SECURITY AND PLEDGE AGREEMENT
SECURITY AND PLEDGE AGREEMENT (the "Agreement"), dated as of January 7,
1998, by and among PARAGON TRADE BRANDS, INC., a Delaware corporation (the
"Borrower"), a debtor and debtor-in-possession under Chapter 11 of the
Bankruptcy Code, PTB INTERNATIONAL, INC., a Delaware corporation ("PTBI"),
CHANGING PARADIGMS INC., an Ohio corporation ("CPI"), PARAGON TRADE BRANDS FSC,
INC., a U.S. Virgin Islands corporation ("PTBF"), PTB ACQUISITION SUB, INC., a
Delaware corporation ("PTBA" and together with PTBI, CPI and PTBF, collectively,
the "Subsidiaries"; the Borrower and the Subsidiaries, each a "Grantor" and
collectively, the "Grantors"), and THE CHASE MANHATTAN BANK, as agent (in such
capacity, the "Agent") for the banks (the "Banks") party to the Credit Agreement
(as hereinafter defined):
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Agent, the Banks and the Grantors are entering into a Revolving
Credit and Guaranty Agreement dated as of the date hereof (as amended, modified
or supplemented from time to time, the "Credit Agreement"); and
WHEREAS, unless otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined; and
WHEREAS, it is a condition precedent to the making of Loans and the
issuance of Letters of Credit that the Grantors shall have granted a security
interest, pledge and lien on substantially all of the Grantors' assets and
properties and the proceeds thereof (pursuant to in the case of the Borrower
Sections 364(c)(2) and 364(c)(3) of the Bankruptcy Code); and
WHEREAS, the grant of such security interest, pledge and lien by the
Borrower has been authorized pursuant to Section 364(c)(2) and 364(c)(3) of the
Bankruptcy Code by the Interim Order and, after the entry thereof, will have
been so authorized by the Final Order (collectively, the "Order"); and
WHEREAS, the Subsidiaries have not filed petitions under Chapter 11 of the
Bankruptcy Code; and
WHEREAS, to supplement the Order without in any way diminishing or
limiting the effect of the Order or the security interests, pledges and liens
granted thereunder, the parties hereto desire to more fully set forth their
respective rights in connection with such security interests, pledges and liens;
and
WHEREAS, this Agreement has been approved by the Order;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks to make Loans and issue Letters of Credit, the Grantors hereby agree
with the Agent as follows:
SECTION 1. GRANT OF SECURITY AND PLEDGE. Each of the Grantors hereby
transfers, grants, bargains, sells, conveys, hypothecates, assigns, pledges and
sets over to the Agent for its benefit and the ratable benefit of the Banks and
hereby grants to the Agent for its benefit and the ratable benefit of the Banks,
a perfected pledge and security interest in all of the Grantors' right, title
and interest in and to the following (the "Collateral"), which pledge and
security interest shall be (x) junior to the Permitted Senior Liens hereinafter
referred to and (y) in the case of the Collateral granted by the Borrower,
subject to the Carve-Out:
(a) all present and future accounts, accounts receivable and other
rights of each of the Grantors to payment for goods sold or leased or for
services rendered (except those evidenced by instruments or chattel paper),
whether now existing or hereafter arising and wherever arising, and whether or
not they have been earned by performance (collectively, the "Accounts");
(b) all goods and merchandise now owned or hereafter acquired by each of
the Grantors wherever located, whether in the possession of a Grantor or of a
bailee or other person for sale, storage, transit, processing, use or otherwise
consisting of whole goods, components, supplies, materials, or consigned,
returned or repossessed goods) which are held for sale or lease or to be
furnished (or have been furnished) under any contract of service or which are
raw materials, work-in-process, finished goods or materials used or consumed in
such Grantor's business or processed by or on behalf of any Grantor
(collectively, the "Inventory");
(c) 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,
aircraft and all other goods of every type and description (other than
Inventory), in each instance whether now owned or hereafter acquired by each of
the Grantors and wherever located (collectively, the "Equipment");
(d) all works of art now owned or hereafter acquired by each of the
Grantors, including, without limitation, paintings, sketches, drawings, prints,
sculptures, crafts, tapestries, porcelain, carvings, artifacts, renderings and
designs;
(e) all rights, interests, choses in action, causes of action, claims
and all other intangible property of each of the Grantors of every kind and
nature (other than Accounts, Trademarks, Patents and Copyrights), in each
instance whether now owned or hereafter acquired by such Grantor, including,
without limitation, all general intangibles; all corporate and other business
records; all loans, royalties, and other obligations receivable; all inventions,
designs, trade secrets, computer programs, software, printouts and other
computer materials, goodwill, registrations,
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copyrights, licenses, franchises, customer lists, credit files, correspondence,
and advertising materials; all customer and supplier contracts, firm sale
orders, rights under license and franchise agreements (including all license
agreements with any other Person in connection with any of the Patents and
Trademarks or such other Person's names or marks, whether such Grantor is a
licensor or licensee under any such license agreement), and 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 each of the Grantors 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; all
credits with and other claims against carriers and shippers; all rights to
indemnification; all reversionary interests in pension and profit sharing plans
and reversionary, beneficial and residual interest in trusts; all proceeds of
