate repairs, renewals
and replacements thereof, as quickly as practicable after the occurrence of any
loss or damage thereto which are necessary or desirable to such end; and
(c) Comply with the terms of the Credit Agreement with respect to such
Equipment and Inventory, including, without limitation, the maintenance and
insurance provisions set forth in Section 6.2(E), (G) and (I) of the Credit
Agreement.
SECTION 11. Accounts. Grantor covenants and agrees with Agent that from and
after the date of this Agreement and until termination of this Agreement,
including pursuant to Section 25, Grantor shall:
(a) Keep its chief place of business and chief executive office and the
office where it keeps its records concerning the Accounts at its address set
forth below the Grantor's signature on the Credit Agreement, and keep the
offices where it keeps all originals of all chattel paper which evidence
Accounts at the locations therefor specified in Section 5(a) or, upon thirty
(30) days' prior written notice to Agent, at such other locations within the
United States in a jurisdiction where all actions required by Section 6 shall
have been taken with respect to the Accounts. Grantor will hold and preserve
such records (in accordance
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with Grantor's usual document retention practices) and chattel paper and will
permit representatives of Agent, during normal business hours and on reasonable
notice, to inspect and make abstracts from such records and chattel paper in
accordance with the provisions of Section 6.3(F) of the Credit Agreement; and
(b) In any suit, proceeding or action brought by Agent under any Account
comprising part of the Collateral, Grantor will save, indemnify and keep each of
the Holders of Secured Obligations harmless from and against all reasonable and
documented expenses, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by Grantor of any obligation or arising out
of any other agreement, indebtedness or liability at any time owing to or in
favor of such Holder of Secured Obligations from Grantor, and all such
obligations of Grantor shall be and shall remain enforceable against and only
against Grantor and shall not be enforceable against any of the Holders of
Secured Obligations.
(c) When Grantor or any of its Subsidiaries (or any Affiliates,
shareholders, directors, officers, employees, agents or those Persons acting for
or in concert with Grantor or a Subsidiary of Grantor) shall receive or come
into the possession or control of any monies, checks, notes, drafts or any other
payment relating to, or proceeds of, Grantor's Accounts or other property
constituting Collateral hereunder (individually, a "Payment Item", and,
collectively, "Payment Items"), then, except as otherwise permitted in a writing
signed by Agent, Grantor shall, or shall cause such Subsidiary or such other
Person to, deposit the same, in kind in precisely the form in which such Payment
Item was received (with all Payment Items endorsed if necessary for collection)
into a Restricted Account except as permitted by the Credit Agreement. The
Grantor further agrees that it will not, during the term of this Agreement,
without the written consent of the Agent, transfer any funds from a Restricted
Account to any deposit account that is not a Restricted Account or other deposit
account permitted by the Credit Agreement.
SECTION 12. Leased Real Property. Grantor covenants and agrees with Agent
that from and after the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, that:
(a) Promptly following, but not later than ninety (90) days after entering
into any leases meeting the criteria set forth in Section 6(vi), Grantor will
furnish to Agent a report certified to be true and correct by Grantor setting
forth a description of the leased premises related thereto; the name or names of
all owners; rentals being paid; and whether Grantor has obtained waivers of
Liens and access agreements from landlords and mortgagees with respect to such
premises in accordance with Section 6;
(b) Grantor agrees that, from and after the occurrence and continuance of a
Designated Default, Agent may, but need not, make any payment or perform any act
hereinbefore required of Grantor with respect to the Grantor's leased premises
in any form and manner deemed expedient. All money paid for any of the purposes
herein authorized and all other moneys advanced by Agent to protect the lien
hereof shall be additional Secured Obligations secured hereby and shall become
immediately due and payable without notice and shall bear interest thereon at
the then applicable default interest rate with respect to Floating Rate Loans as
provided in Section 2.11 of the Credit Agreement until paid to Agent in full;
and
(c) Grantor agrees that it will not amend any lease in a manner that
materially adversely affects the interests of the Holders of Secured Obligations
without the Agent's prior written consent (such consent not to be unreasonably
withheld).
-8-
SECTION 13. General Covenants. Grantor covenants and agrees with Agent that
from and after the date of this Agreement and until termination of this
Agreement, including pursuant to Section 25, Grantor shall:
(a) Keep and maintain at Grantor's own cost and expense reasonably
satisfactory and reasonably complete records of Grantor's Collateral in a manner
consistent with Grantor's current business practice, including, without
limitation, a record of all payments received and all credits granted with
respect to such Collateral. Grantor shall, for Agent's further security, deliver
and turn over to Agent or Agent's designated representatives at any time
following the occurrence and during the continuation of a Designated Default,
any such books and records (including, without limitation, any and all computer
tapes, programs and source and object codes relating to such Collateral in which
Grantor has an interest or any part or parts thereof); and
(b) Grantor will not create, permit or suffer to exist, and will defend the
Collateral against, and take such other action as is necessary to remove, any
Lien on such Collateral other than Liens permitted under the Credit Agreement,
and will defend the right, title and interest of Agent in and to Grantor's
rights to such Collateral, including, without limitation, the proceeds and
products thereof, against the claims and demands of all Persons whatsoever.
(c) Grantor will not, and will not permit any Restricted Subsidiary to,
create or otherwise become effective any consensual encumbrance or restriction
of any kind on or in respect of (i) any license agreement to which Grantor is a
licensee, (ii) the Management Notes or (iii) the Embroidery Affiliate Notes.
SECTION 14. Agent Appointed Attorney-in-Fact. Upon the occurrence and
during the continuance of a Designated Default, Grantor hereby irrevocably
appoints Agent as Grantor's attorney-in-fact, with full authority in the place
and stead of Grantor and in the name of Grantor or otherwise, from time to time
in Agent's discretion, to take any action and to execute any instrument which
Agent may reasonably deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation, (a) following the occurrence and
during the continuance of a Designated Default, to:
(i) obtain and adjust insurance required to be paid to the Agent or
any Holders of Secured Obligations pursuant to the Credit Agreement;
(ii) ask, demand, collect, xxx for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(iii) receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (i) or (ii) above;
and
(iv) file any claims or take any action or institute any proceedings
which Agent may deem necessary or desirable for the collection of any of
the Collateral, or otherwise to enforce the rights of Agent with respect to
any of the Collateral;
provided, however, that the Grantor irrevocably appoints Agent as Grantor's
attorney-in-fact, with full authority in place and stead of Grantor and in the
name of the Grantor or otherwise, from time to time in
-9-
Agent's discretion, at any time, to take any reasonable action and to execute
any instrument which the Agent may reasonably deem necessary or advisable, to:
(i) obtain access to records maintained for Grantor by computer
services companies and other service companies or bureaus;
(ii) send requests under Grantor's, the Agent's or a fictitious name
to Grantor's customers or account debtors for verification of Accounts
provided that the Agent gives the Grantor written notice prior to
initiating any such verifications; and
(iii) do all other things consistent with the terms of this Agreement
as may be reasonably necessary to carry out the terms hereof.
SECTION 15. Agent May Perform. If Grantor fails to perform any agreement
contained herein or in the Credit Agreement, Agent may, upon three days prior
written notice to the Grantor, perform, or cause performance of, such agreement,
and the reasonable and documented expenses of Agent incurred in connection
therewith shall be payable by Grantor under Section 22.
SECTION 16. Agent's Duties. The powers conferred on Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Agent shall not have any duty as to any Collateral. Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Agent accords its own property, it being
understood that Agent shall be under no obligation to take any necessary steps
to preserve rights against prior parties or any other rights pertaining to any
Collateral, but may do so at its option, and all reasonable expenses incurred in
connection therewith shall be for the sole account of Grantor and shall be added
to the Secured Obligations.
SECTION 17. Remedies. (a) If any Designated Default shall have occurred and
be continuing:
(i) Agent shall have, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a secured
party upon default under the UCC (whether or not the UCC applies to the affected
Collateral) and further, Agent may, without notice, demand or legal process of
any kind (except as may be required by law), all of which Grantor waives, at any
time or times, (x) enter Grantor's owned or leased premises and take physical
possession of the Collateral and maintain such possession on Grantor's owned or
leased premises, at no cost to Agent or any of the Holders of Secured
Obligations, or remove the Collateral, or any part thereof, to such other
place(s) as Agent may desire, (y) require Grantor to, and Grantor hereby agrees
that it will at its expense and upon request of Agent forthwith, assemble all or
any part of the Collateral as directed by Agent and make it available to Agent
at a place to be designated by Agent which is reasonably convenient to Agent and
(z) without notice except as specified below, sell, lease, assign, grant an
option or options to purchase or otherwise dispose of the Collateral or any part
thereof at public or private sale, at any exchange, broker's board or at any of
the offices of Agent or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as Agent may deem commercially reasonable. Grantor
agrees that, to the extent notice of sale shall be required by law, at least ten
(10) days' notice to Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Agent may adjourn any public or
-10-
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned;
(ii) Agent shall apply all cash proceeds received by Agent in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral (after payment of any amounts payable to Agent pursuant to Section
22), for the benefit of the Holders of Secured Obligations, against all or any
part of the Secured Obligations in such order as may be required by the Credit
Agreement or, to the extent not specified therein, as is determined by the
Required Lenders. Any surplus of such cash or cash proceeds held by Agent and
remaining after payment in full of all the Secured Obligations shall be paid
over to Grantor or to whomsoever may be lawfully entitled to receive such
surplus;
(b) Grantor waives all claims, damages and demands against Agent arising
out of the repossession, retention or sale of any of the Collateral or any part
or parts thereof, except any such claims, damages and awards arising out of the
Gross Negligence or willful misconduct of Agent or any of the Holders of Secured
Obligations, as the case may be, as determined in a final non-appealed judgment
of a court of competent jurisdiction; and
(c) The rights and remedies provided under this Agreement are cumulative
and may be exercised singly or concurrently and are not exclusive of any rights
and remedies provided by law or equity.