insurance of which each of the Grantors is beneficiary; and all letters of
credit, guaranties, liens, security interest and other security held by or
granted to each of the Grantors; and all other intangible property, whether or
not similar to the foregoing (collectively, the "General Intangibles");
(f) all chattel paper, all instruments, all notes and debt instruments
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 lading,
warehouse receipts and other documents of title and documents, in each instance
whether now owned or hereafter acquired by each of the Grantors;
(g) all property or interests in property now or hereafter acquired by
each of the Grantors which may be owned or hereafter may come into the
possession, custody or control of the Agent or any agent or affiliate of the
Agent in any way or for any purpose (whether for safekeeping, deposit, custody,
pledge, transmission, collection or otherwise), and all rights and interests of
each of the Grantors, now existing or hereafter arising and however and wherever
arising, in respect of any and all (i) notes, drafts, letters of credits,
stocks, bonds, and debt and equity securities, whether or not certificated, and
warrants, options, puts and calls and other rights to acquire or otherwise
relating to the same; (ii) money (including all cash and cash equivalents held
in the Letter of Credit Account (as defined and referred to in the Credit
Agreement)); (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;
(h) all trademarks, trade names, trade styles, service marks, prints and
labels on which said trademarks, trade names, trade styles and service marks
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, and all registrations and recordings
thereof, including, without limitation, applications, registrations and
recordings in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof, or any other country
or political subdivision thereof (except for "intent to use" applications for
trademark or service ▇▇▇▇ registrations filed pursuant to Section 1(b) of the
▇▇▇▇▇▇
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Act, unless and until an Amendment to Allege Use or a Statement of Use under
Sections 1(c) and 1(d) of said Act has been filed), all whether now owned or
hereafter acquired by each of the Grantors, including, but not limited to, those
described in Schedule 3 annexed hereto and made a part hereof, and all reissues,
extensions or renewals thereof and all licenses thereof together, in each case,
with the goodwill of the business connected with the use of, and symbolized by
each such trademark, service ▇▇▇▇, trade name and trade dress (all of the
foregoing being herein referred to as the "Trademarks");
(i) all letters patent of the United States or any other country, and
all registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, all
whether now owned or hereafter acquired by each of the Grantors, including, but
not limited to, those described in Schedule 4 annexed hereto and made apart
hereof, and (ii) all reissues, continuations, continuations-in-part or
extensions thereof and all licenses thereof (all of the foregoing being herein
referred to as the "Patents");
(j) all copyrights of the United States, or any other country, and all
registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof, or
any other country or political subdivision thereof, all whether now owned or
hereafter acquired by each of the Grantors, including, but not limited to, those
described in Schedule 5 hereto and all renewals and extensions thereof and all
licenses thereof (all of the foregoing being herein referred to as the
"Copyrights");
(k) all books, records, ledger cards and other property at any time
evidencing or relating to the Accounts, Equipment, General Intangibles,
Trademarks, Patents or Copyrights;
(l) (i) all the shares of capital stock owned by each Grantor, as
applicable, listed on Part I of Schedule 6 hereto of the issuers listed thereon
(individually, an "Issuer", and collectively, the "Issuers") and all shares of
capital stock of any Issuer obtained in the future by such Grantor and the
certificates representing or evidencing all such shares (the "Pledged Shares");
(ii) all other property which may be delivered to and held by the Agent in
respect of the Pledged Shares pursuant to the terms hereof; (iii) subject to
Section 9 below, all dividends, cash, instruments and other property from time
to time received, receivable or otherwise distributed, in respect of, in
exchange for or upon the conversion of the securities referred to in clauses (i)
and (ii) above; and (iv) subject to Section 9 below, all rights and privileges
of each Grantor, as applicable, with respect to the securities and other
property referred to in clauses (i), (ii) and (iii);
(m) (i) the debt evidenced by the respective notes described in Part II
of Schedule 6 hereto delivered to the Grantors (the "Pledged Debt"), if any, and
(ii) all interest, cash, instruments and other property from time to time
received, receivables or otherwise distributed in respect of or
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in exchange for any or all of the Pledged Debt (the items referred to in Section
1(l) above and clauses (i) and (ii) herein collectively referred to as the
"Pledged Collateral");
(n) all other personal property of each of the Grantors, whether
tangible or intangible, and whether now owned or hereafter acquired excluding
shares of capital stock owned by the Grantors that are not listed on Schedule 6
and excluding the obligations set forth on Schedule 1(n); and
(o) all proceeds and products of any of the foregoing, in any form,
including, without limitation, any claims against third parties for loss or
damage to or destruction of any or all of the foregoing and to the extent not
otherwise included, all (i) payments under insurance (whether or not the Agent
is the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral and (ii) cash.