SECTION 18. Exercise of Remedies. In connection with the exercise of its
remedies pursuant to Section 17, Agent may, (i) exchange, enforce, waive or
release any portion of the Collateral and any other security for the Secured
Obligations; (ii) apply such Collateral or security and direct the order or
manner of sale thereof as Agent may, from time to time, determine; and (iii)
settle, compromise, collect or otherwise liquidate any such Collateral or
security in any manner following the occurrence of a Designated Default, without
affecting or impairing Agent's right to take any other further action with
respect to any Collateral or security or any part thereof.
SECTION 19. License. Agent is hereby granted a license or other right to
use, following the occurrence and during the continuance of a Designated
Default, without charge, (a) Grantor's labels, patents, copyrights, trade
secrets, trade names, trademarks, service marks, customer lists and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral,
provided that Agent uses quality standards at least substantially equivalent to
those of Grantor for the manufacture, advertising, sale and distribution of
Grantor's products and services and (b) Grantor's rights under all licenses
where Grantor is licensor, except to the extent such licenses by their terms
prohibit the granting of such rights, and all franchise agreements shall inure
to Agent's benefit. Notwithstanding any provision to the contrary contained in
this Agreement or any other Loan Document, license agreements under which
Grantor is licensee shall be excluded from the Collateral.
SECTION 20. Injunctive Relief. Grantor recognizes that in the event Grantor
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to the
Holders of Secured Obligations; therefore, Grantor agrees that the Holders of
Secured Obligations, if Agent so determines and requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict
Construction.
-11-
(a) The rights and duties created by this Agreement shall, in all cases, be
interpreted consistently with, and shall be in addition to (and not in lieu of),
the rights and duties created by the Credit Agreement and the other Loan
Documents. In the event that any provision of this Agreement shall be
inconsistent with any provision of any other Loan Document, such provision of
the other Loan Document shall govern.
(b) Except as provided in subsection (a) above, this Agreement represents
the final agreement of the Grantor and the Agent with respect to the matters
contained herein and may not be contradicted by evidence of prior or
contemporaneous agreements, or subsequent oral agreements, between the Grantor
and the Agent or any other Holder of Secured Obligations.
(c) The parties hereto have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 22. Expenses. Grantor will upon demand pay to Agent and/or the
Holders of Secured Obligations the amount of any and all reasonable and
documented expenses, including the reasonable fees and disbursements of their
counsel and of any experts and agents, as provided in Section 9.7 of the Credit
Agreement.
SECTION 23. Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by Agent and
Grantor, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 24. Notices. All notices and other communications provided for
hereunder shall be delivered in the manner set forth in Section 13.1 of the
Credit Agreement.
SECTION 25. Continuing Security Interest; Termination. (a) Except as
provided in Section 25(b), this Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the later of the payment or satisfaction in full of the Secured Obligations
(other than contingent indemnity obligations) and the termination of the Credit
Agreement, (ii) be binding upon Grantor, its successors and assigns and (iii)
except to the extent that the rights of any transferor, or assignor are limited
by the terms of the Credit Agreement, inure, together with the rights and
remedies of Agent hereunder, to the benefit of Agent and any of the Holders of
Secured Obligations. Nothing set forth herein or in any other Loan Document is
intended or shall be construed to give any other Person any right, remedy or
claim under, to or in respect of this Agreement or any other Loan Document or
any Collateral. Grantor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession thereof or therefor.
(b) Upon the payment in full in cash of the Secured Obligations (other than
contingent indemnity obligations) and the termination of the Credit Agreement,
this Agreement and the security interest granted hereby shall automatically
terminate and all rights to the Collateral shall revert to Grantor. Upon any
such termination of security interest, Grantor shall be entitled to the return,
upon its request and at its expense, of such of the Collateral held by Agent as
shall not have been sold or otherwise applied pursuant to the terms hereof and
Agent will, at Grantor's expense, promptly execute and deliver to Grantor such
other documents as Grantor shall reasonably request to evidence such
termination. In connection with any sales of assets permitted under the Credit
Agreement, the liens and security interests granted under this
-12-
Agreement will automatically release and terminate with respect to such assets
and the Agent shall promptly make all filings necessary to reflect such release
and termination.
SECTION 26. Severability. It is the parties' intention that this Agreement
be interpreted in such a way that it is valid and effective under applicable
law. However, if one or more of the provisions of this Agreement shall for any
reason be found to be invalid or unenforceable, the remaining provisions of this
Agreement shall be unimpaired.
SECTION 27. GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF
ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT
THERE. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF ILLINOIS. WITHOUT LIMITING THE FOREGOING, ANY
DISPUTE BETWEEN THE GRANTOR AND THE AGENT, ANY LENDER, OR ANY OTHER HOLDER OF
SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF
THE PARTIES HERETO AGREES THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL
COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
CHICAGO, ILLINOIS.
(B) OTHER JURISDICTIONS. GRANTOR AGREES THAT THE AGENT, ANY LENDER OR ANY
HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST GRANTOR OR
ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN
PERSONAL JURISDICTION OVER THE GRANTOR OR (2) REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. GRANTOR AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON
THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON.
(C) SERVICE OF PROCESS. GRANTOR WAIVES PERSONAL SERVICE OF ANY PROCESS UPON
IT AND, AS ADDITIONAL SECURITY FOR THE OBLIGATIONS, IRREVOCABLY APPOINTS THE
CORPORATION TRUST COMPANY, THE GRANTOR'S REGISTERED AGENT, WHOSE ADDRESS IS
CORPORATION TRUST CENTER 0000 XXXXXX XXXXXX, XXXXXXXXXX,
-00-
XXXXXXXX 00000, AS GRANTOR'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF
PROCESS ISSUED BY ANY COURT. GRANTOR IRREVOCABLY WAIVES ANY OBJECTION
(INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH IN ANY JURISDICTION SET FORTH ABOVE AND EACH OF THE OTHER PARTIES
HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO SUBSECTION (A) ANY OBJECTION
THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR 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) WAIVER OF BOND. GRANTOR WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO REALIZE ON THE COLLATERAL (INCLUDING, WITHOUT LIMITATION, THE REAL
PROPERTY COLLATERAL) OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS OR TO
ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR
PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY
HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF
THIS SECTION 28, WITH ITS COUNSEL.
-14-
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
GFSI, INC.
By: /s/ Illegible
---------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as AGENT
By: /s/ Illegible
---------------------------------
Name:
Title:
Signature Page to Security Agreement
dated February 27, 1997
EXHIBIT A-1
To
Security Agreement
Form of Landlord Agreement
--------------------------
The First National Bank
of Chicago, as Agent
Xxx Xxxxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxx
Ladies and Gentlemen:
GFSI, Inc., a Delaware corporation ("Borrower"), as successor by merger in
interest to Winning Ways, Inc., a Missouri corporation (the "Original Lessee"),
is the lessee under that certain lease dated ___________________ between the
Original Lessee, and the undersigned, covering certain premises owned by the
undersigned and located at _________________ (the "Premises") more fully
described in the lease attached hereto as Exhibit A (the "Lease"). Borrower has
certain of its assets located on the Premises.
Borrower has entered into certain financing arrangements with a group of
lenders ("Lenders") including The First National Bank of Chicago, as contractual
representative for the Lenders (the "Agent") and the Agent and the Lenders
require, among other things, that Borrower grant liens in favor of the Agent for
the benefit of itself and the Lenders on all of Borrower's property located on
the Premises ("Collateral") [and that the Borrower grant a mortgage ("Leasehold
Mortgage") in favor of the Agent covering the Borrower's leasehold estate
created under the Lease].