As used herein, the term "Permitted Senior Liens" shall mean (i) in the
case of the Borrower, valid and perfected Liens, if any, existing on the Filing
Date and (ii) in the case of the Subsidiaries, valid and perfected Liens, if
any, existing on the date hereof.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement and the Collateral
secure the payment of all obligations of each of the Grantors, now or hereafter
existing, under the Credit Agreement and the other Loan Documents (and any other
documents in respect of such Obligations), and in respect of Indebtedness
permitted by Section 6.03(iv) of the Credit Agreement, whether for principal,
interest, fees, expenses or otherwise, and all obligations of each of the
Grantors now or hereafter existing under or in respect of this Agreement (all
such obligations of the Grantor being herein called the "Obligations").
SECTION 3. DELIVERY OF PLEDGED COLLATERAL; OTHER ACTION. The Grantors
shall deliver all certificates or instruments representing or evidencing the
Pledged Collateral to the Agent pursuant hereto and shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Agent. Upon the occurrence and during the
continuance of any Event of Default, the Agent shall have the right (for the
ratable benefit of the Banks), at any time in its discretion and without notice
to the Grantors, to transfer to or to register in the name of the Agent or any
of its nominees any or all of the Pledged Collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Grantor, jointly and
severally, represents and warrants as follows:
(a) All of the Inventory and/or Equipment is located at the places
specified in Schedule 1 hereto. The chief places of business and chief executive
offices of each of the Grantors and the offices where each Grantor keeps its
records concerning any Accounts and all originals of all chattel paper which
evidence any Account are located at the places specified in Schedule 2 hereto.
All trade names under which each of the Grantors have sold and will sell
Inventory are listed on Schedule 3 hereto.
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(b) Each of the Grantors owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement and except as permitted under Section 6.01 of the
Credit Agreement and except as described on Schedule 6. No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except (x) such as may have been
filed in favor of the Agent relating to this Agreement and (y) in favor of any
holder of a Lien permitted under Section 6.01 of the Credit Agreement.
(c) As of the Filing Date, no Grantor owns any material Trademarks,
Patents or Copyrights or has any material Trademarks, Patents or Copyrights
registered in, or the subject of pending applications in, the United States
Patent and Trademark Office or any similar office or agency in any other country
or any political subdivision thereof, other than those described in Schedules 3,
4 and 5 hereto. The registrations for the Collateral disclosed on such Schedules
3, 4 and 5 hereto are valid and subsisting and in full force and effect. None of
the material Patents, Trademarks or Copyrights have been abandoned or dedicated.
(d) The Pledged Shares have been duly authorized and validly issued and
are fully paid and non-assessable. The Pledged Debt is the legal, valid and
binding obligation of the issuers thereof.
(e) Each Grantor, as the case may be, is the legal and beneficial owner
of the Pledged Collateral described on Schedule 6 free and clear of any lien,
security interest, option or other charge or encumbrance, except for the
security interest created by this Agreement and the Orders and except as
disclosed on Schedule 6 or permitted by Section 6.01 of the Credit Agreement.
(f) Except as disclosed on Schedule 6, the Pledged Shares described in
Section 1(l) hereof constitute all of the issued and outstanding shares of stock
of each of the Issuers and no Issuer is under any contractual obligation to
issue any additional shares of stock or any other securities, rights or
indebtedness.