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, [and
for other good and valuable consideration,] the undersigned hereby agrees] [By
its signature below, the undersigned agrees] that:
[(i) the undersigned has consented to the assignment (by operation of
merger) of the Lease from the Original Lessee to the Borrower;]
(ii) the Lease is in full force and effect in the form attached hereto
as Exhibit A and represents the full and complete agreement between
Borrower and the undersigned concerning the Premises [and the Lease shall
not be amended or modified in any material respect without Agent's prior
written consent, which consent shall not be unreasonably withheld];
(iii) it will not assert against any of Borrower's assets any
statutory or possessory liens, including, without limitation, rights of
levy or distraint for rent, all of which it hereby waives [and hereby
subordinates to the lien of the Leasehold Mortgage];
(iv) none of the Collateral located on the Premises shall be deemed to
be fixtures;
(v) it will allow Agent thirty (30) days from the Agent's receipt of
notice in which to cure or cause Borrower to cure any defaults on
Borrower's lease obligations to the undersigned; provided if such default
cannot reasonably be cured within the thirty (30) day period, and provided
the Agent is diligently pursuing a cure, then Agent shall have a reasonable
period to cure such default;
[(vi) if, for any reason whatsoever, the undersigned either deems
itself entitled to redeem or to take possession of the Premises during the
term of Borrower's lease or intends to sell or otherwise transfer all or
any part of its interest in the Premises, the undersigned will notify Agent
five (5) days before taking such action;]
(vii) if Borrower defaults on its obligations to the Agent or any
Lender and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises,
will permit Agent to remain on the Premises for ninety (90) days after the
Agent gives the undersigned notice of default, provided Agent pays the
rental payments due under the Lease for the period of time Agent uses the
Premises, or, at Agent's option, to remove the Collateral from the Premises
within a reasonable time, not to exceed ninety (90) days after the Agent
gives the undersigned notice of default, provided Agent pays the rental
payments due under the Lease for the period of time Agent uses the
Premises, and will not hinder Agent's actions in enforcing its liens on the
Collateral;
(viii) the undersigned shall accept performance by the Agent of the
Borrower's obligations under the Lease as though the same had been
performed by the holder of the Borrower's interest therein at the time of
such performance. Upon the cure of any such default, any notice of Landlord
advising of any default or any action of the undersigned to terminate the
Lease or to interfere with the occupancy, use or enjoyment of the Premises
by reason thereof, which action has not been completed, shall be deemed
rescinded and the Lease shall continue in full force and effect. The
undersigned shall not be required to continue any possession or continue
any action to obtain possession upon the cure of any such default;
[(ix) if Borrower defaults on its obligations to the Lenders and the
Agent undertakes to enforce its security interest in the Collateral [and/or
to foreclose on Borrower's leasehold estate pursuant to the Leasehold
Mortgage], the Agent may, at its option and by written notice to the
undersigned, (1) lease the Premises from the undersigned on the same terms
as set forth in the Lease and exercise the other rights as lessee
thereunder as described therein and/or (2) assign the Lease and/or the
attornment rights hereunder to, or enter into a sublease with, a purchaser
of the Collateral which purchaser is reasonably acceptable to the
undersigned, and the undersigned shall cooperate with any such enforcement
action or foreclosure and consent to the assumption of the Lease, the
sublet of the Premises or foreclosure sale of the leasehold estate]; and
[(x) in the event that Borrower shall become a debtor under the
Federal Bankruptcy Code (or any similar state law proceeding) and, in
connection therewith, Borrower shall reject the Lease as an executory
contract, then within thirty (30) days following such rejection, upon the
written request by the Agent, the undersigned shall enter into a new lease
of the Premises with the Agent or its designee (who shall be reasonably
acceptable to the
undersigned), for the benefit of the Lenders which new lease (1) shall be
effective as of the date of the termination of the Lease, (2) shall be for
a term expiring as of the last day of the term of the Lease, and (3) shall
be on substantially the same terms and conditions as the Lease (including
any provisions for renewal or extension of the term of the Lease); provided
that the Lender or such designee, as the case may be, shall be required, as
a condition to the effectiveness of such new lease, to pay the Lessor any
amount equal to any rent remaining unpaid by Borrower under the Lease.]
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this waiver. The agreements contained herein
may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
[The undersigned consents to the granting of the Leasehold Mortgage to the
Agent and to the liens, security interests and encumbrances created by and
resulting from the Leasehold Mortgage or other documents collateral thereto in
the form attached hereto as Exhibit B.]
The undersigned agrees that nothing contained in this waiver shall be
construed as an assumption by the Agent or any of the other lenders of any
obligations of Borrower contained in the Lease.
Executed and delivered this _____ day of __________ , 199_, at
____________________ .
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT BORROWER'S OBLIGATIONS TO
PAY RENT AND ANY OTHER SUMS PAYABLE BY BORROWER OR TO OTHERWISE PERFORM ITS
OBLIGATIONS TO THE LESSOR PURSUANT TO THE TERMS OF THE LEASE.
[Name of Lessor]
By:__________________________
Title:_______________________
Address:
_____________________
_____________________
_____________________
AGREED & ACKNOWLEDGED:
GFSI, INC.
By: _____________________________
Title: __________________________
Address: ________________________
________________________
[ACKNOWLEDGMENT (CORPORATE)
STATE OF )
) SS.
COUNTY OF )
Before me, a Notary Public in and for said County, personally appeared
__________ , a __________ corporation, by the __________ of such corporation,
who acknowledged that (s)he did sign the foregoing instrument on behalf of said
corporation and that said instrument is the voluntary act and deed of said
corporation and his/her voluntary act and deed as such officer of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal this __________ day of __________ , 199_ at ____________ ,
___________________ .
__________________________________
Notary Public
My Commission Expires:]
(Notarial Seal)
[ACKNOWLEDGMENT (CORPORATE)
STATE OF )
) SS.
COUNTY OF )
Before me, a Notary Public in and for said County, personally appeared
GFSI, Inc., a Delaware corporation, by the __________ of such corporation, who
acknowledged that (s)he did sign the foregoing instrument on behalf of said
corporation and that said instrument is the voluntary act and deed of said
corporation and his/her voluntary act and deed as such officer of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal this __________ day of __________ , 199_ at ____________ ,
___________________ .
__________________________________
Notary Public
My Commission Expires:]
(Notarial Seal)
EXHIBIT A
to
Landlord Agreement
Lease
(attached hereto)
[EXHIBIT B
to
Landlord Agreement
Leasehold Mortgage
(attached hereto)]
EXHIBIT A-2
To
Security Agreement
Form of Mortgagee Agreement
The First National Bank
of Chicago, as Agent
Xxx Xxxxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxx
Ladies and Gentlemen:
GFSI, Inc., a Delaware corporation ("Borrower"), as successor by merger in
interest to Winning Ways, Inc., a [__________] corporation (the "Original
Lessee"), is the lessee under that certain lease dated between the Original
Lessee, and ____________________ (the "Landlord[s]"), covering certain premises
located at _________________ (the "Premises") as more fully described on Exhibit
A 1 attached hereto (the "Lease"). The undersigned is the mortgagee under a
mortgage between the Landlord[s] and the undersigned covering the Premises (the
"Mortgage"). The undersigned is the sole mortgagee of the Premises. Borrower has
certain of its assets located on the Premises.
Borrower has entered into certain financing arrangements with a group of
lenders ("Lenders") including The First National Bank of Chicago, as contractual
representative for the Lenders (the "Agent") and the Agent and the Lenders
require, among other things, that Borrower grant liens in favor of the Agent for
the benefit of itself and the Lenders on all of Borrower's property located on
the Premises ("Collateral") [and that the Borrower grant a mortgage ("Leasehold
Mortgage") in favor of the Agent covering the Borrower's leasehold estate
created under the Lease].
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, and
for other good and valuable consideration, the undersigned hereby agrees] [By
its signature below, the undersigned agrees] that:
[(i) it consents to the merger referred to in the first paragraph
hereof and agrees that such merger shall not in any way be deemed to be a
default under the Mortgage;]
(ii) it will not assert against any of the Collateral any statutory or
possessory liens, including, without limitation, rights of levy or
distraint for rent, all of which it hereby waives;
(iii) none of the Collateral located on the Premises shall be deemed
to be fixtures;
(iv) it will allow Agent thirty (30) days from the Agent's receipt of
notice in which to cure or cause Borrower to cure any such defaults on its
mortgage obligations; provided
--------
1 Please attach legal description of premises for recordation purposes.
if such default cannot reasonably be cured within the thirty (30) day
period, and provided the Agent is diligently pursuing a cure, then Agent
shall have a reasonable period to cure such default;
[(v) if, for any reason whatsoever, the undersigned either deems
itself entitled to take possession of the Premises during the term of the
Mortgage or intends to sell or otherwise transfer all or any part of its
interest in the Premises, the undersigned will notify Agent five (5) days
before taking such action;]
(vi) if Borrower defaults on its obligations to the Agent or any
Lender and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises,
will permit Agent to remain on the Premises for ninety (90) days after
Agent gives the undersigned notice of default, provided Agent pays the
Lease payments to the Landlord[s] due under the Lease for the period of
time Agent uses the Premises, or, at Agent's option, to remove the
Collateral from the Premises within a reasonable time, not to exceed ninety
(90) days after Agent gives the undersigned notice of default, provided
Agent pays the rental payments to the Landlord[s] due under the Lease for
the period of time Agent uses the Premises, and will not hinder Agent's
actions in enforcing its liens on the Collateral; and
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this waiver. The agreements contained herein
may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
[The undersigned consents to the granting of the Leasehold Mortgage to the
Agent and to the liens, security interests and encumbrances created by and
resulting from the Leasehold Mortgage or other documents collateral thereto in
the form attached hereto as Exhibit B.]
The undersigned agrees that nothing contained in this waiver shall be
construed as an assumption by the agent or any of the other lenders of any
obligations of the landlord contained in the mortgage.
Executed and delivered this ____ day of __________ , 199_, at __________ .
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT BORROWER'S OBLIGATIONS TO
PAY RENT AND ANY OTHER SUMS PAYABLE BY BORROWER OR TO OTHERWISE PERFORM ITS
OBLIGATIONS TO THE LANDLORD PURSUANT TO THE TERMS OF THE LEASE.
[Name of Mortgagee]
By:__________________________
Title:_______________________
Address:
_____________________
_____________________
_____________________
AGREED & ACKNOWLEDGED:
GFSI, INC.