(g) No consent of any other Person (other than the licensors of any
License (as such term is defined in the Patent and Trademark Security Agreement)
to which any Grantor is a licensee) and no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body or other third party is required either (i) for the grant by any
Grantor of the assignment and security interest granted hereby or for the
execution, delivery, recordation, filing or performance of this Agreement by any
Grantor, (ii) for the perfection or maintenance of the pledge, assignment and
security interest created hereby (including the first priority nature of such
pledge, assignment or security interest), except for the filing of financing and
continuation statements under the Uniform Commercial Code, which financing
statements have been duly filed, or (iii) for the exercise by the Agent of its
voting or other rights provided for in this Agreement or the remedies in respect
of the Collateral pursuant to this Agreement, except as may be required, in
connection with (A) the disposition of any portion of the Pledged Collateral by
laws affecting the offering and sale of securities generally, (B) the public or
private sale of Collateral governed by the
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Uniform Commercial Code, (C) any action seeking the judicial enforcement of such
rights or remedies, (D) notice to the issuers of Pledged Shares that the Agent,
on behalf of the Banks, is the registered owner of the Pledged Shares, (E)
filings with the United States Patent and Trademark Office, and (F) any
requirement that the Agent or any of the Banks that does business in a
jurisdiction qualify to do business in such jurisdiction in order to file or
pursue legal proceedings to enforce its rights under the Loan Documents in such
jurisdiction.
(h) Except (in the case of the Borrower) for the Orders, no
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the grant
and pledge by each of the Grantors of the security interests granted hereby or
for the execution, delivery or performance of this Agreement by each of the
Grantors or (ii) for the perfection of the security interests or the exercise by
the Agent of its rights and remedies hereunder.
SECTION 5. FURTHER ASSURANCES.
(a) Each of the Grantors agrees that from time to time, at the expense
of the Grantors, it will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary, or that the
Agent may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Agent to
exercise and enforce any of its rights and remedies hereunder with respect to
any Collateral. Without limiting the generality of the foregoing, and without
(in the case of the Borrower) further order of the Bankruptcy Court, each of the
Grantors will execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary,
or as the Agent may reasonably request, in order to perfect and preserve the
security interests granted or purported to be granted hereby.
(b) Each Grantor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of such Grantor where permitted
by law.
(c) Each Grantor will furnish to the Agent from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Agent may reasonably request,
all in reasonable detail.
SECTION 6. AS TO EQUIPMENT AND INVENTORY. Each Grantor shall:
(a) Keep the Equipment and Inventory (other than Inventory sold in the
ordinary course of business) at the places specified therefor in Schedule 1
hereto or, upon 30 days' prior written notice to the Agent, at other places in
jurisdictions where all action required by Section 5 shall have been taken to
assure the continuation of the perfection of the security interest of the Agent
(for its benefit and the ratable benefit of the Banks) with respect to the
Equipment and Inventory.
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(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, to the extent not obsolete and consistent with past
practice of such Grantor, as quickly as practicable after the occurrence of any
loss or damage thereto which are necessary or reasonably desirable to such end,
except where the failure to do any of the foregoing would not result in a
material adverse effect on the assets, properties or condition (financial or
otherwise) of the Grantors, taken as a whole.
(c) Until satisfaction in full of the Obligations, at any time when an
Event of Default has occurred and is continuing: (i) each Grantor will perform
any and all reasonable actions requested by the Agent to enforce the Agent's
security interest in the Inventory and all of the Agent's rights hereunder, such
as leasing warehouses to the Agent or its designee, placing and maintaining
signs, appointing custodians, transferring Inventory to warehouses, and
delivering to the Agent warehouse receipts and documents of title in the Agent's
name; (ii) if any Inventory is in the possession or control of any of the
Grantors' agents, contractors or processors or any other third party, each such
Grantor will notify the Agent thereof and will notify such agents, contractors
or processors or third party of the Agent's security interest therein and, upon
request, instruct them to hold all such Inventory for the Agent and such
Grantor's account, as their interests may appear, and subject to the Agent's
instructions; (iii) the Agent shall have the right to hold all Inventory subject
to the security interest granted hereunder; and (iv) the Agent shall have the
right to take possession of the Inventory or any part thereof and to maintain
such possession on such Grantor's premises or to remove any or all of the
Inventory to such other place or places as the Agent desires in its sole
discretion. If the Agent exercises its right to take possession of the
Inventory, such Grantor, upon the Agent's demand, will assemble the Inventory
and make it available to the Agent at such Grantor's premises at which it is
located.
SECTION 7. AS TO ACCOUNTSSECTION 7. AS TO ACCOUNTS.
(a) Each Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts, and the offices where it keeps all originals of all chattel paper
which evidence Accounts, at the location therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent, at such other locations in a
jurisdiction where all actions required by Section 5 shall have been taken with
respect to the Accounts. Each Grantor will hold and preserve such records and
chattel paper and will permit representatives of the Agent, at any time during
normal business hours, to inspect and make abstracts from such records and
chattel paper in accordance with Section 5.06 of the Credit Agreement.
(b) Except as otherwise provided in this subsection (b), each Grantor
shall continue to collect in accordance with its customary practice, at its own
expense, all amounts due or to become due to such Grantor under the Accounts
and, prior to the occurrence of an Event of Default, such Grantor shall have the
right to adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon, all in accordance with its customary practices. In
connection with such collections, the
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Grantors may, upon the occurrence and during the continuation of an Event of
Default, take (and at the direction of the Agent shall take) such action as the
Grantors or the Agent may reasonably deem necessary or advisable to enforce
collection of the Accounts; provided, that upon written notice by the Agent to
any Grantor, following the occurrence and during the continuation of an Event of
Default, of its intention so to do, the Agent shall have the right to notify the
account debtors or obligors under any Accounts of the assignment of such
Accounts to the Agent and to direct such account debtors or obligors to make
payment of all amounts due or to become due to such Grantor thereunder directly
to the Agent and, upon such notification and at the expense of such Grantor, to
enforce collection of any such Accounts, and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as such
Grantor might have done. After receipt by such Grantor of the notice referred to
in the proviso to the preceding sentence, (i) all amounts and proceeds
(including instruments) received by such Grantor in respect of the Accounts
shall be received in trust for the benefit of the Agent (for the ratable benefit
of the Banks) hereunder, shall be segregated from other funds of the Grantors
and shall be forthwith paid over to the Agent in the same form as so received
(with any necessary endorsement) to be held as cash collateral and either (A)
released to the Grantors if such Event of Default shall have been cured or
waived or (B) if such Event of Default shall be continuing, applied as provided
by Section 15, and (ii) the Grantors shall not adjust, settle or compromise the
amount or payment of any Account, or release wholly or partly any account debtor
or obligor thereof, or allow any credit or discount thereon.
SECTION 8. AS TO TRADEMARKS, PATENTS AND COPYRIGHTS.
(a) Each Grantor shall, either itself or through licensees, continue to
use the Trademarks as each is currently used in the Grantor's business in order
to maintain the Trademarks in full force free from any claim of abandonment for
nonuse and each such Grantor will not (and will not permit any licensee thereof
to) do any act or knowingly omit to do any act whereby any Trademark may become
invalidated, unless such failure to use a Trademark is not reasonably likely to
have a material adverse effect on the condition (financial or otherwise),
operation or properties of the Grantors taken as a whole.
(b) No Grantor will do any act, or omit to do any act, whereby the
Patents or Copyrights may become abandoned or dedicated and each such Grantor
shall notify the Agent immediately if it knows of any reason or has reason to
know that any application or registration may become abandoned or dedicated,
unless such abandonment or dedication is not reasonably likely to have a
material adverse effect on the condition (financial or otherwise), operations or
properties of the Grantors taken as a whole.
(c) No Grantor will, either itself or through any agent, employee,
licensee or designee, (i) file an application for the registration of any Patent
or Trademark with the United States Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof or
(ii) file any assignment of any patent or trademark, which such Grantor may
acquire from a third party, with the United States Patent and Trademark Office
or any similar office or agency in any other country or any political
subdivision thereof, unless such Grantor shall, within
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30 days after the date of such filing, notify the Agent thereof, and, upon
request of the Agent, execute and deliver any and all assignments, agreements,
instruments, documents and papers as the Agent may request to evidence the
Agent's interest in such Patent or Trademark and the goodwill and general
intangibles of such Grantor relating thereto or represented thereby, and such
Grantor hereby constitutes the Agent its attorney-in-fact to execute and file
all such writings for the foregoing purposes, all lawful acts of such attorney
being hereby ratified and confirmed; such power being coupled with an interest
is irrevocable until the Obligations are paid in full.
(d) Each Grantor will take all necessary steps in any proceeding before
the United States Patent and Trademark Office, the United States Copyright
Office or any similar office or agency in any other country or any political
subdivision thereof, to maintain in all material respects each application and
registration of all material Trademarks, Patents and Copyrights, including,
without limitation, filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings.
(e) Each Grantor will, without further order of the Bankruptcy Court,
perform all acts and execute and deliver all further instruments and documents,
including, without limitation, assignments for security in form suitable for
filing with the United States Patent and Trademark Office, and the United States
Copyright Office, respectively, reasonably requested by the Agent at any time to
evidence, perfect, maintain, record and enforce the Agent's interest in all
material Trademarks, Patents and Copyrights or otherwise in furtherance of the
provisions of this Agreement, and each Grantor hereby authorizes the Agent to
execute and file one or more accurate financing statements (and similar
documents) or copies thereof or of this Security Agreement with respect to
material Patents, Trademarks and Copyrights signed only by the Agent.
(f) Each Grantor will, upon acquiring knowledge of any use by any person
of any term or design likely to cause confusion with any material Trademark,
promptly notify the Agent of such use, and if requested by the Agent, shall join
with the Agent, at such Grantor's expense, in such action as the Agent, in its
reasonable discretion, may deem advisable for the protection of the Agent's
interest in and to the Trademarks.
SECTION 9. AS TO THE PLEDGED COLLATERAL; VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) the Grantors (as applicable) shall be entitled to exercise
any and all voting and other consensual rights pertaining to the
Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement provided, that such
Grantors shall not exercise or shall refrain from exercising any
such right if, in the Agent's reasonable judgment, such action
would have a material adverse effect on the value of the Pledged
Collateral or any part thereof;
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(ii) notwithstanding the provisions of Section 1 hereof, such
Grantors shall be entitled to receive and retain any and all
dividends paid in respect of the Pledged Shares ; provided, that
any and all
(A) dividends paid or payable other than in cash in
respect of, and instruments and other property
received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Shares,
and
(B) dividends and other distributions paid or payable in
cash in respect of any Pledged Shares in connection
with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital
surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange
for, any Pledged Shares;
shall be, and shall be forthwith delivered to the Agent to hold as,
Pledged Collateral and shall, if received by any of the Grantors, be
received in trust for the benefit of the Agent, be segregated from the
other property or funds of such Grantor, and be forthwith delivered to
the Agent as Pledged Collateral in the same form as so received (with
any necessary endorsement); and
(iii) the Agent execute and deliver (or cause to be executed and
delivered) to the Grantors (as applicable) all such proxies and
other instruments as the Grantors (as applicable) may reasonably
request for the purpose of enabling such Grantor to exercise the
voting and other rights which it is entitled to exercise pursuant
to paragraph (i) above and to receive the dividends which it is
authorized to receive and retain pursuant to paragraph (ii)
above;
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) upon written notice from the Agent to the Grantors (as
applicable) to such effect, all rights of such Grantors (as
applicable) to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant to
Section 9(a)(i) and to receive the dividends which it would
otherwise be authorized to receive and retain pursuant to Section
9(a)(ii) shall cease, and all such rights shall thereupon become
vested in the Agent, who shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive
and hold as Pledged Collateral any such dividends; and
(ii) all dividends which are received by such Grantors contrary
to the provisions of paragraph (i) of this Section 9(b) shall be
received in trust for the benefit of the Agent, shall be
segregated from other funds of the Grantors and shall be
forthwith
11
paid over to the Agent as Pledged Collateral in the same form as
so received (with any necessary endorsement).
SECTION 10. INSURANCE. Each Grantor shall, at its own expense, maintain
insurance with respect to the Inventory and Equipment in such amounts, against
such risks, in such form and with such insurers, as is provided for in Section
5.03 of the Credit Agreement. Following an Event of Default and during its
continuance, each Grantor shall, at the request of the Agent, duly execute and
deliver instruments of assignment of such insurance policies and cause the
respective insurers to acknowledge notice of such assignment.
Upon the occurrence and during the continuance of any Event of Default,
all insurance payments in respect of such Inventory and Equipment shall be held,
applied and paid to the Agent as specified in Section 15 hereof.
SECTION 11. TRANSFERS TO OTHERS; LIENS; ADDITIONAL SHARES. Each Grantor
shall not:
(a) Sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral, except for dispositions otherwise permitted by the
Credit Agreement.
(b) Create or suffer to exist any lien, security interest or other
charge or encumbrance upon or with respect to any of the Collateral to secure
any obligation of any person or entity, except for the security interest created
by this Agreement and the Orders, or except as otherwise permitted by the Credit
Agreement.
(c) Each of the Grantors (as applicable) agrees that it will (i) cause
each of the Issuers that are wholly-owned Subsidiaries not to issue any stock or
other securities in addition to or substitution for the Pledged Shares issued by
such Issuer, except to the respective Grantor and (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
such additional shares of stock or other securities of each Issuer of the
Pledged Shares.
SECTION 12. AGENT APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby
irrevocably appoints the Agent such Grantor's attorney-in-fact (which
appointment shall be irrevocable and deemed coupled with an interest), with full
authority in the place and stead of such Grantor and in the name of such Grantor
or otherwise, from time to time in the Agent's discretion, upon and during the
occurrence and continuation of an Event of Default, to take any action and to
execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(i) to obtain and adjust insurance required to be paid to
the Agent pursuant to Section 10,
12
(ii) to ask, demand, collect, ▇▇▇ for, recover, compound, receive
and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral,
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with
clause (i) or (ii) above,
(iv) to receive, endorse and collect all instruments made payable
to the Grantors representing any dividend or other distribution
in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same, and
(v) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce
the rights of the Agent with respect to any of the Collateral.
SECTION 13. AGENT MAY PERFORM. If any Grantor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Grantors under Section 16(b).
SECTION 14. THE AGENT'S DUTIES. The powers conferred on the Agent
hereunder are solely to protect its interest and the interests of the Banks in
the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral,
including, without limitation, ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Collateral, whether or not the Agent has or is deemed to have
knowledge of such matters.
SECTION 15. REMEDIES. If any Event of Default shall have occurred
and be continuing, and subject to the provisions of Section 7 of the Credit
Agreement:
(a) The Agent may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, and
without application to or order of the Bankruptcy Court, all the rights and
remedies of a secured party on default under the Uniform Commercial Code and
also may (i) require each Grantor to, and each Grantor hereby agrees that it
will at its expense and upon request of the Agent forthwith, assemble all or
part of the Collateral as directed by the Agent and make it available to the
Agent at a place to be designated by the Agent which is reasonably convenient to
both parties and (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Agent's offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the Agent may
deem commercially reasonable. Each Grantor agrees that,
13
to the extent notice of such sale shall be required by law, at least ten days'
notice to the Grantors of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) The Agent may instruct the Grantors not to make any further use of
the Patents, Copyrights or Trademarks or any ▇▇▇▇ similar thereto for any
purpose to the extent that such use would be inconsistent with the exercise by
the Agent of any other remedies under this Section.
(c) The Agent may license, whether general, special or otherwise, and
whether on an exclusive or nonexclusive basis, any of the Trademarks, Patents or
Copyrights throughout the world for such term or terms, on such conditions, and
in such manner, as the Agent shall in its sole discretion determine.
(d) The Agent may (without assuming any obligations or liability
thereunder), at any time, enforce (and shall have the exclusive right to
enforce) against any licensee or sublicensee all rights and remedies of the
Grantors in, to and under any one or more license agreements with respect to the
Collateral, and take or refrain from taking any action under any thereof, and
each of the Grantors hereby releases the Agent from, and agrees to hold the
Agent free and harmless from and against any claims arising out of, any action
taken or omitted to be taken with respect to any such license agreement.
(e) In the event of any such license, assignment, sale or other
disposition of the Collateral, or any of it, each Grantor shall supply its
know-how and expertise relating to the manufacture and sale of the products
bearing or in connection with the Trademarks, Patents or Copyrights, and its
customer lists and other records relating to the Trademarks, Patents or
Copyrights and to the distribution of said products, to the Agent or its
designee.
(f) In order to implement the assignment, sale or other disposal of any
of the Trademarks, Patents or Copyrights, the Agent may, at any time, pursuant
to the authority granted in Section 12 hereof, execute and deliver on behalf of
the Grantors, one or more instruments of assignment of the Trademarks, Patents
or Copyrights (or any application of registration thereof), in form suitable for
filing, recording or registration in any country.
(g) All cash proceeds received by the Agent in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Agent, be held by the Agent as collateral for, and
then or at any time thereafter applied (after payment of any amounts payable to
the Agent pursuant to Section 16 hereof) in whole or in part against, all or any
part of the Obligations in such order as the Agent shall elect. Any surplus of
such cash or cash proceeds held by the Agent and remaining after payment in full
of all the Obligations shall be paid over to the Grantors or to whomsoever may
be lawfully entitled to receive such surplus.
14
(h) If at any time when the Agent shall determine to exercise its right
to sell all or any part of the Pledged Collateral pursuant to this Section 15,
such Pledged Collateral or the part thereof to be sold shall not be effectively
registered under the Securities Act of 1933, as amended, and as from time to
time in effect, and the rules and regulations thereunder (the "Securities Act"),
the Agent is hereby expressly authorized to sell such Pledged Collateral or such
part thereof by private sale in such manner and under such circumstances as the
Agent may deem necessary or advisable in order that such sale may legally be
effected without such registration. Without limiting the generality of the
foregoing, in any such event the Agent, in compliance with applicable securities
laws, (a) may proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Collateral or
such part thereof shall have been filed under such Securities Act, (b) may
approach and negotiate with a restricted number of potential purchasers to
effect such sale and (c) may restrict such sale to purchasers as to their
number, nature of business and investment intention including without limitation
to purchasers each of whom will represent and agree to the satisfaction of the
Agent that such purchaser is purchasing for its own account, for investment, and
not with a view to the distribution or sale of such Pledged Collateral, or part
thereof, it being understood that the Agent may cause or require each Grantor,
and each Grantor hereby agrees upon the written request of the Agent, to cause
(i) a legend or legends to be placed on the certificates to be delivered to such
purchasers to the effect that the Pledged Collateral represented thereby have
not been registered under the Securities Act and setting forth or referring to
restrictions on the transferability of such securities; and (ii) the issuance of
stop transfer instructions to such Issuer's transfer agent, if any, with respect
to the Pledged Collateral, or, if such Issuer transfers its own securities, a
notation in the appropriate records of such Issuer. In the event of any such
sale, each Grantor does hereby consent and agree that the Agent shall incur no
responsibility or liability for selling all or any part of the Pledged
Collateral at a price which the Agent may deem reasonable under the
circumstances, notwithstanding the possibility that a substantially higher price
might be realized if the sale were public and deferred until after registration
as aforesaid.
SECTION 16. INDEMNITY AND EXPENSES.SECTION 16. INDEMNITY AND EXPENSES.
(a) Each Grantor, jointly and severally, agrees to indemnify the Agent
from and against any and all claims, losses and liabilities growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities directly arising from the
Agent's own gross negligence, willful misconduct or bad faith.
(b) The Grantors will upon demand pay to the Agent the amount of any and
all reasonable expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, which the Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
the Agent hereunder or (iv) the failure by any of the Grantors to perform or
observe any of the provisions hereof.
15
(c) The Grantors assume all responsibility and liability arising from
the use of the Trademarks, Patents and Copyrights, and the Grantors hereby,
jointly and severally, indemnify and hold the Agent harmless from and against
any claim, suit, loss, damage or expense (including reasonable attorneys' fees)
arising out of any alleged defect in any product manufactured, promoted or sold
by any of the Grantors in connection with any Trademark or out of the
manufacture, promotion, labelling, sale or advertisement of any such product by
any of the Grantors except as the same may have resulted from the gross
negligence, willful misconduct or bad faith of the Agent.
(d) Each of the Grantors agree that the Agent does not assume, and shall
have no responsibility for, the payment of any sums due or to become due under
any agreement or contract included in the Collateral or the performance of any
obligations to be performed under or with respect to any such agreement or
contract by any of the Grantors, and except as the same may have resulted from
the gross negligence or willful misconduct of the Agent, each of the Grantors
hereby jointly and severally agree to indemnify and hold the Agent harmless with
respect to any and all claims by any person relating thereto.
SECTION 17. SECURITY INTEREST ABSOLUTE. All rights of the Agent and
security interests hereunder, and all obligations of each of the Grantors
hereunder, shall be absolute and unconditional, irrespective of any circumstance
which might constitute a defense available to, or a discharge of, any guarantor
or other obligor in respect of the Obligations.
SECTION 18. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement, nor any consent to any departure by any of the Grantors
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the party against whom enforcement is sought, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 19. ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing and shall be given in accordance with
the applicable provisions of the Credit Agreement.
SECTION 20. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until payment in full of the Obligations, (ii) be binding upon
each of the Grantors, their successors and assigns and (iii) inure, together
with the rights and remedies of the Agent hereunder, to the benefit of the Agent
and each of the Banks and their respective successors, transferees and assigns.
Upon the payment in full of the Obligations, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantors subject to any existing liens, security interests or encumbrances on
such Collateral. Upon any such termination, the Agent will, at the Grantor's
expense, execute and deliver to the Grantors such documents as the Grantors
shall reasonably request to evidence such termination.
16
SECTION 21. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York and by Federal law (including,
without limitation, the Bankruptcy Code) to the extent the same has pre-empted
the law of the State of New York or such other jurisdiction.
SECTION 22. HEADINGS. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
IN WITNESS WHEREOF, each of the Grantors and the Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
GRANTORS:
PARAGON TRADE BRANDS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title:
PTB INTERNATIONAL, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title:
CHANGING PARADIGMS INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------
Title:
PARAGON TRADE BRANDS FSC, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title:
17
PTB ACQUISITION SUB, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title:
AGENT:
THE CHASE MANHATTAN BANK,
INDIVIDUALLY AND AS AGENT
By: /s/
--------------------------
Title: Managing Director
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