By:___________________
Title:________________
Address: ________________________
________________________
[STATE OF ________ )
) SS
COUNTY OF ________ )
The foregoing letter agreement was acknowledged before me this ___ day of
_____________, 199_, by _____________________, a _______________ of
__________________, a ____________________, on behalf of such
__________________.
______________________________
Notary Public
________ County, _____________
My commission expires:_______]
EXHIBIT A
to
Mortgagee Agreement
Lease
(attached hereto)
[EXHIBIT B
to
Mortgagee Agreement
Leasehold Mortgage
(attached hereto)]
EXHIBIT B
TO
SECURITY AGREEMENT
Form of Bailee Letter
The First National Bank
of Chicago, as Agent
Xxx Xxxxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxx
Ladies and Gentlemen:
GFSI, Inc., a Delaware corporation and the successor by merger to Winning
Ways, Inc., a [____________] corporation ("Borrower"), now does or hereafter may
store certain of its merchandise, inventory, or other of its personal property
at premises located at _______________ (the "Premises") owned or leased by the
undersigned.
Borrower has entered into certain financing arrangements with a group of
lenders (the "Lenders") including The First National Bank of Chicago, as
contractual representative for the Lenders (the "Agent") and the Agent and the
Lenders require, among other things, that Borrower grant liens in favor of the
Agent for the benefit of itself and the Lenders on all of Borrower's property
located on the Premises ("Collateral").
[To induce the Agent and the Lenders (together with their respective
agents, successors and assigns) to enter into said financing arrangements, [and
for other good and valuable consideration,] the undersigned hereby agrees] [By
its signature below, the undersigned agrees] that:
(i) it will not assert against any of Borrower's assets any statutory
or possessory liens, including, without limitation, rights of levy or
distraint for rent, all of which it hereby waives;
(ii) the Collateral shall be identifiable as being owned by Borrower
and kept reasonably separate and distinct from other property in our
possession;
(iii) if Borrower defaults on its obligations to the Lenders or the
Agent and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises
and will permit the Agent to either remain on the Premises for ninety (90)
days after the Agent gives the undersigned notice of default or, at the
Agent's option, to remove the Collateral from the Premises within a
reasonable time, not to exceed ninety (90) days after the Agent gives the
undersigned notice of default, provided that the Agent leaves the Premises
in the same condition as existed immediately prior to such ninety (90) day
period, and shall indemnify the undersigned for any damages arising
solely out of its occupancy of the Premises, and this will not hinder the
Agent's actions in enforcing its liens on the Collateral.
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this agreement. The agreements contained
herein may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of any of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
Executed and delivered this ____ day of __________, 199_, at
_______________________.
[Name and Address of Warehouseman/Bailee/Consignee]
(By)_______________________
EXHIBIT C
To
Security Agreement
Form of Restricted Account Agreement
TO: The First National Bank of Chicago
as contractual representative (the "Agent")
under that certain Credit Agreement, dated as of
February 27, 1997 (the "Credit Agreement"),
among GFSI, Inc., a Delaware corporation
(the "Borrower"), the Agent and those financial
institutions from time to time parties thereto
(the "Holders of Secured Obligations").
Ladies and Gentlemen:
You have advised us that the Borrower has entered or will enter into the
Credit Agreement and that in connection therewith the Borrower has granted to
the Agent, for its benefit and the benefit of the Holders of Secured
Obligations, a lien on and security interest in substantially all of the assets
of the Borrower, including all of the accounts receivable and inventory of the
Borrower.
This will confirm that the Borrower and the undersigned collection bank
(the "Bank") have agreed as follows with respect to (i) the account[s]
identified on Schedule 1 attached hereto (the "Account[s]") [and (ii) the lock
box[es] identified on Schedule 2 attached hereto, to which the Borrower's
customers and other persons and entities obligated to the Borrower deliver
checks and other items of payment (said [lock box is] [lock boxes are]
hereinafter referred to [collectively] as the "Lock Box[es]")]:
1. The Borrower and the Bank acknowledge and confirm that although the
Account[s] [and Lock Box[es]] shall remain in the name of the Borrower, all
funds now or at any time hereafter deposited to the Account[s] [and Lock
Box[es]] and all of the Borrower's rights regarding such Account[s] [and Lock
Box[es]] constitute part of the collateral in which the Borrower has granted a
security interest to the Agent, to secure the Borrower's obligations under the
Credit Agreement and the other instruments, documents and agreements executed in
connection therewith, and that during a "Notification Period" (as defined
below), the Bank shall not be permitted to follow the Borrower's directions as
to disbursements and deposits with respect thereto. [The Bank's authorized
representatives will have access to the Lock Box[es], under the authority given
by the Borrower to the appropriate Post Office, and will make regular pick-ups
from the Lock Box[es] timed to gain the maximum benefit of early presentation
and availability of funds. Upon the Bank's receipt thereof, checks and other
items of payment so received will be processed and, where possible, started on
their way through the regular channels for payment upon receipt by the Bank.
Subject to final collection, credit for such items will be given in total on the
Bank's books relating to the [appropriate] Account. The Bank will supply the
Borrower's endorsement on checks received by it by endorsing them "Credited to
the account of the
within payee" and will present them for payment through the customary collection
procedures and subject to the terms of the Bank's by-laws covering the handling
of items deposited with it.] 2
2. The Bank will not exercise, and hereby releases, any banker's lien upon
and any right of set off against checks or other items of payment [remitted to
the Lock Box[es]] and/or deposited in the Account[s], except (i) with respect to
the Bank's normal fees and charges for operating the Account[s] and (ii) for
amounts previously credited to Borrower's Account[s] which the Bank subsequently
determines are uncollectible items. Checks returned unpaid because of
uncollected or insufficient funds shall be redeposited without advice.
3. From and after the date on which the Agent notifies the Bank, in
writing, that it is exercising its rights under this Collection Account
Agreement (the "Notice") until the date on which the Agent notifies the Bank
that it is withdrawing such Notice (such period being referred to herein as a
"Notification Period"), the Bank, the Borrower and the Agent agree that, unless
the Agent otherwise instructs the Bank in writing:
A. The Bank will not honor drafts, demands, withdrawal requests or
remittance instructions by the Borrower.
B. The Bank will hold solely for account of the Agent all funds which
may be on deposit in the Account[s] and the Agent shall have the exclusive
right to direct the Bank as to the disposition of all checks, other items
of payment and amounts deposited in the Account[s] [and remitted to the
Lock Box[es]].
C. The Bank will remit all such funds directly to the Agent, as soon
as the funds are collected, by electronic transfer of immediately available
funds in accordance with the Agent's written wire-transfer instructions
given from time to time to the Bank.
D. The Bank shall be entitled to rely upon any notice or other writing
received from the Agent and the Borrower waives any claim of, and releases
the Bank from any liability for, complying with the terms of this
Collection Account Agreement.
4. [The Borrower will receive a receipted copy of the activity relating to
the Lock Box[es] for its records.] The Bank will not close the Account[s]
without giving the Agent at least thirty (30) days' prior written notice at the
address set forth below or such other address as the Agent may from time to time
indicate by written notice to the Bank, the Bank will send to the Agent at such
address a copy of each periodic statement for the Account, as and when the
statement is sent to the Borrower.
5. Any notice (including, without limitation, any Notice) required or
desired to be served, given or delivered hereunder shall be in writing and shall
be deemed to have been validly served, given or delivered (i) three (3) business
days after deposit in the United States mails, with proper postage prepaid, (ii)
when sent after receipt of confirmation if sent by telecopy, (iii) one (1)
business day after deposit with a reputable overnight courier with all charges
prepaid, or (iv) when delivered, if hand delivered by messenger.
--------
2 The last three sentences of this Section and the last sentence of the
following Section may be substituted with a cross reference to the
applicable cash-management or lock-box services agreement, if one exists.
6. This Collection Account Agreement shall be binding upon the Bank and the
Borrower and their respective successors and assigns and shall inure to the
benefit of the Agent, each of the Holders of Secured Obligations and their
respective successors and assigns. This Collection Account Agreement may not be
modified without the Agent's prior written consent, but may be terminated by the
Agent or the Bank upon thirty (30) days' prior written notice to the other
parties hereto.
This Collection Account Agreement shall be deemed effective as of
[_____________, 1997] upon execution hereof by the Bank.
[Insert full name of Bank]:
By:_________________________
Name:
Title:
Address:
____________________________
____________________________
Attn:_______________________
Telecopy No.:_______________
Confirmation No.:___________
Acknowledged and agreed to as of this
___ day of ________, 1997:
GFSI, Inc.
By:_______________________
Name:
Title:
Address:
[_________________________
__________________________]
Attn: [______________________]
Telecopy No.: [______________________]
Confirmation No.: [_____________________]
Acknowledged and agreed to as of this
___ day of ______, 1997
THE FIRST NATIONAL BANK
OF CHICAGO, as Agent
By:_____________________________
Name:
Title:
Address:
Xxx Xxxxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxx
Telecopy No.: 000-000-0000
Confirmation No.: 000-000-0000
SCHEDULE 1
TO
SECURITY AGREEMENT
Pledged Debt:
SCHEDULE 2
TO
SECURITY AGREEMENT
Locations of Collateral:
SCHEDULE 2-A
TO
SECURITY AGREEMENT
Third Party Locations:
Corporate Name of Description Maximum
Third Party Address of Relationship Amount
----------- ------- --------------- ------
SCHEDULE 2-B
TO
SECURITY AGREEMENT
Financing Statement Filing Locations:
SCHEDULE 3
TO
SECURITY AGREEMENT
Trade Names:
SCHEDULE 4
TO
SECURITY AGREEMENT
Deposit Accounts:
