<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended August 29, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____ to ____
Commission file number 0-4173
DMI FURNITURE, INC.
-------------------
(Exact name of registrant as specified in its charter)
DELAWARE 41-0678467
---------------------------------------------------------
(State of incorporation) (IRS employer ID number)
One Oxmoor Place, 101 Bullitt Lane, Louisville, Kentucky 40222
--------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number with area code: (502) 426-4351
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------ -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
Total pages - 91
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $10,200,000 as of August 29, 1998.
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the last practicable date.
Class Outstanding at August 29, 1998
- ----- ------------------------------
Common Stock, Par Value $.10 per Share 3,892,013
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on February 3, 1999 are incorporated by reference into Part
III. Part I.
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Item 1. BUSINESS
The information set forth in "Item 1. Business," in "Item 8.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and in the other portions of this report includes
forward-looking statements about the Corporation and its business. For this
purpose, the use of words such as "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. Factors that realistically could cause results to differ
materially from those projected in the forward-looking statements include the
cyclical and seasonal nature of the furniture market; the availability and
cost of raw materials and labor; availability, terms and deployment of
capital; events that disrupt the flow of goods from off-shore manufacturing
sources; merchandising decisions by one or more of the Company's major
customers that adversely affect their purchases of the Company's furniture
products; changes in fashion or tastes; general conditions in the economy or
capital markets; demographic changes; competition; and other factors
identified in "Item 1. Business," in "Item 8. Management's Discussion and
Analysis of Financial Condition and Results of Operations," and in other
portions of this report.
(a) GENERAL DEVELOPMENT OF BUSINESS.
The operations of the Company during the past three years consisted of
the manufacture, import, and sale of low and medium-priced bedroom furniture,
accent furniture, home and office desk furniture, conference tables, and
chairs.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company's continuing operations as shown in its Selected Financial
Data (See Item 6) for the five years ended August 29, 1998, consist of one
industry segment -- the manufacture, import, and sale of furniture.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS.
The Company manufactures, imports, and sells low and medium-priced
bedroom furniture, dining furniture, occasional and accent furniture, home
office and commercial office furniture, conference tables, and chairs.
The Company's furniture products are marketed throughout the United
States, Puerto Rico, Canada, Mexico, Caribbean, and Saudi Arabia, principally
to furniture retailers. Export sales totaled approximately 2% of the
Company's sales in fiscal 1998. Approximately 14% of the Company's sales are
accounted for by sale to wholesale distributors. The Company's sales are made
through independent, commissioned sales representatives, as well as sales and
marketing personnel employed by the Company. The Company maintains a showroom
for furniture markets in High Point, North Carolina. The Company also
participates in the annual NeoCon commercial office furniture tradeshow in
Chicago, Illinois.
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The raw materials which are essential to the manufacture of furniture
are wood, board products, fabric, finishing materials, hardware and glass.
There are a number of sources of supply for wood, board products and fabric.
Approximately 41% of these materials are purchased from independent
suppliers, and the balance of these materials are obtained by the Company by
cutting and hauling wood from purchased stands of timber and further
processing it in the Company's saw mill and dimension plant, by cutting
various types of board and drawer body parts, and manufacturing high pressure
laminated tops for its office furniture. If, for any reason, the Company's
existing sources of supply for any of its raw materials became unable to
service the Company, the Company believes its furniture manufacturing
operations would not be adversely affected because there are adequate
alternate sources of supply. Loss of any one or several sources of supply
would not have a material adverse effect on the Company as ample alternative
sources exist.
The Company owns or uses the following trademarks in
connection with its furniture products, which trademarks are due to expire
on the dates indicated below:
<TABLE>
<CAPTION>
Expiration
Trademark Product Date
--------- ------- ----------
<S> <C> <C>
TOP GUARD All DMI products 2002
Wood Classics
Furniture Company Office Furniture 2006
Carolina Desk Company All DMI products 2008
DMI All DMI products 2009
DMI Furniture, Inc. All DMI products 2009
Wood Manor All DMI products 2007
DMI Trading Company All DMI products Pending
Cyber City Furniture Warehouse All DMI products 2007
Carolina Classics Office
Furniture Company All DMI products Pending
Wynwood All DMI products Pending
Homestyles All DMI products Pending
</TABLE>
It is not common in the furniture industry to obtain a patent for a
furniture design. If a particular design of a furniture manufacturer is well
accepted in the marketplace, it is common for other manufacturers to imitate
the same design without recourse by the furniture manufacturer who initially
introduced the design. The Company often engages independent designers to
work in conjunction with its own personnel in designing furniture products.
The Company's sales have historically not been subject to material
seasonal fluctuations. However, as the Company's seasonal promotions of
imported furniture increase, the sales may be more subject to quarterly
fluctuations. See Note 10 to the consolidated financial statements.
It is the furniture industry's and the Company's practice to grant
extended payment terms from time to time to promote sales of products. From
time to time, the Company extends payment terms by 30 to 60 days in an
attempt to stimulate sales of its products. The frequency of the special
payment terms depends upon general business conditions, but generally
extended terms are offered only once or twice per year and then only on
certain products. These special payment terms have not had, nor are they
expected to have in the future, any material impact on
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the Company's liquidity.
The Company's six largest customers accounted for approximately 51% of
the Company's total sales in fiscal 1998. One customer, Sam's Club division
of Wal-Mart Stores, Inc., accounted for more than 10% of the Company's total
net sales for fiscal 1998. The loss of more than one of these customers at
the same time or one of the largest six could have a materially adverse
effect on the business of the Company. As of August 29, 1998, one customer
accounted for approximately 23% of total accounts receivable. The Company's
customers include large furniture chain store retailers, wholesale clubs,
catalog retailers, and independent distributors, as well as numerous smaller
retailers.
The furniture industry is extremely competitive. The Company competes
in the national market for low and medium-priced furniture. Due to the
fragmented nature of the furniture manufacturing industry and the
unavailability of complete financial reports for all its competitors, the
Company is unable to accurately state its rank in the industry. There are,
however, a large number of furniture manufacturers with substantially greater
sales and greater economic resources than the Company, a number of which are
subsidiaries or divisions of large national companies. The principal methods
of competition in the furniture industry are design, pricing, sales force,
customer service, and manufacturing location.
The Company believes it is a leading producer and marketer of popular
priced "promotional" bedroom furniture, home office furniture, and wood
office furniture.
The Company employs approximately 441 employees, of whom approximately
156 are covered by collective bargaining contracts. One contract covering 77
employees expires during fiscal 1999. The Company presently does not
anticipate a strike or work stoppage at any of its facilities. However, it
cannot be assumed that labor difficulties will not be encountered in the
future.
Item 2. PROPERTIES.
The Company's principal offices are located in 10,336 square feet of
leased office space in Louisville, Kentucky.
The Company owns three operating furniture manufacturing plants located
in: Huntingburg, Indiana (78,910 square feet, and 100,000 square feet); and
Ferdinand, Indiana (117,823 square feet); a saw mill and a dimension parts
plant located in Ferdinand, Indiana; and a fabrication plant in Huntingburg,
Indiana (98,000 square feet).
In addition, the Company owns a 235,000 square foot warehouse
located in Huntingburg, Indiana.
The Company completed construction during fiscal 1998 of a 100,000
square foot warehouse in Huntingburg, Indiana on its existing property. The
main purpose of this new building is warehousing and distribution of the
Company's various product lines.
The Company closed its Gettysburg, Pennsylvania manufacturing plant and
warehouse
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during fiscal 1996. See Note 12 to the financial statements for additional
information.
All of the Company's properties are encumbered by mortgages held by its
bank. See Note 2 to the consolidated financial statements.
The productive capacity and extent of utilization of each of the
Company's manufacturing facilities for the fiscal year ended August 29, 1998
are set forth in the table below. "Productive capacity" is defined for this
purpose as gross sales dollars produced both for outside sales and internal
integration, working fifty hours per week on a single shift with the existing
number of employees and no material investments in machinery and equipment or
change in product mix. The Company has on occasion operated more than one
shift at one of its plants and may add shifts to other plants in the future
to increase capacity.
<TABLE>
<CAPTION>
Fiscal 1998
Facility Capacity Production %Utilized
- -------- -------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Ferdinand, Ind. Plant $16,058 $11,671 73%
Huntingburg, Ind. 5th St. Plant 22,612 16,831 74%
Huntingburg, Ind. Chestnut
Street Plant 18,780 15,723 84%
Huntingburg, Ind. Fabricator 9,105 8,277 91%
Ferdinand, Ind. Sawmill/
Dimension Plant 7,349 7,018 96%
------- ------- ---
$73,904 $59,520 81%
------- ------- ---
------- ------- ---
</TABLE>
Item 3. LEGAL PROCEEDINGS.
The Company is currently subject to claims under federal and state
environmental laws based on allegations that the Company had hazardous
substances disposed of at three waste disposal sites. After depositing
$57,000 in a trust fund under the terms of a tentative settlement of claims
arising from one site and paying its portion of preliminary investigation and
remediation costs at the other two sites, the Company retains a reserve of
approximately $42,000 against potential environmental liabilities. Due to
the limited nature of the Company's involvement in these environmental
proceedings, the availability of certain defenses, and the involvement of
many other parties with substantial financial resources in the proceedings,
the Company does not anticipate, based on currently available information,
that potential environmental liabilities arising from these proceedings are
likely to exceed the amount of the Company's reserve by an amount that would
have a material effect on the Company's financial condition, results of
operations or cash flows. Expenses for the year to date were not material.
The Company is also a defendant in various lawsuits arising in the
normal course of business, including two other environmental matters. In
management's opinion, these lawsuits are not material to the results of
operations or financial position of the Company, or are adequately covered
by insurance.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
which required a vote of security holders.
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Part II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
(a) Price Range of Common Stock
The Company's Common Stock is traded in the over-the-counter market and
is quoted on NASDAQ under the trading symbol DMIF. The following table sets
forth the high and low bid quotations, as reported by NASDAQ for the
Company's Common Stock, for each fiscal quarter indicated. The quotations
represent prices between dealers, do not include commissions, mark-ups or
mark-downs and may not represent actual transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
Price Price Price
----- ----- -----
<S> <C> <C>
1st Quarter of 1997 $ 2.25 $ 1.56
2nd Quarter of 1997 $ 3.31 $ 2.13
3rd Quarter of 1997 $ 3.00 $ 2.38
4th Quarter of 1997 $ 3.31 $ 2.44
1st Quarter of 1998 $ 3.25 $ 2.63
2nd Quarter of 1998 $ 3.00 $ 2.63
3rd Quarter of 1998 $ 3.75 $ 2.50
4th Quarter of 1998 $ 3.63 $ 2.82
</TABLE>
(b) Approximate Number of Equity Security Holders
Title of Class- Common Stock, $.10 Par Value
Approximate Number of Stockholders as of August 29, 1998 - 1,594
(c) Dividend History
No dividends have been paid on the Registrant's Common Stock since its
issuance on November 11, 1977.
(d) Dividend Policy
Payment of dividends will be within the discretion of the Company's
Board of Directors and will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company. At
the present time, the Company's anticipated capital requirements are such
that it intends to follow a policy of retaining earnings in order to finance
the development of its business and the retirement of its debt. In addition,
the Company's present financing agreement with Bank One, Indiana, N.A.
prohibits the payment of dividends on common stock without the written
consent of the bank. See Notes 2 and 5 to the consolidated financial
statements.
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ITEM 6
DMI FURNITURE, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------
August 29, August 30, August 31, September 2, August 27,
1998 1997 1996 1995 1994
---------- ---------- ---------- ------------ ------------
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $64,727 $56,434 $56,563 $67,773 $60,932
Net income from continuing operations 1,975 2,416 376(4) 804 1,101(3)
Diluted earnings per common share $.07(5) $.40 $.07(4) $.14 $.19
Total assets $41,329 $35,551 $31,178 $38,512 $40,041
Long-term debt and capital
lease obligations 22,917 14,857 13,661 21,037 20,352
</TABLE>
Notes to selected financial data:
Note 1 -- This summary should be read in conjunction with the related
financial statements and notes.
Note 2 -- Diluted earnings per common share are based on the weighted average
number of common and common equivalent shares outstanding during the
period.
Note 3 -- Does not include $1,795,000 credit or $.31 per share for change in
accounting principle, and $(50,000) or ($.01) per share charge for
extraordinary item.
Note 4 -- Includes plant closing reserve which reduced net income and
earnings per common share by approximately $538,000 and $.09 per
share respectively.
Note 5 -- Includes charge from preferred stock redemption of $1,666,000 which
impacted diluted earnings per common share by approximately $.40.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has a $26,800,000 credit agreement with Bank One,
Indianapolis, N.A. comprised of a $5,300,000 term loan, a $1,500,000 term
loan, and a maximum revolving master note loan commitment of $20,000,000
(outstanding balance $11,833,000 as of August 29, 1998). On August 29, 1998,
the Company had $4,675,000 additional borrowings available under the formula
for calculating its available borrowings. See Note 2 to the consolidated
financial statements.
Demands for funds relate to payments for raw materials and other
operating costs, resale merchandise, debt obligations, and capital
expenditures. The Company's ability to generate cash adequate to meet short
and long-term needs results from the collection of accounts receivable and
from its ability to borrow funds. The Company's days of sales outstanding of
accounts receivable averaged 53 days for fiscal 1998 and 52 days for fiscal
1997. Inventory turnover was 3.5 in fiscal 1998 and 3.9 in fiscal 1997.
The decrease in turnover was primarily a result of initial inventory build-up
of the Company's new product lines. The Company believes it will be able to
generate enough cash in fiscal 1998 from operations to make scheduled
payments on its long term debt.
On August 28, 1998 the Company retired its Series C Preferred Stock. Of
the 1,995,050 Series C shares outstanding, 1,557,593 shares were redeemed for
$3.00 per share by the Company as stated in its Certificate of Incorporation,
and 437,457 Series C shares were converted into 722,762 common shares at the
option of the holders. The redeeming shareholders were paid a final dividend
of $75,319 on the date of redemption. The redemption of the 1,557,593 Series
C shares resulted in a $1,666,000 charge to income applicable to common stock
because the $3.00 redemption price exceeded the par value of the Series C
stock of $2.00, and the Company recognized approximately $109,000 in
transaction costs. The redemption was funded through term bank debt and
cash. This transaction will result in a substantial anti-dilutive effect on
earnings per common share in future periods.
Key elements of the Consolidated Statement of Cash Flows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net cash provided (used) by operating activities $(1,211) $ 23 $8,504
Cash provided (used) in investing activities (2,234) (858) 140
------- ----- ------
Net cash flows from operating and investing activities (3,445) (835) 8,644
Cash provided (used) by financing activities 4,025 1,251 (8,616)
------- ----- ------
Net change in cash and cash equivalents $ 580 $ 416 $ 28
------- ----- ------
------- ----- ------
</TABLE>
During fiscal 1998, the Company used cash flows for operations of
$1,211,000 primarily to finance finished goods inventories for its new
divisions and new commercial office groups as well as to finance increased
accounts receivables from substantially increased sales. During fiscal 1997,
the Company provided cash flows from operations of $23,000 from net income of
$2.4 million offset primarily by funds used to finance inventories of
expanding office and home office furniture lines as well as to finance
seasonal inventories of wood at the Sawmill to
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minimize spot purchase premiums during the fall and winter months. In
addition, cash was used to finance accounts receivable resulting from the
sales increase during the fourth quarter. During fiscal 1996 , the Company
provided cash flows from operating activities of $8,504,000. This positive
cash flow was due primarily to the success of the Company's asset
consolidation plan and particularly the inventory reduction as well as the
reduction in accounts receivable.
Cash flows of $2,234,000 were used for investing activities during
fiscal 1998 primarily to build the new warehousing and distribution facility
as well as to finish a capital project at the Company's sawmill and dimension
plant. Investing activities used $858,000 during fiscal 1997 primarily to
finance capital expenditures, in particular the building addition at the
Dimension Plant to accommodate the lumber yield optimization equipment, to
finance the sales automation hardware and software, and to finance ongoing
plant modernization. Funds used for these expenditures were partially offset
by $193,000 in proceeds from the sale of certain environmental permits.
Investing activities provided $140,000 in fiscal 1996 through the sale of
certain idle assets in Gettysburg, Pennsylvania as well as the final payments
on an Alabama idle property sold several years ago.
Net cash flows from financing activities of $4,025,000 for fiscal 1998
were used to finance the previously mentioned current assets and capital
expenditures as well as to retire the Series C Preferred Stock. Financing
activities during fiscal 1997 of $1,251,000 were provided primarily by the
revolving line of credit. Financing activities during fiscal 1996 of
$8,616,000 were primarily used to pay down debt with funds generated by
operations and investing activities previously described.
The Company does not believe any events are probable which would
materially change its present liquidity position, which is adequate to
satisfy known demands for funds for operations and to pay bank and other debt.
The Company's fiscal 1999 budget for capital expenditures is
approximately $350,000. The Company anticipates that its 1999 internal cash
flow and additional borrowings available under its credit agreement will be
sufficient to pay for these expenditures.
The Company is currently subject to claims under federal and state
environmental laws based on allegations that the Company had hazardous
substances disposed of at three waste disposal sites. After depositing
$57,000 in a trust fund under the terms of a tentative settlement of claims
arising from one site and paying its portion of preliminary investigation and
remediation costs at the other two sites, the Company presently retains a
reserve of approximately $42,000 against potential environmental liabilities.
Due to the limited nature of the Company's involvement in these
environmental proceedings, the availability of certain defenses, and the
involvement of many other parties with substantial financial resources in the
proceedings, the Company does not anticipate, based on currently available
information, that potential environmental liabilities arising from these
proceedings are likely to exceed the amount of the Company's reserve by an
amount that would have a material effect on the Company's financial
condition, results of operations or cash flows. Expenses for the year to
date were not material. See "Item 3. Legal Proceedings" and Note 4 of Notes
to Consolidated Financial Statements.
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The Company does not believe any events are probable which would
materially change its present liquidity position, which is adequate to
satisfy known demands for funds for operations and to pay bank and other
debt.
The Company has received certifications or representations from the
vendors of its critical hardware, system software, and application software
that those products are Year 2000 ready. The Company employs IBM AS400
hardware, IBM OS400 operating system, and MAPICS manufacturing and production
information control system for the large majority of its system needs all of
which was subject to the above mentioned certifications. The Company has
tested this hardware and software and found its Year 2000 readiness to be as
certified. The Company has not incurred any material costs in its Year 2000
readiness plans nor does it anticipate any material costs in the future. The
Company has received representations or certifications from its largest
suppliers representing that they are Year 2000 compliant. In the event that
any of the Company's larger suppliers are not Year 2000 compliant, the
Company believes that it has alternative sources for its raw material needs.
The Company has received representations from customers representing
approximately 50% of its annual sales that those customers are Year 2000
compliant. The Company has received representation from its primary
depository and lender bank that they are Year 2000 compliant. Contingency
plans will be developed during fiscal 1999 for third parties that the Company
believes have significant Year 2000 operational risks. Even given best
efforts and execution of the aforementioned planning and testing, disruptions
and unexpected business problems may occur as a result of the Year 2000
issue.
RESULTS OF OPERATIONS
Net sales for fiscal 1998 increased by $8,293,000 or approximately 15%
over fiscal 1997. This increase was primarily volume driven and was the
result of increased home office sales and sales by the Company's new Wynwood
division. The sales changes were as follows: Home office, Wynwood, and other
residential furniture sales excluding promotional bedroom increased by
approximately 65%; promotional bedroom sales decreased by approximately 9%;
and commercial office sales were approximately the same as the previous year.
Net sales for fiscal 1997 increased by $871,000 or 2% over those of fiscal
1996. This increase was the result of increased commercial and home office
furniture sales offset by lower bedroom furniture sales. The sales change
was as follows: office furniture sales increased by 13%; Home office and
other residential furniture sales excluding bedroom increased by 2%; and
bedroom sales decreased by 11% due to weak retail demand for budget-priced
bedroom furniture.
As a percentage of sales, cost of sales was 77.7% of sales for fiscal
1998, 76.6% of sales for fiscal 1997, and 80.9% of sales for fiscal 1996.
The increase in cost of sales as a percentage of sales in fiscal 1998 was
primarily a result of lower utilization of the Company's production
facilities and a lower margin product sales mix. The decrease in cost of
sales as a percentage of sales in fiscal 1997 from fiscal 1996 was the result
of the Company's asset consolidation program initiated in fiscal 1996 and in
particular the consolidation of the Gettysburg operations into existing
Indiana operations, thus significantly lowering the Company's overhead. Also
contributing to the improvement was the increased production and favorable
sales mix towards higher margin products, as well as significant improvement
in the Company's two internal supplier plant operations.
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As a percentage of sales, selling, general and administrative expenses
were 15.9% of sales for fiscal 1998, 15.3% of sales for fiscal 1997, and
14.1% of sales for fiscal 1996. The slight increase in fiscal 1998 was
primarily due to the sales and marketing related expenses of the Company's
new Wynwood and Homestyles divisions. The increase in fiscal 1997 was
primarily due to higher sales and marketing expenses, customer service
expenses, information system expenses, and general administrative expenses.
The Company permanently closed its Gettysburg, Pennsylvania
manufacturing plant and warehouse facilities and consolidated the production
and distribution activities of those operations into its Huntingburg, Indiana
facilities during the second quarter of fiscal 1996. The Company recorded a
pre-tax charge of approximately $995,000 in the first quarter of fiscal 1996
related to this closing. During the fourth quarter of fiscal 1996 the Company
sold the Gettysburg, Pennsylvania manufacturing plant and realized gross
proceeds of approximately $375,000. Based upon this transaction
approximately $127,000 of the book provision related to the initial recording
of property, plant and equipment at net realizable value was not needed. The
net plant closing charge included in the consolidated statements of income
was $868,000 for fiscal 1996. Consolidation of production and warehousing
into the Indiana facilities resulted in lower manufacturing and warehousing
overhead and plant administrative costs. During the first quarter of fiscal
1997 the Company sold the Gettysburg, Pennsylvania warehouse and realized
gross proceeds of approximately $130,000. Based upon this transaction
approximately $118,000 of the book provision related to the initial recording
of property, plant and equipment was not needed.
Net interest expense increased to $1,060,000 in fiscal 1998 from
$1,005,000 in fiscal 1997 primarily due to higher loan balances to support
the increased accounts receivable and inventory balances. Net interest
expense decreased in fiscal 1997 to $1,005,000 from $1,324,000 in fiscal 1996
because of lower average debt balances as well as lower borrowing rates.
Gain On Disposal Of Property, Plant and Equipment - During fiscal 1997
the Company sold certain State of Pennsylvania environmental permits for
approximately $192,000 which had no carrying value. During fiscal 1996, the
Company sold an idle Gettysburg, Pennsylvania manufacturing plant and house
and recorded a total gain of approximately $44,000 and also received final
payment on a note from the sale of an idle manufacturing plant in Alabama
over five years ago and recorded an approximate gain of $26,000 on the final
payment.
EFFECTS OF INFLATION
Inflation affects the Company's business principally in the form of cost
increases for material and wages. Management has attempted to cover
increased costs by increasing sales prices to the extent permitted by
competition. Historically, the Company has not been able to raise sales
prices enough so as to offset all increased costs during all past years. The
Company believes that its competitors also have not been able to raise their
prices so as to offset all increased costs and therefore does not feel that
the Company has incurred any material adverse effect on its competitive
position. The Company believes that it has been able to minimize the effects
of general inflation in the past by improving its manufacturing and
purchasing efficiency and increasing its employee productivity. There can be
no assurance that inflation will not have a material effect on the Company's
business in the future.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure with regard to financial
instruments is to changes in interest rates. Historically, the Company has
not used derivative financial instrumental to manage exposure to market risk
associated with interest rate movements. At August 29, 1998, a hypothetical
100 basis points increase in short term interest rates would result in a
reduction of approximately $229,000 in annual pretax earnings. This estimate
assumes no change in the volume or composition of debt at August 29, 1998.
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DMI FURNITURE, INC.
FORM 10-K
ITEMS 8, 14(a) 1 AND 2 AND 14(d)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the registrant required to
be included in Item 8 are listed below:
Page
Consolidated Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of August 29, 1998 and
August 30, 1997 F-2, F-3
Consolidated Statements of Income for the years ended
August 29, 1998, August 30, 1997 and
August 31, 1996 F-4
Consolidated Statements of Stockholders' Equity for
the years ended August 29, 1998, August 30, 1997,
and August 31, 1996 F-5
Consolidated Statements of Cash Flows for the years
ended August 29, 1998, August 30, 1997,
and August 31, 1996 F-6, F-7
Notes to Consolidated Financial Statements F-8 - F-20
The following financial statement schedule of the registrant is included in
Item 14(d):
Page
----
II----Valuation and Qualifying Accounts S-1
Schedules other than those mentioned above are omitted because the conditions
requiring their filing do not exist or because the required information is
presented in the consolidated financial statements, including the notes thereto.
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Page 15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DMI Furniture, Inc.:
We have audited the accompanying consolidated balance sheets of DMI
Furniture, Inc. (a Delaware corporation) and subsidiary as of August 29, 1998
and August 30, 1997 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 29, 1998. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DMI
Furniture, Inc. and subsidiary as of August 29, 1998 and August 30, 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended August 29, 1998 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index To
Consolidated Financial Statements and Schedules is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
October 16, 1998
Louisville, Kentucky
F-1
Page 16
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
August 29, 1998 and August 30, 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------- ------ ------
<S> <C> <C>
Current assets:
Cash $1,092,531 $512,367
Restricted cash - 1,080,196
Accounts receivable, less allowance for
doubtful accounts of $150,000 in 1998
and $141,000 in 1997 (Note 11) 10,251,735 9,148,551
Inventories (Note 9) 16,296,457 12,261,761
Other current assets 340,599 363,041
Current portion of deferred income taxes (Note 8) 934,837 792,160
----------- -----------
Total current assets 28,916,159 24,158,076
----------- -----------
Property, plant and equipment, at cost:
Land 753,572 753,572
Buildings and improvements 9,680,651 8,019,589
Machinery and equipment 11,054,830 10,829,509
Leasehold improvements 970,414 656,849
Construction in progress - 176,982
----------- -----------
22,459,467 20,436,501
Less accumulated depreciation 10,522,344 9,479,220
----------- -----------
Net property, plant and equipment 11,937,123 10,957,281
----------- -----------
Other assets:
Intangible pension asset 332,312 296,166
Other 143,744 139,865
----------- -----------
Total other assets 476,056 436,031
----------- -----------
Total assets $41,329,338 $35,551,388
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-2
Page 17
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
August 29, 1998 and August 30, 1997
(continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------ ------
<S> <C> <C>
Current liabilities:
Trade accounts payable $3,521,191 $2,890,459
Accrued liabilities (Note 9) 3,128,259 2,719,176
Accrued dividends on preferred stock (Note 5) - 399,010
Long-term debt due within one year (Note 2) 1,524,113 2,011,860
----------- -----------
Total current liabilities 8,173,563 8,020,505
----------- -----------
Long-term liabilities:
Long-term debt (Note 2) 21,392,911 12,845,587
Accrued pension costs (Note 7) 807,100 600,748
Deferred compensation (Note 7) 272,810 321,079
Deferred income tax (Note 8) 425,857 502,471
----------- -----------
Total long-term liabilities 22,898,678 14,269,885
----------- -----------
Commitments and contingencies (Notes 3 & 4)
Stockholders' equity: (Notes 5 & 6)
Series C convertible preferred stock, $2 par value, 1,995,050
shares outstanding in 1997, none outstanding in 1998 - 3,990,100
Common stock, $.10 par value, 9,600,000 shares
authorized, 3,892,013 shares outstanding
(3,152,483 in 1997) 389,201 315,248
Additional paid-in capital 16,183,216 15,341,172
Retained deficit (6,052,538) (6,385,522)
Minimum pension liability (262,782) -
----------- -----------
Total stockholders' equity 10,257,097 13,260,998
----------- -----------
Total liabilities and stockholders' equity $41,329,338 $35,551,388
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-3
Page 18
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended
------------------------------------------
August 29, August 30, August 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales (Note 11) $64,727,154 $56,434,443 $55,562,751
Cost of sales 50,291,032 43,257,757 44,948,772
------------ ------------ ------------
14,436,122 13,176,686 10,613,979
Selling, general and
administrative expenses 10,278,848 8,616,732 7,843,052
Plant closing reserve (Note 12) - (118,912) 868,000
Other income (expense):
Interest expense (1,140,800) (1,062,556) (1,335,956)
Interest income 81,304 58,354 12,314
Gain on disposal of property,
plant and equipment 9,378 195,642 74,685
Other 24,088 8,544 (45,127)
------------ ------------ ------------
(1,026,030) (800,016) (1,294,084)
------------ ------------ ------------
Income before provision for income taxes 3,131,244 3,878,850 608,843
Provision for income taxes (Note 8) (1,156,312) (1,463,025) (233,176)
------------ ------------ ------------
Net income $1,974,932 $2,415,825 $375,667
Net income applicable to common stock (Note 5) $308,550 $2,016,815 $375,667
Earnings per common share (Notes 1, 5, and 15):
Basic $0.09 $0.65 $0.13
Diluted $0.07 $0.40 $0.07
</TABLE>
See accompanying notes.
F-4
Page 19
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three years ended August 29, 1998
<TABLE>
<CAPTION>
Series C Number of Number of
Convertible Series C Common Additional Retained Minimum
Preferred Shares Common Shares Paid-In Earnings Pension
Stock Outstanding Stock Outstanding Capital (Deficit) Liability
------------ ------------ ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 2, 1995 $4,040,000 2,020,000 $297,003 2,970,026 $15,106,984 ($8,762,883) ($24,000)
Net income - - - - - 375,667 -
Dividends on preferred stock - - - - - (15,121) -
Minimum pension liability - - - - - - -
Conversion of stock (49,900) (24,950) 4,900 49,000 45,000 - -
Issuance of common stock - - 3,228 32,286 33,095 - -
---------- --------- -------- --------- ----------- ------------ ---------
BALANCES AT AUGUST 31, 1996 $3,990,100 1,995,050 $305,131 3,051,312 $15,185,079 ($8,402,337) ($24,000)
Net income - - - - - 2,415,825 -
Dividends on preferred stock - - - - - (399,010) -
Minimum pension liability - - - - - - 24,000
Issuance of common stock - - 10,117 101,171 156,093 - -
---------- --------- -------- --------- ----------- ------------ ---------
BALANCES AT AUGUST 30, 1997 $3,990,100 1,995,050 $315,248 3,152,483 $15,341,172 ($6,385,522) $0
Net income - - - - - 1,974,932 -
Redemption of preferred stock (3,115,186) (1,557,593) - - - (1,666,382) -
Conversion of preferred stock (874,914) (437,457) 72,276 722,762 802,638 - -
Dividends on preferred stock - - - - - 24,434 -
Minimum pension liability - - - - - - (262,782)
Issuance of common stock - - 1,677 16,768 39,406 - -
---------- --------- -------- --------- ----------- ------------ ---------
BALANCES AT AUGUST 29, 1998 - - $389,201 3,892,013 $16,183,216 ($6,052,538) ($262,782)
---------- --------- -------- --------- ----------- ------------ ---------
---------- --------- -------- --------- ----------- ------------ ---------
<CAPTION>
Total
-------------
<S> <C>
BALANCES AT SEPTEMBER 2, 1995 $10,657,104
Net income 375,667
Dividends on preferred stock (15,121)
Minimum pension liability -
Conversion of stock -
Issuance of common stock 36,323
-----------
BALANCES AT AUGUST 31, 1996 $11,053,973
Net income 2,415,825
Dividends on preferred stock (399,010)
Minimum pension liability 24,000
Issuance of common stock 166,210
-----------
BALANCES AT AUGUST 30, 1997 $13,260,998
Net income 1,974,932
Redemption of preferred stock (4,781,568)
Conversion of preferred stock 0
Dividends on preferred stock 24,434
Minimum pension liability (262,782)
Issuance of common stock 41,083
-----------
BALANCES AT AUGUST 29, 1998 $10,257,097
-----------
-----------
</TABLE>
See accompanying notes.
F-5
Page 20
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
August 29, August 30, August 31,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,974,932 $2,415,825 $375,667
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Depreciation and amortization 1,244,108 1,009,736 1,022,938
Amortization of loan closing costs 22,130 35,243 43,690
(Gain) loss on disposal of property,
plant and equipment 9,378 (195,642) (73,535)
Deferred income tax (219,291) 378,146 186,165
Changes in assets and liabilities:
Accounts receivable (1,103,184) (1,689,751) 3,179,702
Inventories (4,034,696) (2,408,560) 3,411,342
Other assets (3,567) 94,408 152,990
Trade accounts payable 630,732 (274,362) 30,196
Accrued pension costs (92,576) (107,910) 89,255
Deferred compensation (48,269) (55,411) (57,713)
Accrued liabilities 409,083 821,724 143,734
---------- ---------- ----------
Total adjustments (3,186,152) (2,392,379) 8,128,764
---------- ---------- ----------
Net cash provided (used) by operating activities (1,211,220) 23,446 8,504,431
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (2,292,252) (1,072,115) (537,959)
Payments received on notes receivable - - 135,750
Proceeds from the disposal of property,
plant and equipment 58,924 213,783 541,974
---------- ---------- ----------
Net cash provided (used) by investing activities (2,233,328) (858,332) 139,765
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-6
Page 21
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
August 29, August 30, August 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings from line-of-credit 24,671,660 23,000,000 15,898,000
Payments on line-of-credit (21,157,860) (20,650,000) (21,950,000)
Additions to long-term debt 5,726,584 - 50,380
Payments of long-term debt (1,180,807) (1,153,971) (1,374,366)
Restricted cash 1,080,196 (18,659) (835,830)
Cash dividends on preferred stock (374,576) - (404,537)
Proceeds from stock options exercised 41,083 73,337 -
Retirement of preferred stock (4,781,568) - -
---------- ---------- ----------
Net cash provided (used) by financing
activities 4,024,712 1,250,707 (8,616,353)
---------- ---------- ----------
Increase in cash 580,164 415,821 27,843
Cash, beginning of year 512,367 96,546 68,703
---------- ---------- ----------
Cash, end of year $1,092,531 $512,367 $96,546
---------- ---------- ----------
---------- ---------- ----------
Cash paid for:
Interest (net of amounts capitalized) $1,013,539 $1,069,502 $1,368,703
---------- ---------- ----------
---------- ---------- ----------
Income taxes $1,164,290 $701,597 $85,863
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-7
Page 22
<PAGE>
DMI FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY - The consolidated financial statements include DMI
Furniture, Inc. and its wholly owned subsidiary, DMI Management, Inc. (DMI or
Company). All significant inter-company accounts and transactions have been
eliminated. DMI Furniture, Inc. operates in one industry - the Company
manufactures, imports, and sells low to medium priced residential furniture,
commercial and home office furniture, desks, accent furniture, and tables and
chairs. Its principal distribution channels are multi-market furniture
retailers, distributors, independent retailers, catalogers, and warehouse
clubs located primarily throughout the United States. The Company's fiscal
year consists of a fifty-two week period ending on the last Saturday in
August. Approximately every seven years the Company's fiscal year consists
of fifty-three weeks. The fiscal years presented in this report all consist
of fifty-two weeks.
INVENTORIES - Inventories are valued at the lower of cost (first-in,
first-out method) or market.
DEPRECIATION - Depreciation is provided on the basis of estimated useful
lives of the property, plant and equipment, using the straight-line method.
The useful lives of property, plant and equipment are as follows: Building
and leasehold improvements, 8-35 years; and machinery and equipment, 3-13
years.
INCOME TAXES - The Company recognizes deferred tax assets and liabilities
based upon the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. (See Note 8 for additional information).
EARNINGS PER COMMON SHARE - Earnings per common share are based on the
weighted average number of common and common equivalent shares outstanding
during the period (1998- 4,214,781; 1997 - 6,006,353; 1996 - 5,704,628),
and assumes the conversion of the Series C Preferred Stock into common stock.
(See Note 15 for additional information)
CONSOLIDATED STATEMENTS OF CASH FLOWS - For purposes of the Consolidated
Statements of Cash Flows the Company considers all highly liquid debt
instruments with an initial maturity of three months or less at the date of
purchase to be cash equivalents.
ADVERTISING - The Company expenses advertising-type costs as incurred.
Advertising expense was approximately $1,211,000, $857,000 and $578,000 in
fiscal 1998, 1997 and 1996 respectively.
ACCOUNTING ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
F-8
Page 23
<PAGE>
LONG-LIVED ASSETS - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" (SFAS No. 121). This standard establishes accounting standards for
evaluating the potential impairment of long-lived assets, certain identifiable
intangibles and goodwill. The Company adopted the provisions of SFAS No. 121 in
the first quarter of fiscal 1997 and the application of the standard has not
resulted in an impairment loss.
REVENUE RECOGNITION - The Company recognizes sales of its products when the
products are shipped to customers.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Economic Development Revenue
Bonds; payable in twelve equal monthly
payments beginning in fiscal 2002;
weekly adjustable coupon interest rate
(3.6% on 8/29/98) and payable monthly. $2,230,000 $2,545,000
Economic Development Revenue
Bonds; payable in twelve equal monthly
payments beginning in fiscal 2003;
weekly adjustable coupon interest rate
(3.6% on 8/29/98) and payable monthly. 2,020,000 2,275,000
Term note payable to bank; due in
45 monthly principal installments of
$116,666.67 through 5/31/02;
interest at prime+.25% (8.5%)
or LIBOR+2.5% (7.5%). 5,300,000 0
Term note payable to bank; due in
60 monthly principal installments of
$8,333.33 and final payment of $1 million
on 8/31/03; interest at prime+.25%
(8.5%) or LIBOR+2.5% (7.5%). 1,500,000 0
Term note payable to bank; due
in monthly principal installments of
$33,333; interest at prime (8.5%)
or LIBOR+1.75% (7.625%). 0 1,645,445
$20,000,000 revolving master note
payable to bank; interest at prime+.25%
(8.5%) or LIBOR+2.5% (7.50%);
expires December, 2000. 11,833,419 8,319,619
Capital leases on equipment; payable
quarterly through March, 2000;
interest at various rates. 33,605 72,383
----------- -----------
22,917,024 14,857,447
Less portion due within one year 1,524,113 2,011,860
----------- -----------
$21,392,911 $12,845,587
----------- -----------
----------- -----------
</TABLE>
F-9
Page 24
<PAGE>
With respect to the term notes and revolving loan above, the Company has
the option of borrowing based on prime rate + .25% or London Interbank
Offered Rate (LIBOR) + 2.50%. As of August 29, 1998, $11 million of the
revolver note balance and $3 million of the term loan were LIBOR priced.
Substantially all assets are pledged to collateralize long-term debt.
On August 29, 1998, the Company had $4,675,000 additional borrowings
available under the formula for calculating its available borrowings.
With respect to the Economic Development Revenue Bonds (Bonds), the
Company has the option to establish the Bonds' interest rate form (variable
or fixed interest rate). When the Bonds are in the variable rate form, or at
the end of a fixed interest rate period, the Bondholders reserve the right to
demand payment on the Bonds. In the event that any of the Bondholders
exercise their rights, a remarketing agent is responsible for remarketing the
Bonds on a best efforts basis for not less than the outstanding principal and
accrued interest. In the event the Bonds are not able to be remarketed the
lender is committed to providing financing for up to 372 days. The letters
of credit expire in 1999 unless earlier extended by the bank. As a result of
these bank commitments, the Bonds are classified as long-term debt in the
accompanying balance sheet.
The aggregate maturities of long-term debt and capital leases for the
next five fiscal years and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $1,524,113
2000 1,509,485
2001 13,333,419
2002 1,571,666
2003 2,295,001
Thereafter 2,683,340
-----------
$22,917,024
-----------
</TABLE>
The Company's bank financing agreement contains restrictive covenants
that require the Company, among other things, to maintain a fixed charge
ratio, tangible net worth, and ratio of total funded debt to EBITDA, all as
defined in the bank financing agreement. The financing agreement further
restricts the Company from, among other things, without prior written
consent, redeeming or purchasing any of its outstanding capital stock;
acquiring, merging or consolidating with any other business; paying
dividends; and, acquiring capital assets in excess of the annual
depreciation.
3. LEASE COMMITMENTS
The Company leases certain of its facilities and equipment under operating
leases. The leases generally require the Company to pay taxes, insurance,
maintenance and utilities. Some of the leases contain renewal options.
F-10
Page 25
<PAGE>
Future minimum lease payments at August 29, 1998 under these leases are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $684,416
2000 480,504
2001 269,824
2002 214,678
2003 7,966
----------
Total minimum payments $1,657,388
----------
----------
</TABLE>
Rent expense under operating leases charged to operations during fiscal
years 1998, 1997 and 1996 was $784,525, $593,949 and $747,412, respectively.
4. COMMITMENTS AND CONTINGENCIES
The Company is currently subject to claims under federal and state
environmental laws based on allegations that the Company had hazardous
substances disposed of at three waste disposal sites. After depositing
$57,000 in a trust fund under the terms of a tentative settlement of claims
arising from one site and paying its portion of preliminary investigation and
remediation costs at the other two sites, the Company retains a reserve of
approximately $42,000 against potential environmental liabilities. Due to
the limited nature of the Company's involvement in these environmental
proceedings, the availability of certain defenses, and the involvement of
many other parties with substantial financial resources in the proceedings,
the Company does not anticipate, based on currently available information,
that potential environmental liabilities arising from these proceedings are
likely to exceed the amount of the Company's reserve by an amount that would
have a material effect on the Company's financial condition, results of
operations or cash flows. Expenses for the three years presented were not
material.
The Company has entered into individual employment agreements with
certain of its officers which expire at various times through August 31,
2000. Certain of these agreements provide for lump sum payments in the event
employment is terminated as a result of a change in ownership of the Company
as defined in the agreements.
5. CONVERTIBLE PREFERRED STOCK
On August 28, 1998 the Company retired its Series C Preferred Stock. Of
the 1,995,050 Series C shares outstanding, 1,557,593 shares were redeemed for
$3.00 per share by the Company as stated in its Certificate of Incorporation,
and 437,457 Series C shares were converted into 722,762 common shares at the
option of the holders. The redeeming shareholders were paid a final dividend
of $75,319 on the date of redemption. The redemption of the 1,557,593 Series
C shares caused a $1,666,000 charge to income applicable to common stock
because the $3.00 redemption price exceeded the par value of the Series C
stock of $2.00, and the Company recognized approximately $109,000 in
transaction costs. The redemption was funded through term bank debt and cash.
There were $399,010 of preferred dividends accrued in fiscal 1997 of which
$374,576 were paid in fiscal 1998.
F-11
Page 26
<PAGE>
6. STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued To Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
Had compensation cost for all option grants to employees and directors
been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have affected as follows. Because the
method of accounting required by SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Net income: As reported $1,975,000 $2,416,000 $376,000
Proforma 1,907,000 2,386,000 369,000
Diluted earnings per common share:
As reported $.07 (1) $.40 $.07
Proforma .06 (1) .40 .06
</TABLE>
(1) Net income applicable to common stock was used to compute fiscal 1998
diluted earnings per common share. See Note 5 for additional information.
Stock options granted prior to February 22, 1994 were granted pursuant
to the Amended Employee Incentive Stock Option Plan approved by stockholders
February, 1989. In February, 1994 the stockholders approved the 1993 Long
Term Incentive Stock Plan For Employees under which the Company is authorized
to issue options to selected key employees to acquire a maximum of 600,000
shares of its common stock in addition to option shares outstanding at the
time of its adoption. The option price cannot be less than 100% of the fair
market value of the stock at date of grant for Incentive Stock Options (or
110% for a 10% beneficial owner), and not less than 50% of the fair market
value at date of grant for Non-Qualified Stock Options. Options vest at the
cumulative rate of 33%, 67%, and 100% on the first three anniversaries of the
date of grant and expire ten years from date of grant. A summary of the
option transactions during the three years ended August 29, 1998 follows:
F-12
Page 27
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 707 $1.80 655 $1.66 606 $1.66
Granted 100 2.88 85 2.77 97 1.63
Exercised (2) 1.38 (33) 1.38 - -
Expired - - - - (48) 1.57
--- --- ---
Outstanding-end of
year 805 $1.92 707 $1.80 655 $1.66
--- --- ---
Exercisable at end of
year 616 $1.71 557 $1.68 559 $1.66
Weighted-average fair
value of options granted
during the year $1.64 $1.66 $ .89
</TABLE>
Exercise prices for options outstanding as of August 29, 1998 ranged from
$1.38 to $3.00. The weighted-average remaining contractual life of those
options is 6.1 years.
Included in the above are non-qualified options for 180,000 shares of
common stock for $1.38 to $2.50 per share to certain employees/directors
which have a total option price of approximately $390,000. The options are
immediately exercisable for up to ten years after the date of grant.
The Company has a stock option plan under which the Company is authorized
to issue options to non-employee directors to acquire a maximum of 160,000
shares of its common stock for options granted prior to March 15, 1998. A
new plan was adopted effective March 15, 1998 authorizing the Company to
issue options to non-employee directors to acquire a maximum of 100,000
shares of its common stock. The option price is the closing bid price for
shares on NASDAQ on the date of grant. Options vest at the cumulative rate
of 50% and 100% on the first two anniversaries of the date of grant and
expire ten years from date of grant. A summary of the option transactions
during the three years ended August 29, 1998 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
------- --------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 52 $2.15 90 $2.15 87 $2.17
Granted 6 2.81 21 2.81 3 1.56
Exercised (3) 1.98 (14) 1.98 - -
Expired - 2.25 (45) 2.25 - -
----- --- --
Outstanding-end of
year 55 $2.38 52 $2.38 90 $2.15
----- --- --
----- --- --
Exercisable at end of
year 39 $2.12 30 $2.12 85 $2.19
Weighted-average fair
value of options granted
during the year $1.73 $1.70 $ .94
</TABLE>
F-13
Page 28
<PAGE>
Exercise prices for options outstanding as of August 29, 1998 ranged from
$1.19 to $3.50. The weighted-average remaining contractual life of those
options is 6.3 years.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 1998, 1997, and 1996: expected volatility
of 41.7 percent; risk-free interest rate of 4.62 percent; expected lives for
options of 10 years; and expected dividend yield of 0 percent based on the
Company's history of no dividend payments on common stock.
7. PENSION PLANS
The Company has a defined benefit pension plan which covers substantially
all hourly employees. Pension costs charged to operations were approximately
$116,000 in fiscal 1998, $142,000 in fiscal 1997, and $169,000 in fiscal 1996.
Retirement benefits are based on years of credited service multiplied by a
dollar amount negotiated under collective bargaining agreements. The Company's
policy is to fund normal costs and amortization of prior service costs at a
level which is equal to or greater than the minimum required under ERISA.
Net pension costs for the defined benefit plan in fiscal 1998, fiscal 1997
and fiscal 1996 was computed as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits
earned $59,554 $56,352 $ 70,598
Interest cost on projected
benefit obligation 205,198 197,872 191,020
Actual return on plan assets (172,984) (135,773) (126,034)
Amortization of transition
obligation 9,907 9,907 13,686
Amortization of unrecognized
prior service cost 13,990 13,990 19,327
-------- -------- --------
Net pension expense $115,665 $142,348 $168,597
-------- -------- --------
</TABLE>
The funded status of the defined benefit plan at August 29, 1998 and August
30, 1997 is shown below:
F-14
Page 29
<PAGE>
<TABLE>
<CAPTION>
Actuarial present value of
accumulated plan benefits:
1998 1997
------ ------
<S> <C> <C>
Vested $(3,020,550) $(2,481,792)
Non-vested (53,109) (99,171)
----------- -----------
Accumulated/projected benefit
obligation (3,073,659) (2,580,963)
Plan assets at fair market
value 2,266,559 1,980,215
----------- -----------
Projected benefit obligation
in excess of plan assets (807,100) (600,748)
Unrecognized transition
liability 118,878 128,785
Unrecognized net (gain)/loss 398,154 (60,073)
Unrecognized prior service cost 213,434 227,454
Adjustment required to
recognize minimum liability (730,466) (296,166)
----------- -----------
Accrued pension liability $ (807,100) $ (600,748)
----------- -----------
</TABLE>
The projected benefit obligation for service rendered was determined
using an assumed discount rate of 7.25% and an assumed rate of return on plan
assets of 8.25%. The assets of the plan are invested in equity and fixed
income securities.
The Company has a defined contribution 401(k) type retirement plan for
salaried personnel and one for hourly personnel. Costs charged to
operations in fiscal 1998, fiscal 1997 and fiscal 1996 for the salaried plan
were $62,600, $68,800 and $57,000, respectively. Costs charged to operations
in fiscal 1998 and fiscal 1997 for the hourly plan were $89,100 and $69,900.
The Company had a non-qualified deferred compensation plan that was
terminated for all non-retired executive participants during fiscal 1989.
The present value of future payments under the plan accrued at August 29,
1998 and August 30, 1997 is approximately $273,000 and $321,000,
respectively. Plan costs charged to operations were approximately $29,000 in
fiscal 1998, $35,000 in fiscal 1997, and approximately $40,000 in fiscal 1996.
F-15
Page 30
<PAGE>
8. Income taxes
The tax effect of each temporary timing difference and carryforward that
gives rise to significant deferred tax assets and deferred tax liabilities as
of August 29, 1998 and August 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
----- ------
<S> <C> <C>
Accumulated tax depreciation of property and equipment
in excess of accumulated book depreciation and other
related items $(595) $(617)
Various accruals and reserves 885 722
Inventory 175 131
Other 44 53
----- ------
Net deferred tax asset $509 $289
----- ------
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. Management
believes the existing net deductible temporary differences will reverse
during the periods in which the Company generates net taxable income. Based
on this belief and the Company's historical and current pre-tax earnings as
well as its expectations for the future, management believes it is more
likely than not that the Company will realize its deferred tax assets. As a
result, no valuation allowance was required as of August 29, 1998 and August
30, 1997. Further, except for the effects of the reversal of net deductible
temporary differences, the Company is not currently aware of any factors that
would cause significant differences between taxable income and pre-tax book
income in future years.
Income tax expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
Twelve Months Ended
Aug. 29, Aug. 30, Aug. 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Currently payable $1,376 $1,085 $47
Deferred (220) 378 186
-------- -------- --------
Total $1,156 $1,463 $233
-------- -------- --------
-------- -------- --------
</TABLE>
The deferred tax provision for the twelve months ended August 29, 1998
and August 30, 1997, and August 31, 1996 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Utilization of net operating loss carryforwards $ - $130 $13
Utilization of AMT credit carryforwards - 187 -
Excess tax over book depreciation (22) 32 76
Other (198) 29 97
------ ------ ------
$(220) $ 378 $186
------ ------ ------
------ ------ ------
</TABLE>
F-16
Page 31
<PAGE>
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows (in thousands):
<TABLE>
<CAPTION>
Twelve Months Ended
Aug.29, Aug. 30, Aug. 31,
1998 1997 1996
------ ------- --------
<S> <C> <C> <C>
Tax at 34% statutory
rate $1,073 $1,319 $207
State income taxes,
net of federal
benefit 83 144 26
------ ------- --------
Income Taxes $1,156 $1,463 $233
------ ------- --------
------ ------- --------
</TABLE>
9. OTHER INFORMATION
Inventories - Inventories are summarized below:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Finished goods $10,898,000 $6,789,000
Work in process 512,000 514,000
Raw material 4,886,000 4,959,000
----------- ----------
$16,296,000 $12,262,000
----------- ----------
</TABLE>
Accrued liabilities - Accrued liabilities are summarized below:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Property, payroll and
other taxes $1,032,776 $1,028,533
Payroll, bonuses and
commissions 1,750,909 1,439,146
Interest 122,836 76,879
Other 222,008 174,618
----------- ----------
$3,128,259 $2,719,176
----------- ----------
----------- ----------
</TABLE>
F-17
Page 32
<PAGE>
10. QUARTERLY FINANCIAL DATA
Quarterly financial data (unaudited - in thousands of dollars except per
share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal 1998 Quarter Quarter Quarter Quarter Year
- ----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $17,439 $12,785 $16,008 $18,495 $64,727
Gross profit 4,135 2,629 3,757 3,915 14,436
Net income 810 116 549 500 1,975
Diluted earnings per
common share (1) $.13 $.02 $.09 $(.25) $.07
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal 1997 Quarter Quarter Quarter Quarter Year
- ----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $15,789 $13,867 $12,530 $14,248 $56,434
Gross profit 3,778 3,057 3,191 3,151 13,177
Net income (loss) 861 435 570 550 2,416
Diluted earnings per
common share (1) $.15 $.07 $.09 $.09 $.40
</TABLE>
(1) Diluted earnings per common share was calculated by dividing net income by
the weighted average number of common and common equivalent shares
outstanding during the period. (Except in the fourth quarter of fiscal 1998
in which the loss on redemption of preferred stock was deducted from net
income in the computation). (See Notes 1,5, and 15). Diluted earnings per
share are computed independently for each of the quarters presented.
Therefore, the sum of the quarterly per common share information may not
equal the annual diluted earnings per common share.
11. Major customers
The Company's six largest customers accounted for approximately 51% of
the Company's total sales in fiscal 1998. One customer, Sam's Club division
of Wal-Mart Stores, Inc., accounted for more than 10% of the Company's total
net sales for fiscal 1998. Six customers accounted for 42% of sales in fiscal
1997 and four customers accounted for 34% of sales in fiscal 1996, one of
which accounted for approximately 13% of sales. The loss of more than one of
these customers at the same time or one of the largest six could have a
material effect on the business of the Company. As of August 29, 1998, one
customer accounted for approximately 23% of total accounts receivable. The
Company's customers include large furniture chain store retailers, wholesale
clubs, catalog retailers, and independent distributors, as well as numerous
smaller retailers.
F-18
Page 33
<PAGE>
12. PLANT CLOSING
The Company permanently closed its Gettysburg, Pennsylvania
manufacturing plant and warehouse facilities and consolidated the production
and distribution activities of those operations into its Huntingburg,
Indiana facilities during the second quarter of fiscal 1996. Consolidation
of production and warehousing into the Indiana facilities resulted in lower
manufacturing and warehousing overhead and plant administrative costs. The
Company recorded a pre-tax charge of approximately $995,000 in the first
quarter of fiscal 1996 related to this closing. The charge included book
provisions of approximately: $160,000 related to the recording of property,
plant, and equipment at net realizable value; $100,000 for recording certain
inventory items at net realizable value; $145,000 for a pension curtailment
loss; $125,000 for severance pay; and approximately $465,000 for costs to be
incurred after operations cease associated with the closing as well as
expected future occupancy related costs. The severance pay accrual related
to the termination of certain salaried and support staff personnel. None of
the above referenced costs related to the relocation or consolidation of
production into the Company's Huntingburg, Indiana facility. During the
fourth quarter of fiscal 1996 the Company sold the Gettysburg, Pennsylvania
manufacturing plant and realized gross proceeds of approximately $375,000.
Based upon this transaction approximately $127,000 of the book provision
related to the initial recording of property, plant and equipment at net
realizable value was not needed. The net plant closing charge included in
the consolidated statements of income was $868,000 for fiscal 1996. As of
August 29, 1998 the only Gettysburg related asset carried is a parcel of
unimproved land at cost of $10,000 and there are no Gettysburg plant closing
related liabilities. During fiscal 1997 it was determined that the remaining
$119,000 of the book provision related to the initial recording of property,
plant and equipment at net realizable value was not needed.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash and cash equivalents, trade receivable and trade
payables are considered to be representative of their respective fair values
because of the immediate or short-term maturities of these financial
instruments. The fair value of the Company's debt instruments approximated
the book value because a substantial portion of the underlying instruments
are variable rate notes which reprice frequently.
14. SOURCE AND SUPPLY OF LABOR
Approximately 156 of the Company's 441 employees are covered by 2
collective bargaining agreements. One contract with the union representing
77 employees is due to expire in fiscal 1999.
15. EARNINGS PER COMMON SHARE
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). This standard modifies disclosure requirements for companies required
to report earnings per share ("EPS") to include presentations of Basic EPS
(which includes no dilution of common stock equivalents) and, if applicable,
Diluted EPS (which reflects the potential dilution of common stock
equivalents).
F-19
Page 34
<PAGE>
The standard was effective for the Company with the completion of its fiscal
1998 second quarter.
<TABLE>
<CAPTION>
(Thousands except per share amounts)
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Net income $ 1,975 $ 2,416 $ 376
Less: preferred stock dividends - (399) -
Less: loss on preferred redemption (1) (1,666) - -
------- ------- -------
Net income applicable to common stock $ 309 $ 2,017 $ 376
------- ------- -------
------- ------- -------
Average common shares outstanding 3,261 3,114 2,999
Common stock equivalents-dilutive
options and convertible preferred
stock 954 2,892 2,706
------- ------- -------
Average shares of common stock
and equivalents outstanding 4,215 6,006 5,705
------- ------- -------
------- ------- -------
Basic earnings per share $ .09 $ .65 $ .13
------- ------- -------
(Net income applicable to common stock
divided by average common shares
outstanding)
Diluted earnings per share (2) $ .07 $ .40 $ .07
------- ------- -------
(Net income divided by average shares
of common stock and equivalents
outstanding)
</TABLE>
(1) On August 28, 1998 the Company redeemed its Series C Preferred Stock which
caused a $1,666,000 charge to net income applicable to common stock. See
Note 5 for more information.
(2) For fiscal 1998, the loss on redemption of preferred stock is deducted from
net income in computing diluted earnings per share because not deducting it
would be anti-dilutive.
F-20
Page 35
<PAGE>
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
II-8
Page 36
<PAGE>
Part III.
Items 10, 11, 12 and 13.
The information called for by this part (Items 10, 11, 12 and 13) is
incorporated by reference from the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission not later than December 28,
1998.
III-1
Page 37
<PAGE>
Part IV.
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.
The financial statements required by Sections 14(a) 1 and 2 and
14(d) are included under Item 8.
The exhibits required by Item 14(a) 3 are listed on the index to
Exhibits.
Schedules required by Item 14(d) follow the signature pages.
Item 14(b). REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the fiscal
quarter ended August 29, 1998. The Company filed a report
pursuant to Item 5 on Form 8-K dated August 31, 1998 relating to
the retirement of its Series C Preferred Stock.
IV-1
Page 38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
DATED: October 27, 1998 DMI FURNITURE, INC.
By:/S/Donald D. Dreher
------------------------
President, Chairman of the Board and Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Vice President, Finance,
Chief Financial Officer
and Principal Accounting
/S/Joseph G. Hill Officer and Director October 27, 1998
- ---------------------
Joseph G. Hill
/S/Joseph L. Ponce Director October 27, 1998
- ---------------------
Joseph L. Ponce
/S/Thomas M. Levine. Director October 27, 1998
- ---------------------
Thomas M. Levine
/S/David Martin Director October 27, 1998
- ---------------------
David Martin
President, Chief
Executive Officer, Chairman
/S/Donald D. Dreher of the Board and Director October 27, 1998
- ---------------------
Donald D. Dreher
IV-2
Page 39
<PAGE>
DMI FURNITURE, INC.
SCHEDULE II
<TABLE>
<CAPTION>
Additions
Balance at Charged Balance
Beginning to Costs at End
Description of period and Expenses Deductions (A) of Period
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended August 31, 1996 $132,177 $ 82,913 $105,099 $109,991
-------- -------- -------- --------
Year ended August 30, 1997 $109,991 $125,200 $ 93,778 $141,413
-------- -------- -------- --------
Year ended August 29, 1998 $141,413 $ 96,992 $ 88,529 $149,876
-------- -------- -------- --------
</TABLE>
(A) Charge-offs net of recoveries.
S-1
Page 40
<PAGE>
Item 14(a)3. EXHIBITS
10-K
Page No.
*********** (3)(a) Restated Certificate of Incorporation
* (b) Bylaws
*********** (4)(a) Restated Certificate of Incorporation
* (b) Bylaws
******* (10)(a) 1988 Stock Option Plan for Employees
********* (b) Non-employee Director Stock Option Program
********** (c) Form of Indemnification Agreement
********** (d) Amendment of Employment Agreement and Officer
Severance Agreement dated as of May 19, 1988
between Joseph G. Hill and DMI Furniture, Inc.
(e) First Amendment to Amended and Restated Credit
Agreement between DMI Furniture, Inc. and Bank
One, Indiana, National Association dated July
2, 1998. E1 -E17
(f) Extension and Renewal of Employment Agreement
as of October 9, 1997 between DMI Furniture,
Inc. and Donald D. Dreher. E18-E24
(g) Second Amendment to Amended and Restated
Credit Agreement between DMI Furniture, Inc.
and Bank One, Indiana, National Association
dated August 27, 1998. E25-E38
********** (h) Amendment of Employment Agreement and Officer
Severance Agreement dated as of May 19, 1988
between Donald D. Dreher and DMI Furniture,
Inc.
** (i) Amended and Restated Credit Agreement between
Bank One, Indianapolis, National Association,
and DMI Furniture, Inc. dated October 3, 1997.
******** (j) Loan Agreement between City of Huntingburg,
Indiana and DMI Furniture, Inc. dated June 1,
1994.
********* (k) 1993 Long Term Incentive Stock Plan for
Employees
********* (l) Stock Compensation and Deferral Plan for
Outside Directors.
********* (m) Loan Agreement between City of Huntingburg,
Indiana and DMI Furniture, Inc. dated as of
October 1, 1993.
(n) Extension and Renewal of Employment Agreement
as of October 9, 1997 between DMI Furniture,
Inc. and Joseph G. Hill. E39-E45
***** (o) 1998 Stock Option Plan For Independent
Directors
Page 41
<PAGE>
(21) List of subsidiaries E-46
(23) Consent of Arthur Andersen LLP to
incorporation of audit report into
S-8 registration statements. E-47
(27) Financial Data Schedule E-48
(99) Undertakings E-49
- -------------------------------------------------------------------------------
* Incorporated by reference to annual report on Form 10-K for
the fiscal year ended August 27, 1994
** Incorporated by reference to report on Form 10-Q for the
fiscal quarter ended November 29, 1997
***** Incorporated by reference to Proxy Statement dated February
20, 1998.
****** Incorporated by reference to Exhibit 10 to report on Form 10-Q
for the second quarter of fiscal year ended August 28, 1993.
******* Incorporated by reference to Registration Number 33-64188
******** Incorporated by reference to Form 10-Q for the fiscal quarter
ended May 28, 1994.
********* Incorporated by reference to Form 10-Q for the fiscal quarter
ended February 26, 1994.
********** Incorporated by reference to Form 10-K for the fiscal year
ended August 28, 1993.
*********** Incorporated by reference to Form 10-K for the fiscal year
ended August 31,1996
Page 42
<PAGE>
EXHIBIT 10(E)
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
("AMENDMENT") has been executed as of the 2ND day of July, 1998 (the "EXECUTION
DATE") by DMI FURNITURE, INC., a Delaware corporation (the "COMPANY"), DMI
MANAGEMENT, INC. ("Guarantor") and BANK ONE, INDIANA, NATIONAL ASSOCIATION (the
"BANK").
RECITALS
1. The Company and the Bank are parties to an Amended and Restated
Credit Agreement, dated October 3, 1997 (as in effect immediately prior to the
execution of this Amendment, the "EXISTING AGREEMENT").
2. The Company has requested the Bank to amend the Existing
Agreement, effective as of the Execution Date, as set forth in this Amendment,
and the Bank has agreed to so amend the Existing Agreement, subject to the terms
and conditions of this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the Recitals and for other good
and valuable consideration, the receipt and sufficiency of which is acknowledged
by each of the parties to this Amendment, it is agreed as follows:
1. DEFINITIONS. Terms which are defined in the Existing Agreement
shall have the same meanings in this Amendment as are ascribed to them in the
Existing Agreement, as amended hereby, excepting only those terms which are
expressly defined in this Amendment, which shall have the meanings ascribed to
them in this Amendment.
2. AMENDMENTS TO EXISTING AGREEMENT.
(a) AMENDMENTS TO DEFINITIONS. Each of the following definitions
which are set forth in Section 1.01 of the Existing Agreement are amended and
restated in their respective entireties as of the Execution Date to read as
follows:
"AGREEMENT" means this Amended and Restated Credit Agreement, as amended by
the First Amendment, and as further amended, modified, supplemented and/or
restated from time to time and at any time.
"APPLICABLE CREDIT ENHANCEMENT LETTER OF CREDIT COMMISSION RATE" means the
rate per annum at which the commission due on each Commission Due Date for
each Credit Enhancement Letter of Credit will be calculated, which rate
shall be determined by reference to the Ratio of Total Funded Debt to
EBITDA in accordance with the following table:
E-1
<PAGE>
<TABLE>
Ratio of Total Applicable Credit
Funded Debt Enhancement Letter of
To EBITDA Credit Commission Rate
-------------- ----------------------
<S> <C>
3.50 and above 1-1/2 %
2.50 to 3.49 1-1/4 %
2.49 and less 1 %
</TABLE>
The Applicable Credit Enhancement Letter of Credit Commission Rate shall be
determined on the First Amendment Execution Date on the basis of the Ratio
of Total Funded Debt to EBITDA in effect on the First Amendment Execution
Date (which the Company and the Bank agree for purposes of the Applicable
Credit Enhancement Letter of Credit Commission Rate was 3.4 as of First
Amendment Execution Date) and shall be redetermined and adjusted as of the
close of each fiscal quarter of the Company thereafter, concurrently with
any adjustment to the Ratio of Total Funded Debt to EBITDA (as provided in
the definition of Ratio of Total Funded Debt to EBITDA in this Agreement),
with such redetermined Applicable Credit Enhancement Letter of Credit
Commission Rate to be effective for the entire fiscal quarter of the
Company which immediately follows each such fiscal quarter."
"APPLICABLE DOCUMENTARY LETTER OF CREDIT COMMISSION RATE" means the rate
per annum at which the commission due upon the issuance of each Documentary
Letter of Credit will be calculated, expressed as a percentage of the
maximum amount which may be drawn under the Documentary Letter of Credit,
which rate shall be determined by reference to the Ratio of Total Funded
Debt to EBITDA in accordance with the following table:
<TABLE>
Ratio of Total Applicable Documentary
Funded Debt Letter of Credit
To EBITDA Commission Rate
-------------- ----------------------
<S> <C>
4.00 and above 1/2 %
less than 4.00 __ %
</TABLE>
The Applicable Documentary Letter of Credit Commission Rate shall be
determined on the First Amendment Execution Date on the basis of the Ratio
of Total Funded Debt to EBITDA in effect on the First Amendment Execution
Date (which the Company and the Bank agree for purposes of the Applicable
Documentary Letter of Credit Commission Rate was below 4.00 as of the First
Amendment Execution Date) and shall be redetermined and adjusted as of the
close of each fiscal quarter of the Company thereafter, concurrently with
any adjustment to the Ratio of Total Funded Debt to EBITDA (as provided in
the definition of Ratio of Total Funded Debt to EBITDA in this Agreement),
with such redetermined Applicable Documentary Letter of Credit Commission
Rate to be effective for the entire fiscal quarter of the Company which
immediately follows each such fiscal quarter.
"APPLICABLE SPREAD I" means that number of percentage points to be taken
into account in determining the rate per annum at which interest will
accrue on the Revolving Loan, which shall be determined by reference to the
Ratio of Total Funded Debt to EBITDA in accordance with the following
table:
<TABLE>
If determining If determining
Ratio of Total a LIBOR-based a Prime-based
Funded Debt Rate on the Rate on the
To EBITDA Revolving Loan Revolving Loan
-------------- -------------- --------------
<S> <C> <C>
4.00 and above 2-1/2% 1/4%
3.50 to 399 2-1/4% 0 %
3.00 to 3.49 2 % 0 %
2.50 to 2.99 1-3/4% 0 %
less than 2.50 1-1/2% 0 %
</TABLE>
E-2
<PAGE>
Applicable Spread I shall be determined on the First Amendment Execution
Date on the basis of the Ratio of Total Funded Debt to EBITDA in effect on
the First Amendment Execution Date (which the Company and the Bank agree
for purposes of Applicable Spread I was 3.4 as of the First Amendment
Execution Date) and shall be redetermined and adjusted as of the close of
each fiscal quarter of the Company thereafter, concurrently with any
adjustment to the Ratio of Total Funded Debt to EBITDA (as provided in the
definition of Ratio of Total Funded Debt to EBITDA in this Agreement), with
such redetermined Applicable Spread I to be effective for the entire fiscal
quarter of the Company which immediately follows each such fiscal quarter.
"APPLICABLE SPREAD II" means that number of percentage points to be taken
into account in determining the rate per annum at which interest will
accrue on the Term Loan, which shall be determined by reference to the
Ratio of Total Funded Debt to EBITDA in accordance with the following
table:
<TABLE>
If determining If determining
Ratio of Total a LIBOR-based a Prime-based
Funded Debt Rate on the Rate on the
To EBITDA Term Loan Term Loan
-------------- -------------- --------------
<S> <C> <C>
4.00 and above 2-1/2% 1/4%
3.50 to 3.99 2-1/4% 0 %
3.00 to 3.49 2 % 0 %
2.50 to 2.99 1-3/4% 0 %
less than 2.50 1-1/2% 0 %
</TABLE>
Applicable Spread II shall be determined on the First Amendment Execution
Date on the basis of the Ratio of Total Funded Debt to EBITDA in effect on
the First Amendment Execution Date (which the Company and the Bank agree
for purposes of Applicable Spread II was 3.4 as of the First Amendment
Execution Date) and shall be redetermined and adjusted as of the close of
each fiscal quarter of the Company thereafter, concurrently with any
adjustment to the Ratio of Total Funded Debt to EBITDA (as provided in the
definition of Ratio of Total Funded Debt to EBITDA in this Agreement), with
such redetermined Applicable Spread II to be effective for the entire
fiscal quarter of the Company which immediately follows each such fiscal
quarter.
"APPLICABLE UNUSED COMMITMENT FEE PERCENTAGE" means the percentage
determined by reference to the Ratio of Total Funded Debt to EBITDA in
accordance with the following table:
<TABLE>
Ratio of Total Applicable
Funded Debt Unused Commitment
To EBITDA Percentage Fee
-------------- -----------------
<S> <C>
4.00 and above 1/2 %
3.00 to 3.99 __ %
less than 3.00 1/4 %
</TABLE>
The Applicable Unused Commitment Fee Percentage shall be determined on the
First Amendment Execution Date on the basis of the Ratio of Total Funded
Debt to EBITDA in effect on the First Amendment Execution Date (which the
Company and the Bank agree for purposes of determining the Applicable
Unused Commitment Fee Percentage was 3.4 as of the First Amendment
Execution Date) and shall be redetermined and adjusted as of the close of
each fiscal quarter of the Company thereafter, concurrently with any
adjustment to the Ratio of Total Funded Debt to EBITDA (as provided in the
E-3
<PAGE>
definition of Ratio of Total Funded Debt to EBITDA in this Agreement), with
such redetermined Applicable Unused Commitment Fee Percentage to be
effective for the entire fiscal quarter of the Company which immediately
follows each such fiscal quarter.
"BANKING DAY" means a day (other than Saturday or Sunday) on which the Bank
is open in Indianapolis, Indiana, for the purpose of conducting
substantially all of its business activities, and, if the matter involves
the selection or determination of a LIBOR-based Rate, is a day on which
dealings are carried on in the London eurodollar interbank market.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Revolving Note,
the Term Note, the Security Agreement, the Mortgages, the Mortgage
Amendments, the Guaranty, the Reimbursement Agreements, all other
instruments, agreements and documents executed and delivered or to be
delivered by the Company pursuant to or by virtue of this Agreement and any
and all interest hedging agreements which at any time from and after the
Closing Date may be made between the Company and the Bank, as each may be
amended, modified, extended, renewed, supplemented and/or restated from
time to time and at any time, and when used in the singular form, means any
of the Loan Documents, as the context requires.
"LONDON INTERBANK OFFERED RATE" means, for any Interest Period, an interest
rate per annum equal to the rate for U.S. dollar deposits (in an amount
approximately equal to the amount of the LIBOR Advance which will bear
interest at a rate determined by reference to such interest rate during the
Interest Period to which such interest rate is applicable in accordance
with the provisions hereof) with maturities comparable to such Interest
Period as determined by the Bank as appearing on the display designated as
"British Bankers Assoc. Interest Settlement Rates" on the Telerate System
("Telerate"), Page 3750 or Page 3740 (or such other page or pages as may
replace such pages on Telerate for the purpose of displaying such rate) as
of 11:00 a.m., London time, two (2) Banking Days prior to the commencement
of such Interest Period, provided, however, that if such rate does not
appear on Telerate Page 3750 or Page 3740, the "London Interbank Offered
Rate" applicable to a particular Interest Period shall mean an interest
rate per annum equal to the rate at which U.S. dollar deposits (in an
amount approximately equal to the amount of the LIBOR Advance which will
bear interest at a rate determined by reference to such interest rate
during the Interest Period to which such interest rate is applicable in
accordance with the provisions hereof), with maturities comparable to the
last day of the Interest Period with respect to which such London Interbank
Offered Rate is applicable, are offered in immediately available funds in
the London interbank Eurodollar market to leading banks by other leading
banks in such Eurodollar market at 11:00 a.m., London time, two (2) Banking
Days prior to the commencement of the Interest Period to which such London
Interbank Offered Rate is applicable, all as determined by the Bank. Each
determination of a London Interbank Offered Rate made by the Bank in
accordance with the foregoing shall be conclusive, except in the case of
demonstrative or manifest error.
"MAXIMUM AVAILABILITY" means, as of the date any determination thereof is
to be made, the lesser of (i) $20,000,000 or (ii) the Borrowing Base.
"RATIO OF TOTAL FUNDED DEBT TO EBITDA" means, with respect to any period,
the ratio of Total Funded Debt at the close of that period to EBITDA of the
Company for that period. For purposes of determining the Applicable Unused
Commitment Fee Percentage, the Applicable Credit Enhancement Letter of
Credit Commission Rate, the Applicable Documentary Letter of Credit
Commission Rate, Applicable Spread I and Applicable Spread II, the Ratio of
Total Funded Debt to EBITDA shall be determined, on a rolling two quarter
basis, as of the close of each fiscal quarter of the Company ending after
the Closing Date on the basis of the Interim Financial Statements for such
fiscal quarter and the most recent preceding fiscal quarter of the Company
(a "Quarterly Adjustment"). No Quarterly Adjustment shall be effective as
to any LIBOR-based Rate until the expiration of the period of time for
which such LIBOR-based Rate shall have been selected by the Company. The
Ratio of Total Funded Debt to EBITDA shall be adjusted on the last Banking
Day of the calendar month in which the Bank receives the most recent
Interim Financial Statements upon which such adjustment is based.
Notwithstanding the foregoing, in the event that the Company fails to
deliver any Interim Financial Statements when due as required by this
Agreement and fails to cure such default within ten (10) days after notice
of such default to the Company by the Bank, then
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the Applicable Unused Commitment Fee Percentage, the Applicable Credit
Enhancement Letter of Credit Commission Rate, the Applicable Documentary
Letter of Credit Commission Rate, Applicable Spread I and Applicable Spread
II shall be adjusted (without further notice by the Bank) to the largest
number shown in the table applicable to such definition from such due date
until the first interest payment date which follows such delivery to the
Bank of such Interim Financial Statements. It is noted that the tables
shown in the definitions of the terms Applicable Credit Enhancement Letter
of Commission Rate, Applicable Documentary Letter of Credit Commission
Rate, Applicable Unused Commitment Fee Percentage, Applicable Spread I and
Applicable Spread II may provide for a Ratio of Total Funded Debt to EBITDA
greater than that which will be permissible under the terms of Section
6.01(g)(3) . For the avoidance of doubt, it is agreed that it is the
intent of the parties that the Bank shall be free to exercise all remedies
otherwise provided for in this Agreement in the event of the violation by
the Company of the covenant stated in Section 6.01(g)(3), notwithstanding
those tables.
"SCHEDULED REVOLVING LOAN MATURITY DATE" means December 31, 2000, or such
subsequent date to which the Revolving Loan Commitment may be extended by
the Bank pursuant to the terms of this Agreement.
(b) NEW DEFINITIONS. Section 1.01 of the Existing Agreement amended,
effective as of the Execution Date, by adding thereto the following new
definitions:
"BORROWING BASE" means, at any date a determination thereof is to be made,
an amount equal to the sum of: (a) Eighty Percent (80%) of the net book
value (as determined in accordance with GAAP) of Eligible Accounts;
(b) Fifty Percent (50%) of the Eligible Finished Goods Inventory Value and
the Eligible Wood Stock Inventory Value; (c) Twenty-Five Percent (25%) of
the Eligible Miscellaneous Inventory Value; and (d) strictly for the period
from the First Amendment Execution Date through February 27, 1999, the sum
of $1,500,000, all of the foregoing as determined on the basis of the
information contained in the most recent Borrowing Base Certificate or as
determined by the Bank upon an inspection of the Company's books and
records and inventory by the Bank or any other representative of the Bank;
provided, however, the Borrowing Base shall be $0 commencing FIVE (5)
CALENDAR DAYS AFTER the Company's failure to furnish to the Bank a MONTHLY
Borrowing Base Certificate within the period of time required under
SUBSECTION 6.01(B)(9) of this Agreement, and continuing until the Bank
shall have received a properly completed and certified Borrowing Base
Certificate.
"BORROWING BASE CERTIFICATE" means a certificate signed by an Authorized
Officer of the Company certifying the amount of the Borrowing Base and the
Maximum Availability as of a stated date and in such form and showing such
detail as the Bank reasonably may require from time to time.
"ELIGIBLE ACCOUNTS" means, at any date a determination thereof is to be
made, all outstanding accounts receivable of the Company for which the
Company shall have furnished to the Bank information adequate for purposes
of identification at times and in form and substance as may be reasonably
requested by the Bank; provided, however, that an account receivable shall
not constitute an Eligible Account if it: (a) remains unpaid sixty (60)
days after the original due date for its payment stated on the applicable
invoice; (b) is an account receivable with respect to which the account
receivable debtor is the subject of a bankruptcy or similar insolvency
proceeding or has made an assignment for the benefit of creditors or whose
assets have been conveyed to a receiver or trustee or who is no longer
conducting its customary business, except and to the extent the Bank
otherwise agrees in writing; (c) is an account receivable which is not
invoiced (and dated as of the date of such invoice) and sent to the account
receivable debtor within the ordinary course of the business of the Company
and in accordance with customary billing practices after delivery of the
underlying goods to, or performance of the underlying services for, the
accounts receivable debtor; (d) is an account receivable arising with
respect to goods which have not been shipped or arising with respect to
services which have not been fully performed; (e) is an account receivable
with respect to which the account receivable debtor's obligation to pay the
account receivable is conditional upon the account receivable debtor's
approval or is otherwise subject to any repurchase obligation or return
right, as with sales made on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval or consignment basis; (f) is an account
receivable in which the Bank does not have a first priority, perfected
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security interest; (g) is an account receivable due from any Subsidiary or
Affiliate of the Company or which is due solely from an accounts receivable
debtor which is a United States federal governmental entity or agency,
except and to the extent the Bank otherwise agrees in writing; or (h) is an
account receivable evidenced by an instrument (as defined in Article 9 of
the Indiana Uniform Commercial Code) not in the possession of the Bank.
Accounts receivable which are otherwise Eligible Accounts and which are
owed for goods used in showrooms or displays and for which extended payment
terms (i.e., payment terms which are longer than customarily extended for
the purchase in the ordinary course of business of inventory from the
Company on account) were given to the account receivable debtors by the
Company may be included as Eligible Accounts only to the extent that the
aggregate sum of all such accounts receivable do not exceed $750,000. At
any time more than twenty-five percent (25%) of the aggregate amount of
accounts receivable due from an accounts receivable debtor remain unpaid
more than sixty (60) days after the date(s) due as stated on the original
invoice(s) evidencing such accounts receivable, then no accounts receivable
due the Company from that accounts receivable debtor shall constitute an
Eligible Account. Further, to the extent that an Eligible Account is
subject to any set-off, offset, credit or other reduction right held by the
account receivable debtor, then for purposes of determining the Borrowing
Base the amount of such Eligible Account shall be reduced by the sum of all
such offsets, credits and reductions.
"ELIGIBLE FINISHED GOODS INVENTORY VALUE" means, at any date a
determination thereof is to be made, an amount equal to the aggregate book
value of the Company's finished goods inventory (all as determined and
classified in accordance with GAAP), but excluding all such inventory:
(a) held by a third party on consignment or subject to any repurchase
option or arrangement or return right, as with sales made on a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval or
consignment basis; or (b) which do not comply with any of the following
requirements:
(i) It is in good and merchantable condition for sale to an end user
and is readily marketable by the Company in the ordinary course
of the Company's business;
(ii) It conforms in all material respects to all applicable
specifications, standards and requirements; AND
(iii) It complies with or exceeds all standards, mandates and
requirements of Governmental Authority with which it must be in
compliance for it to be lawfully sold to an end user in the
United States of America.
"ELIGIBLE WOOD STOCK INVENTORY VALUE" means, at any date a determination
thereof is to be made, an amount equal to the aggregate book value of the
Company's inventory of timber, logs, rough cut lumber and full-board stock
(all as determined and classified in accordance with GAAP) and that is
readily marketable in established wood markets in its existing condition,
but excluding all such lumber and board stock which is not in standard
market dimensions.
"ELIGIBLE MISCELLANEOUS INVENTORY VALUE" means, at any date a determination
thereof is to be made, an amount equal to the book value (as determined and
classified in accordance with GAAP) of the Company's raw material
inventory, including furniture hardware which is not yet part of work in
process or finished goods, but excluding all lumber (cut or uncut), board
stock, timber, logs and other wood.
"GOVERNMENTAL AUTHORITY" means, collectively, the federal government of the
United States, the government of any foreign country that is recognized by
the United States or is a member of the United Nations; any state of the
United States; any local government or municipality within the territory or
under the jurisdiction of any of the foregoing; any department, agency,
division, or instrumentality of any of the foregoing; and any court,
arbitrator, or board of arbitrators whose orders or judgments are
enforceable by or
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within the territory of any of the foregoing.
"INTEREST PERIOD" means, with respect to any LIBOR Advance, the one
(1) month, two (2) month, three (3) month or six (6) month period selected
by the Company as provided in this Agreement and commencing on that day
designated by the Company in its written notice to the Bank making such
selection (so long as such day is not less than three Banking Days after
the date of such notice). Each Interest Period for a LIBOR Advance that
begins on the last day of a calendar month (or on a day for which there is
no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Banking Day of the appropriate subsequent
calendar month. Each Interest Period for a LIBOR Advance which would
otherwise end on a day which is not a Banking Day shall end on the
immediately succeeding Banking Day (unless such immediately succeeding
Banking Day is in another calendar month, in which case such Interest
Period shall end on the immediately preceding Banking Day).
"LIBOR ADVANCE" means the principal amount of any Loan or Advance as to
which a LIBOR-based Rate is elected by the Company pursuant to this
Agreement.
"FIRST AMENDMENT EXECUTION DATE" means July 2, 1998.
"FIRST AMENDMENT" means the First Amendment to Amended and Restated Credit
Agreement, dated as of the First Amendment Execution Date, executed by the
Company, Guarantor and the Bank.
(c) AMENDMENT OF SECTION 2.02(b). The first sentence of Section
2.02(b) of the Existing Agreement is amended and restated, effective as of the
Execution Date, in its entirety to read as follows:
"The obligation of the Company to repay the Revolving Loan from and
after the First Amendment Execution Date shall be evidenced by a promissory
note executed by the Company to the Bank in substantially the form and
substance of EXHIBIT A attached to the First Amendment (as the same may be
amended, modified, supplemented, and/or restated from time to time and at
any time, the "REVOLVING NOTE")."
(d) AMENDMENT OF SECOND PARAGRAPH OF SECTION 2.02(b). Effective as
of the Execution Date, the second paragraph of Section 2.02(b) of the Existing
Agreement is amended by adding the following text to the start of such
paragraph:
"Whenever the Company desires the Bank to make an Advance,
the Company shall give the Bank telecopy or telephonic
notice not later than 10:00 A.M., Indianapolis time, prior
to each Advance, which notice shall specify the amount, the
date of the Advance, and whether the Advance is to bear
interest at the Prime-based Rate or a LIBOR-based Rate, and
if it is to bear interest at a LIBOR-based Rate, the
Interest Period. Each Advance Request shall be irrevocable.
The Company shall be entitled to request no more than one
Advance to be made on any Banking Day."
(e) AMENDMENT OF SUBSECTION 2.02(c). Effective as of the Execution
Date, Subsection 2.02(c) of the Existing Agreement is amended and restated in
its entirety to read as follows:
"(c) INTEREST ON THE REVOLVING LOAN. The principal amount
of the Revolving Loan outstanding from time to time shall bear
interest until the Revolving Loan Maturity Date at a rate per annum
equal to the Prime Rate, plus Applicable Spread I, except that at the
option of the
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Company, exercised from time to time as provided in this
Agreement, interest may accrue prior to maturity on any Advance or on
the entire outstanding balance of the Revolving Loan as to which no
LIBOR-based Rate previously elected remains in effect, at a
LIBOR-based Rate (for an Interest Period selected by the Company as
provided in this Agreement), plus Applicable Spread I, provided that
an election of a LIBOR-based Rate for an Interest Period extending
beyond the Scheduled Revolving Loan Maturity Date shall be permitted
only at the discretion of the Bank. From and after the Revolving Loan
Maturity Date, and until paid in full, the Revolving Loan shall bear
interest at a per annum rate equal to the Prime Rate, plus Applicable
Spread I, plus two percent (2%) per annum, except that as to any
portion of the Revolving Loan for which the Company may have elected a
LIBOR-based Rate for an Interest Period that has not expired at the
Revolving Loan Maturity Date, such portion shall, during the remainder
of such period, bear interest at the greater of the Prime Rate, plus
Applicable Spread I, plus two percent (2%) per annum or the
LIBOR-based Rate then in effect, plus Applicable Spread I, plus two
percent (2%) per annum. Each change in the rate of interest to be
charged with reference to a Prime-based Rate shall become effective
on the date of each change in the Prime Rate. Each change in the rate
of interest to be charged with reference to a LIBOR-based Rate shall
become effective without notice on the commencement of each Interest
Period based on the London Interbank Offered Rate for that Interest
Period then in effect. With respect to that portion of the Revolving
Loan, if any, which bears interest at the Prime-based Rate, accrued
interest shall be due and payable monthly on the last Banking Day of
each month until the REVOLVING LOAN Maturity Date. With respect to
these portions of the Revolving Loan that bear interest LIBOR-based
Rates, accrued interest shall be due and payable on the last day of
each Interest Period (except that if the Interest Period is six
months, the accrued interest shall be due on the 90th day of such
Interest Period and then on the last day of such Interest Period)
until the Maturity Date. On the REVOLVING LOAN Maturity Date, the
entire unpaid principal balance of the Revolving Loan and Revolving
Note and all unpaid, accrued interest thereon, shall be due and
payable in full without demand. After the Revolving Loan Maturity
Date, interest which accrues on the Revolving Loan shall be payable as
accrued and without demand."
(f) AMENDMENT TO SUBSECTION 2.04(d). Effective as of the Execution
Date, Subsection 2.04(d) is amended and restated in its entirety to read as
follows:
"(d) INTEREST ON THE TERM LOAN. The principal amount of the
Term Loan outstanding from time to time shall bear interest until the
Term Loan Maturity Date at a rate per annum equal to the Prime Rate,
plus Applicable Spread II, except that at the option of the Company,
exercised from time to time as provided in this Agreement, interest
may accrue prior to maturity on any Term Loan Construction Advance or
on the entire outstanding balance of the Term Loan as to which no
LIBOR-based Rate previously elected remains in effect, at a
LIBOR-based Rate (for an Interest Period selected by the Company as
provided in this Agreement), plus Applicable Spread II, provided that
an election of a LIBOR-based Rate for an Interest Period extending
beyond the Scheduled Term Loan Maturity Date shall be permitted only
at the discretion of the Bank. From and after the Term Loan Maturity
Date, and until paid in full, the Term Loan shall bear interest at a
per annum rate equal to the Prime Rate, plus Applicable Spread II,
plus two percent (2%) per annum, except that as to any portion of the
Term Loan for which the Company may have elected a LIBOR-based Rate
for an Interest Period that has not expired at the Term Loan Maturity
Date, such portion shall, during the remainder of such period, bear
interest at the greater of the Prime Rate, plus Applicable Spread II,
plus two percent (2%) per annum or the LIBOR-based Rate then in
effect, plus Applicable Spread II, plus two percent (2%) per annum.
Each change in the rate of interest to be charged with reference to a
Prime-based Rate shall become effective on the date of each change in
the Prime Rate. Each change in the rate of interest to be charged
with reference to a LIBOR-based Rate shall become effective without
notice on the commencement of each Interest Period based on the London
Interbank Offered Rate for that Interest Period then in effect. With
respect to that portion of the Term Loan, if any, which bears interest
at the Prime-based Rate, accrued interest shall be due and payable
monthly on the
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last Banking Day of each month until the TERM LOAN Maturity Date.
With respect to these portions of the Term Loan that bear interest
LIBOR-based Rates, accrued interest shall be due and payable on the
last day of each Interest Period (except that if the Interest Period
is six months, the accrued interest shall be due on the 90th day of
such Interest Period and then on the last day of such Interest Period)
until the TERM LOAN Maturity Date. On the TERM LOAN Maturity Date, the
entire unpaid principal balance of the Term Loan and Term Note and all
unpaid, accrued interest thereon, shall be due and payable in full
without demand. From and after the Term Loan Maturity Date, interest
on the Term Loan shall be payable as accrued and without demand."
(f) AMENDMENT TO SUBSECTION 2.05(c). Effective as of the Execution
Date, Subsections 2.05(c)(2), (3) and (5) are amended and restated in their
entirety to read as follows:
"(2) The Company may pay all or any portion of the outstanding
principal balance of any Loan, provided that if the Company makes any
such payment (whether voluntary, mandatory, or as a result of
acceleration after default) of a Loan or portion thereof which bears
interest at a LIBOR-based Rate other than on the last day of the
relevant Interest Period, the Company shall pay all accrued interest
on the principal amount paid with such principal payment and, on
demand, shall reimburse the Bank and hold the Bank harmless from all
losses and expenses incurred by the Bank as a result of such principal
payment having been made on other than the last day of the Interest
Period then in effect, including without limitation, any losses and
expenses incurred by reason of the liquidation or reemployment of
deposits or other funds acquired to fund or maintain the principal
amount paid. Such reimbursement shall be calculated as though the
Bank funded its portion of the principal amount paid through the
purchase of U.S. Dollar deposits in the London, England interbank
market having a maturity corresponding to such Interest Period and
bearing an interest rate equal to the London Interbank Offered Rate
for such Interest Period, whether in fact that is the case or not.
The Bank's determination of the amount of such reimbursement shall be
conclusive in the absence of manifest error. If at the time of any
payment of any portion of the principal of a Loan, interest accrues at
both a LIBOR-based Rate or Rates and at the Prime-based Rate on
portions of such Loan, then any payment of principal will be applied
first to the portion of the Loan on which interest accrues at the
Prime-based Rate and next to the portion or portions at which interest
accrues at a LIBOR-based Rate or Rates, and if interest accrues on the
Loan at more than one LIBOR-based Rate, first to that portion or those
portions on which interest accrues at a rate or rates which results in
least reimbursement amount."
"(3) The Company has notified the Bank of its election to use the
LIBOR-based Rate with respect to a specified LIBOR Advance and of the
Interest Period selected and such notice is given no later than the
third (3rd) Banking Day preceding the first day of such Interest
Period. Such election and the LIBOR-based Rate shall be effective,
provided there is then no Event of Default and the notification
required under the preceding sentence has been given, on the first day
of such Interest Period. No more than six (6) Interest Periods may be
in effect at any one time."
"(5) If, on or prior to the determination of the interest rate
for any LIBOR Advance, the Bank reasonably and in good faith
determines that deposits in U.S. Dollars comparable to the amount and
for the Interest Period of that LIBOR Advance are not available in the
London interbank eurodollar market, or that, by reason of
circumstances affecting the London interbank eurodollar market,
adequate and reasonable means do not exist for ascertaining the
interest rate applicable to that Interest Period, or that the making
or funding of loans at LIBOR-based Rates has become impracticable, the
Bank shall give the Company prompt notice thereof, and so long as that
condition remains in effect, the Bank shall be under no obligation to
make, or to convert other Advances into, LIBOR Advances of the type
affected, and the Company shall, on the later of (a) the last day of
the then current Interest Period for the affected LIBOR Advance (b)
seven (7) Banking Days after receipt of the Bank's notice, either
notify the Bank and thereafter prepay the LIBOR Advance in accordance
with this Agreement, or notify the Bank and thereafter convert the
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LIBOR Advance into an Advance on which interest accrues at the
Prime-based Rate. In the event that it becomes unlawful for the Bank
to (a) honor its obligations to make any Advance at a LIBOR-based
Rate, or (b) maintain any Advance at a LIBOR-based Rate, the Bank
shall promptly notify the Company thereof and the Bank's obligation to
make the affected type of Advance and to convert other types of
Advances into that type of Advance shall be suspended until such time
as the Bank may again legally make and maintain the affected type of
Advance, and the Company shall, on the last day of the then current
Interest Period for that Advance (or on such earlier date as the Bank
may specify to the Company), either notify the Bank and thereafter
prepay the Advance in accordance with this Agreement or notify the
Bank and thereafter convert the Advance into an Advance on which
interest accrues at the Prime-based Rate."
(g) AMENDMENT OF SECTION 4.01. Effective as of the Execution Date,
Section 4.01 of the Existing Agreement is amended by adding thereto a new
subsection (m), reading in its entirety as follows:
"(m) YEAR 2000 COMPLIANT.
(i) All devices, systems, machinery, information
technology, computer software and hardware, and other date sensitive
technology OF A MATERIAL NATURE (jointly and severally the "Systems")
necessary for the Company to carry on its business as presently
conducted and as contemplated to be conducted in the future are
Year 2000 Compliant or will be Year 2000 Compliant within a period of
time calculated to result in no material disruption of any of the
Company's business operations. For purposes of these provisions,
"Year 2000 Compliant" means that such Systems are designed to be used
prior to, during and after the Gregorian calendar year 2000 A.D. and
will operate during each time period without error relating to date
data, specifically including any error relating to, or the product of,
date data which represents or references different centuries or more
than one century.
(ii) The Company has: (1) undertaken a detailed inventory,
review, and assessment of all areas within its business and operations
that could be adversely affected by the failure of the Company to be
Year 2000 Compliant on a timely basis AND, AS OF THE FIRST AMENDMENT
EXECUTION DATE, THE COMPANY IN GOOD FAITH BELIEVES THAT THE COMPANY
AND ITS SYSTEMS ARE YEAR 2000 COMPLIANT.
(iii) The fair market value of all real and personal property, if
any, pledged to the Bank as collateral pursuant to the Loan Documents to
secure the Obligations is not and shall not be less than currently
anticipated or subject to substantial deterioration in value because of
the failure of such collateral to be Year 2000 Compliant."
(h) AMENDMENT OF SECTION 6.01 - NEW SUBSECTION (k). Effective as of
the Execution Date, Section 6.01 of the Existing Agreement is amended by adding
thereto a new subsection (k), reading in its entirety as follows:
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"(k) YEAR 2000 COMPLIANCE. The Company will:
(1) In the event of any change in circumstances that
causes or will likely cause any of the Company's
representations and warranties with respect to its being or
becoming Year 2000 Compliant to no longer be true
(hereinafter, referred to as a "Change in Circumstances")
then the Company promptly, and in any event within ten (10)
days of receipt of information regarding a Change in
Circumstances, provide the Bank with written notice (the
"Notice") that describes in reasonable detail the Change in
Circumstances and how such Change in Circumstances caused or
will likely cause the Company's representations and
warranties with respect to being or becoming Year 2000
Compliant to no longer be true. The Company shall, within
ten (10) days of a request, also provide the Bank with any
additional information the Bank requests of the Company in
connection with the Notice and/or a Change in Circumstances.
(2) Promptly upon its becoming available, furnish to
the Bank a copy of each financial statement, report, notice,
or proxy statement sent by the Company to stockholders
generally and of each regular or periodic report,
registration statement or prospectus filed by the Company
with any securities exchange or the Securities and Exchange
Commission or any successor agency, and of any order issued
by any Governmental Authority in any proceeding to which the
Company is a party."
(i) AMENDMENT OF SUBSECTION 6.01(b). Effective as of the Execution Date,
Subsection 6.01(b) is amended by adding thereto new subsections (9) and (10),
reading in their entirety as follows:
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(9) BORROWING BASE CERTIFICATES. Within TWENTY (20) days after
the last Banking Day of each calendar month, if any unpaid balance of
the Obligations is outstanding as of such last Banking Day, and at the
time of each Advance request made pursuant to Section 2.02(b) if at
such time more than seven (7) days has elapsed since the Company
submitted a Borrowing Base Certificate, a completed Borrowing Base
Certificate, certified to the Bank by an Authorized Officer, setting
forth a computation of the Borrowing Base as of the last day of the
period covered thereby."
"(10) MONTHLY ACCOUNT RECEIVABLE AGINGS. As soon as available and
in any event within TWENTY (20) days after the end of each month, a
detailed report of the Company's accounts receivable, with agings and in
such detail as the Bank may reasonably request from time to time.
(j) AMENDMENT OF SUBSECTION 6.01(g). Effective as of the Execution
Date, Subsection 6.01(g) of the Existing Agreement is amended and restated in
its entirety to read as follows:
"(g) FINANCIAL COVENANTS. The Company shall observe each of the
following financial covenants:
(1) TANGIBLE NET WORTH. The Company shall at all times from and
after the First Amendment Execution Date maintain its Tangible Net Worth at
a level not less than (i) $10,250,000, PLUS (ii) Fifty Percent (50%) of
the cumulative Net Income of the Company for each fiscal year of the
Company ending after First Amendment Execution Date, provided, that, such
amount for each fiscal year shall in no event be less than zero.
(2) FIXED CHARGE COVERAGE RATIO. As of the close of each fiscal
quarter of the Company ending after the First Amendment Execution Date and
prior to August 31, 1999, the Company, for the period of the four
consecutive fiscal quarters which end on each such close, shall have a
Fixed Charge Coverage Ratio of not less than 1.15 to 1.00. As of the close
of each fiscal quarter of the Company ending on or after August 31, 1999,
the Company, for the period of the four consecutive fiscal quarters which
end on each such close, shall have a Fixed Charge Coverage Ratio of not
less than 1.20 to 1.00.
(3) RATIO OF TOTAL FUNDED DEBT TO EBITDA. As of the close of
each fiscal quarter of the Company ending after the First Amendment
Execution Date, the Company, for the period of the four consecutive fiscal
quarters which end on each such close, shall have a Ratio of Total Funded
Debt to EBITDA of not greater than (i) 5.00 to 1.00 at the close of each
fiscal quarter ending on or before February 27, 1999; (ii) 4.00 to 1.00 at
the close of each fiscal quarter ending at any time from February 28, 1999
to August 30, 1999; (iii) at the close of each fiscal quarter ending at any
time from August 31, 1999 to August 30, 2000, 3.75 to 1.00; (iv) at the
close of each fiscal quarter ending at any time from August 31, 2000, to
August 30, 2001, 3.50 to 1.00; (v) at the close of each fiscal quarter
ending at any time from August 31, 2001, to August 30, 2002, 3.25 to 1.00;
and (vi) at the close of each fiscal quarter ending at any time from and
after August 31, 2002, 3.00 to 1.00."
(k) AMENDMENT OF SUBSECTION 6.02(k). Effective as of the Execution
Date, Subsection 6.02(k) of the Existing Agreement is deleted and replaced with
the following text:
"(k) This subsection intentionally omitted."
(l) AMENDMENT OF SECTION 9.04. Effective as of the Execution Date,
Section 9.04 is amended by adding thereto the following text immediately
preceding the last sentence of such Section 9.04:
"The Company shall reimburse the Bank for the reasonable costs
and expenses incurred by the Bank in having its collateral audit
department personnel conduct an annual on-site
E-12
<PAGE>
inspection and audit of the Company's assets which serve as
collateral for the Obligations."
(m) AMENDMENT OF SECTION 9.10. Section 9.10 of the Existing
Agreement is amended and restated in its entirety as of the Execution Date to
read as follows:
"THE COMPANY AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY, ABSOLUTELY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY TRIAL OR
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN THE COMPANY AND THE BANK ARISING OUT
OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY
RELATIONSHIP BETWEEN THE COMPANY AND THE BANK. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN
AND IN THE OTHER LOAN DOCUMENTS."
3. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Bank that:
(a)(i) The execution, delivery and performance of this Amendment
and all agreements and documents delivered pursuant hereto by the Company have
been duly authorized by all necessary corporate action and do not and will not
violate any provision of any law, rule, regulation, order, judgment, injunction,
or writ presently in effect applying to the Company, or its articles of
incorporation, or result in a breach of or constitute a default under any
material agreement, lease or instrument to which the Company is a party or by
which it or any of its properties may be bound or affected; (ii) no
authorization, consent, approval, license, exemption or filing of a registration
with any court or governmental department, agency or instrumentality is or will
be necessary to the valid execution, delivery or performance by the Company of
this Amendment and all agreements and documents delivered pursuant hereto; and
(iii) this Amendment and all agreements and documents delivered pursuant hereto
by the Company are the legal, valid and binding obligations of the Company, as a
signatory thereto, and enforceable against the Company in accordance with the
terms thereof.
(b) After giving effect to the amendments contained in this
Amendment, the representations and warranties contained in Section 4 of the
Agreement are true and correct on and as of the Execution Date with the same
force and effect as if made on and as of the Execution Date, except that the
representation in Section 4(d) of the Agreement shall be deemed to refer to the
financial statements of the Company most recently delivered to the Bank prior to
the Execution Date.
(c) No Event of Default has occurred and is continuing or will exist
under the Agreement as of the Execution Date.
4. CONDITIONS. The obligation of the Bank to execute and to perform
this Amendment shall be subject to full satisfaction of the following conditions
precedent on or before the Execution Date:
(a) Copies, certified as of the Execution Date, of such corporate
documents of the Company as the Bank may request evidencing necessary
partnership action by the Company with respect to this Second Amendment and all
other agreements or documents delivered pursuant hereto as the Bank may request.
(b) This Amendment shall have been duly executed and delivered by the
Company to the Bank and executed by the Bank.
(c) The Company shall have duly executed and delivered to the Bank
the Revolving Note in substantially the form and substance of the attached
EXHIBIT A.
E-13
<PAGE>
(d) The Company shall have paid all costs and expenses incurred by
the Bank in connection with the negotiation, preparation and
closing of this Amendment and the other documents and agreements
delivered
(e)
(f) pursuant hereto, including the reasonable fees and out-of-pocket
expenses of Messrs. Baker & Daniels, special counsel to the Bank.
(e) The Bank shall have received such additional agreements,
documents and certifications, fully executed by the Company, as may be
reasonably requested by the Bank.
5. GUARANTOR CONSENT AND AFFIRMATION. DMI Management, Inc., in its
capacity as Guarantor under the Guaranty Agreement, by its execution of this
Amendment, expressly consents to the execution, delivery and performance by the
Company and the Bank of this Amendment and each of the other documents,
instruments and agreements to be executed pursuant hereto, and agrees that
neither the provisions of this Amendment nor any action taken or not taken in
accordance with the terms of this Amendment shall constitute a termination,
extinguishment, release or discharge of any of its guaranty obligations or
provide a defense, set off, or counter claim to any of them with respect to any
of its obligations under the Guaranty Agreement or other Loan Documents. DMI
Management, Inc., by its execution of this Amendment, affirms to the Bank that
its Guaranty Agreement remains in full force and effect, is a valid and binding
obligation of it, and continues to secure the Obligations (as the same may
increase by virtue of this Amendment), the payment of which is guaranteed by it
thereunder.
6. BINDING ON SUCCESSORS AND ASSIGNS. All of the terms and
provisions of this Amendment shall be binding upon and inure to the benefit of
the parties hereto, their respective successors, assigns and legal
representatives.
7. GOVERNING LAW/ENTIRE AGREEMENT/SURVIVAL. This Amendment is a
contract made under, and shall be governed by and construed in accordance with,
the laws of the State of Indiana applicable to contracts made and to be
performed entirely with such state and without giving effect to the choice or
conflicts of laws principles of any jurisdiction. This Amendment constitutes
and expresses the entire understanding between the parties with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
commitments, inducements or conditions, whether expressed or implied, oral or
written. All covenants, agreements, undertakings, representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and shall not be affected by any investigation made by any
person. Except as expressly provided otherwise in this Amendment, the Existing
Agreement, as amended hereby, remains in full force and effect in accordance
with its terms and provisions.
8. WAIVER OF NONCOMPLIANCE WITH SUBSECTION 6.01(g)(3). The Bank has
received financial statements from the Company for the fiscal quarter ending
May 30, 1998, which report that as of the close of such quarter, the Company,
for the period of the four consecutive fiscal quarters which ended on May 30,
1998, had a Ratio of Total Funded Debt to EBITDA of 3.4 to 1.00, which therefore
exceeded the 3.00 to 1.00 maximum ratio permitted under Subsection 6.01(g)(3).
Effective as of May 30, 1998, the Bank waives such noncompliance as an Event of
Default, but such waiver shall not be deemed a waiver of any failure of the
Company to comply on and after the Execution Date with Subsection 6.01(g)(3), as
amended by this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective authorized signatories as of
the Execution Date.
E-14
<PAGE>
BANK ONE, INDIANA,
NATIONAL ASSOCIATION
By:______________________________________
THOMAS W. HARRISON, VICE PRESIDENT
(the "Bank")
DMI FURNITURE, INC.
By:______________________________________
_________________________________________
(the "Company")
DMI MANAGEMENT, INC.
By:______________________________________
_________________________________________
(the "Guarantor")
REVOLVING NOTE
U.S. $20,000,000 October 20, 1998
FOR VALUE RECEIVED, on or before December 31, 2000, DMI FURNITURE,
INC., a Delaware corporation ("Maker"), unconditionally promises to pay to the
order of BANK ONE, INDIANA, NA, a national banking association (the "Bank"), at
Bank One Center/Tower, 111 Monument Circle, Suite 1911, P.O. Box 7700,
Indianapolis, Indiana 46277-0119, the principal sum of Twenty Million Dollars
($20,000,000.00), or so much of such amount as may be disbursed by the Bank as
Advances under the Revolving Loan under the terms of the Amended and Restated
Credit Agreement, dated October 3, 1997, by and between Maker and the Bank
(referred to herein, as the same may hereafter be modified, amended, restated,
and/or extended from time to time and at any time, as the "Credit Agreement"),
together with interest thereon at the rates as provided in the Credit Agreement.
Capitalized terms used herein but not defined herein shall have the meaning
ascribed thereto in the Credit Agreement.
Interest accruing on the principal balance of this Revolving Note
outstanding from time to time shall be due and payable by Maker on such dates
and in accordance with the terms of the Credit Agreement. All amounts received
on this Revolving Note shall be applied in accordance with the terms of the
Credit Agreement.
E-15
<PAGE>
This Revolving Note is the "Revolving Note" referred to in the Credit
Agreement, to which reference is made for the conditions and procedures under
which advances, payments, readvances and repayments may be made prior to the
maturity of this Revolving Note, for the terms upon which Maker may make
prepayments from time to time and at any time prior to the maturity of this
Revolving Note and the terms of any prepayment premiums or penalties which may
be due and payable in connection therewith, and for the terms and conditions
upon which the maturity of this Revolving Note may be accelerated and the unpaid
balance of principal and accrued interest thereon declared immediately due and
payable.
If any installment of interest due under the terms of this Revolving
Note falls due on a day which is not a Banking Day, the due date shall be
extended to the next succeeding Banking Day and interest will be payable at the
applicable rate for the period of such extension.
All amounts payable under this Revolving Note shall be payable without
relief from valuation and appraisement laws, and with all collection costs and
attorneys' fees.
The holder of this Revolving Note, at its option, may make extensions
of time for payment of the indebtedness evidenced by this Revolving Note, or
reduced the payments thereon, release any collateral securing payment of such
indebtedness or accept a renewal Revolving Note or Revolving Notes therefor, all
without notice to Maker or any endorser(s) and Maker and all endorsers hereby
severally consent to any such extensions, reductions, releases and renewals, all
without notice, and agree that any such action shall not release or discharge
any of them from any liability hereunder. Maker and endorser(s), jointly and
severally, waive demand, presentment for payment, protest, notice of protest and
notice of nonpayment or dishonor of this Revolving Note and each of them
consents to all extensions of the time of payment thereof.
MAKER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN OR AMONG MAKER AND THE BANK ARISING OUT OF OR IN ANY WAY
RELATED TO THIS REVOLVING NOTE OR ANY OTHER RELATED DOCUMENT. THIS PROVISION IS
A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR
IN THE RELATED DOCUMENTS. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
REVOLVING NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF INDIANA
WITHOUT REGARD TO ITS CHOICE OR CONFLICTS OF LAWS PROVISIONS. MAKER AGREES THAT
THE COURTS OF THE STATE OF INDIANA LOCATED IN INDIANAPOLIS, INDIANA, AND THE
FEDERAL COURTS LOCATED IN THE SOUTHERN DISTRICT OF INDIANA, MARION COUNTY, HAVE
EXCLUSIVE JURISDICTION OVER ANY AND ALL ACTIONS AND PROCEEDINGS INVOLVING THIS
REVOLVING NOTE OR ANY OTHER AGREEMENT MADE IN CONNECTION HEREWITH AND MAKER
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF
SUCH COURTS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING. MAKER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING, INCLUDING ANY
CLAIM THAT SUCH COURT IS AN INCONVENIENT FORUM, AND CONSENTS TO SERVICE OF
PROCESS PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT
IN ANY SUCH PROCEEDING AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT.
E-16
<PAGE>
Baker and the Bank agree that upon the written demand of either party,
whether made before or after the institution of any legal proceedings, but
prior to the rendering of any judgment in that proceeding, all disputes, claims
and controversies between them, whether individual, joint, or class in nature,
arising from this Revolving Note, any related document or otherwise, including
without limitation contract disputes and tort claims, shall be resolved by
binding arbitration pursuant to the Commercial Rules of the American Arbitration
Association. Any arbitration proceeding held pursuant to this arbitration
provision shall be conducted in the city nearest the Maker's address having an
AAA regional office, or at any other place selected by mutual agreement of the
parties. No act to take or dispose of any collateral shall constitute a waiver
of this arbitration agreement or be prohibited by this arbitration agreement.
This arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary, or
preliminary rights and/or remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing upon or proceeding under
forcible entry and detainer for possession of, any real or personal property,
and any such action shall not be deemed an election of remedies. Such remedies
include, without limitation, obtaining injunctive relief or a temporary
restraining order, invoking a power of sale under any deed of trust or mortgage,
obtaining a writ of attachment or imposition of a receivership, or exercising
any rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code or when applicable, a judgment by confession of judgment. Any
disputes, claims or controversies concerning the lawfulness or reasonableness of
an act, or exercise of any right or remedy concerning any collateral, including
any claim to rescind, reform, or otherwise modify any agreement relating to the
collateral, shall also be arbitrated; provided, however that no arbitrator shall
have the right or the power to enjoin or restrain any act of either party.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing in this arbitration provision shall preclude
either party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches and similar
doctrines which would otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of any action for these
purposes. The Federal Arbitration Act (Title 9 of the United States Code) shall
apply to the construction, interpretation, and enforcement of this arbitration
provision.
Executed and delivered this 2nd day of July 1998.
DMI FURNITURE, INC.,
a Delaware corporation
By:________________________________
Printed:_____________________________
Title:_______________________________
("Maker")
E-17
<PAGE>
EXHIBIT 10(F)
EXTENSION AND RENEWAL OF
EMPLOYMENT AGREEMENT
THIS AGREEMENT, as of this 9th day of October, 1997 by and
between DMI FURNITURE, INC., a Delaware corporation ("DMI" or the
"Corporation") and DONALD D. DREHER ("Employee").
WHEREAS, Employee and DMI have entered into an Employment
Agreement dated as of September 1, 1986, which has been amended from time to
time and extended and renewed for additional terms through December 31, 1998;
WHEREAS, the Employment Agreement, as amended, extended and
renewed to date, is intended to complement the terms of the Amendment to
Employment Agreement and Officer Severance Agreement dated as of May 19, 1988
between the Employee and DMI (the "Officer Severance Agreement"), which
provides for the payment of certain benefits to Employee in certain
circumstances following a "change in control" of DMI (as defined in the
Officer Severance Agreement).
WHEREAS, Employee and DMI desire to renew and extend the
Employment Agreement between them for an additional term expiring on August
31, 2000; and
NOW, THEREFORE, intending to be legally bound hereby and in
consideration of the mutual undertakings hereinafter set forth, DMI and
Employee agree as follows, effective October 9, 1997;
1. EMPLOYMENT. DMI or its successors hereby employs Employee
and Employee hereby accepts employment as Chairman of the Board, President,
and Chief Executive Officer of DMI for a period commencing October 9, 1997
and ending August 31, 2000.
2. DUTIES OF EMPLOYEE. Employee further agrees as follows:
(a) To perform well and faithfully all such duties as are
assigned to him by the Board of Directors of DMI; and
(b) To devote the time and attention to the performance of
all matters necessary and appropriate to the discharge of the duties so
assigned to him in the operation of DMI, it being the intention of this
provision to require that Employee serve as a "full-time" employee of DMI, to
devote his best efforts to the performance of the duties of him; and
(c) To refrain from investment or other involvement in any
business or other activity that competes with the business of DMI other than
nominal investments as a passive investor in publicly traded companies.
3. COMPENSATION. As compensation for his services pursuant to
this Agreement, Employee shall be paid as follows:
(a) SALARY. A minimum salary of $275,000 per year payable
at the rate of $11,458.33 semi-monthly during the term
of this Agreement. Each year, on the anniversary of
this Agreement, the Compensation Committee of the
Corporation's Board of Directors will review increases
in the cost of living and may negotiate upward
revisions to salary with the Employee.
(b) CASH BONUS. For each of the Corporation's fiscal years
during the term of this Agreement,
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<PAGE>
(c) Employee shall receive an incentive bonus based on the
"adjusted net pre-tax income" for said fiscal year.
For the purposes of this subsection, "adjusted net
pre-tax income" shall mean the pre-tax income as
reported to the Securities and Exchange Commission on
Form 10-K excluding as expenses all dividends paid by
the Corporation to the holders of any class of its
preferred stock, as well as all interest paid by the
Corporation in connection with any funds borrowed for
the redemption of 675,000 shares of preferred stock at
$2.49 per share or $1,680,750 on August 28, 1989 and
any future redemptions of preferred stock, and also
excluding (i) any gains or losses resulting from the
sale, conversion or other disposition of capital
assets; (ii) accruals made in accordance with general
accepted accounting principles to recognize the costs
associated with the permanent closure of an operation
and the carrying costs prior to the sale of the assets
of that operation; (iii) gain or loss resulting from
non-operational litigation; and (iv) charges or credits
resulting from the adoption of a change in accounting
principle.
Employee shall receive a fractional share of the adjusted
net pre-tax income calculated as follows: X = (.0325 + .0195 {Y}) x Z where
X equals the bonus earned, Y equals the adjusted net pre-tax income expressed
in millions of dollars rounded to three decimal places, and Z equals the
adjusted net pre-tax income.
<TABLE>
Example:
<S> <C>
Reported income before income tax $1,525,169
Add back: Interest on borrowing for
Preferred stock redemption 201,500
Deduct: Gain on sale of building {156,000}
----------
Adjusted pre-tax income $1,570,369
then:
X = (.0325 + (.0195 x 1.570)) x $1,570,369
X = (.0325 + .0306) x $1,570,369
X = .0631 x $1,570,369
X = $99,090
</TABLE>
(c) STOCK BONUS. For each fiscal year during the term of
this Agreement, Employee shall be eligible to earn a stock bonus as provided
herein. All stock granted pursuant to this bonus shall be granted as of the
date upon which the cash bonus earned by Employee is paid to him and shall be
valued at the bid price of the Corporation's common stock as listed by NASDAQ
on the last day of the fiscal year. To the extent feasible, stock (or other
equity securities of the Corporation) granted pursuant to this bonus shall be
issued under a plan meeting the terms and conditions of Rule 16b-3 under the
Exchange Act.
Employee shall have the option to receive a grant for shares
of common stock with a value equal to 59.3% of Employee's Cash Bonus.
Employee may decline to exercise the right to receive any
stock grant by so advising the Corporation within 10 days of the date upon
which he is advised of his bonus. The grant of stock referred to herein is
subject to the Corporation's shareholders having approved the issuance of
sufficient shares of stock to permit the grant of these shares. The
Corporation agrees to seek such approval, as and to the extent, required.
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<PAGE>
(d) BONUS PAYMENTS. Any bonus under this paragraph 3 shall be
paid within one hundred thirty days of the end of the fiscal
year.
For any fiscal year of DMI during which the period of
Employee's employment set forth in paragraph 1 (or any extension thereof)
expires before completion of the fiscal year, Employee shall receive a cash
bonus and a stock bonus equal to the bonuses that would have been due
Employee under paragraphs 3(b) and 3(c) had Employee remained employed until
the end of DMI's fiscal year multiplied by a fraction, the numerator of which
is the number of complete calendar months during which Employee was employed
during the fiscal year and the denominator of which is 12.
3. FRINGE BENEFITS. DMI will provide Employee with fringe
benefits as follows:
(a) DMI will maintain, without contribution by Employee,
life insurance with benefits payable as designated by Employee in a face
amount equal to three times Employee's annual base salary rate hereunder
provided however the face amount of life insurance benefits are not to exceed
$750,000.
(b) DMI will maintain health insurance at least as
comprehensive as provided for other key and executive employees.
(c) DMI will maintain, without contribution by Employee,
travel accident insurance with benefits payable as designated by Employee in
a face amount equal to $250,000 death benefits for accidental death in the
course of travel.
(d) DMI will provide Employee with an automobile comparable
to those furnished to other key executives, or its cash equivalent of $675
per month, for Employee's business related use.
(e) Employee shall receive reimbursement for expenses
incurred by him in connection with Medical Care for Employees, his spouse and
his dependents, provided, however, that the amount paid by DMI to Employee
pursuant to this subsection in any fiscal year during the term of this
Agreement shall not exceed $2,000. For the purpose of this subsection the
term "Medical Care" means amounts paid for the diagnosis, care, medication,
treatment, or prevention of disease, or for the purpose of affecting any
structure or function of the body (including amounts paid for accident or
health insurance), or for transportation primarily for and essential to
Medical Care. Payments hereunder may be made from time to time as requested
by Employee with or without requiring proof of the medical expenses in
questions, in the discretion of the Board of Directors, and it is not
necessary that such medical expenses have already been paid by Employee, his
spouse, or his aforesaid dependents, but merely that, if not yet paid, there
exists an obligation to pay them. Premiums paid by DMI under any group
accident or health insurance policy that may be maintained by DMI covering or
for the benefit of some or all of its employees, and payments made by
insurers pursuant to said policy, shall not to any extent be regarded as
payments made pursuant to this subsection.
(f) Employee shall receive annual reimbursement for expenses
incurred by him in connection with personal or tax financial planning, not to
exceed $2,000 per year.
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<PAGE>
(g) Employee shall be entitled to participate in any
benefit plan of a type not specifically covered by this Agreement and
established by DMI for key employees during the term of Employee's employment
hereunder on a basis consistent with his age, position, responsibilities, and
level of compensation.
(h) Employee shall be reimbursed for his reasonable
out-of-pocket travel and business expenses, including but not limited to,
membership in private clubs for business purposes. All such club memberships
will be approved by a majority of outside members of the Board of Directors.
(i) Employee shall designate a medical doctor as his choice
for annual physical examinations. DMI shall receive a doctor's report on
each annual examination. DMI shall bear the reasonable travel and
examination expense related with these examinations so long as the
examinations are performed in the Continental United States.
5. VACATION. Employee shall be entitled to a six-week vacation
with pay in each 12-month period ending August 31. A maximum of one week of
annual paid vacation shall be cumulative and will not be deemed waived if not
taken during the applicable 12-month period. Employee's paid vacation shall
be pro-rated based on the number of months he has remained employed by DMI
during any fiscal year during which this Agreement expires or is terminated.
6. OTHER BOARD OF DIRECTORS ACTION. Nothing in this Agreement
shall be deemed to prevent the Board of Directors of DMI from taking any
action it may deem, in its sole discretion, to be desirable to make the terms
and conditions of this Employment Agreement more beneficial to Employee, or
to add further benefits to his employment with DMI, provided that Employee
agrees to such changes and additions.
7. TERMINATION. This Agreement shall terminate and, except to
the extent previously accrued or as otherwise provided in the Officer
Severance Agreement, all rights and obligations of DMI and Employee under
this Agreement shall be void, upon the earliest to occur of any of the
following:
(a) Expiration of the period of employment set forth in
paragraph 1, unless the period of employment is extended by the Board of
Directors, in which event termination shall occur upon the expiration of the
period of employment as extended by the Board of Directors;
(b) Death of Employee;
(c) Mental or physical illness or disability of Employee
that shall incapacitate him, for a period of 90 successive days or for an
aggregate period of 120 days during any 12 calendar months, from fully
performing the duties assigned to him hereunder and in the good faith
determination of the Board of Directors and upon written notice to Employee.
E-21
<PAGE>
(e) If Employee (i) is found guilty of having committed against
DMI any criminal act, including criminal fraud, or (ii) is
found guilty of having committed any criminal act involving
moral turpitude, or (iii) the willful and continued failure
by the Employee to substantially perform the
(f) Employee's duties with DMI after a written demand for
substantial performance is delivered to the Employee by the
Board, which demand specifically identifies the manner in
which the Board believes that the Employee has not
substantially performed his duties; or (iv) the willful
engaging by the Employee in gross misconduct materially and
demonstrably injurious to the Corporation. For the
purposes of this definition, no act, or failure to act on
the Employee's part shall be considered "willful" unless
done or omitted to be done by the Employee other than in
good faith and without reasonable belief that the
Employee's action or omission was in the best interests of
DMI. The Employee shall not be deemed to have been
terminated for Cause (as defined in the Officer Severance
Agreement) unless and until DMI has delivered a Notice of
Termination, as provided therein.
(g) Voluntary cessation by Employee of his duties and
responsibilities under this agreement.
If DMI terminates Employee's employment other than for Cause
(as defined in the Officer Severance Agreement), and a change in control (as
defined in the Officer Severance Agreement) occurs within 9 months
thereafter, then Employee shall be entitled to all benefits provided under
the Officer Severance Agreement.
Otherwise, if Employee's employment hereunder is terminated
for any other reason than those specified in subparagraphs (a) through (e) of
this paragraph 7, then DMI shall remain liable to Employee and shall pay
Employee in full settlement of DMI's obligations hereunder: (i) the full
amount of the balance of his base salary as provided in subparagraph 3(a)
above, to the expiration date of this Agreement or to such expiration date as
may have been extended by action of the Board of Directors pursuant to
subparagraph 7(a), in a lump sum; PLUS (ii) an amount equal to the cash bonus
and the stock bonus that would have been payable to Employee pursuant to
subparagraphs 3(b) and 3(c) above had Employee remained employed until the
end of DMI's fiscal year, multiplied by a fraction, the numerator of which is
the number of complete calendar months during which Employee was employed
during the fiscal year and the denominator of which is 12. The payments
based upon the cash bonus and the stock bonus shall be paid within 130 days
of the delivery to DMI of the financial statements upon which they shall be
based.
8. DIRECTORSHIP. Employee shall be nominated for election to
the Board of Directors of DMI at each annual meeting of DMI's stockholders.
If duly elected or appointed, Employee agrees to serve on the Board and shall
be designated as Chairman of the Board.
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9. COORDINATION WITH OFFICER SEVERANCE AGREEMENT. For the
purposes of the Officer Severance Agreement, this Agreement shall constitute
a renewal and extension of the Employment Agreement dated as of September 1,
1986 between Employee and DMI. If any provision of this Agreement may be
viewed as conflicting with a provision of the Officer Severance Agreement,
and the provision at issue does not specifically state that it is intended to
supersede the Officer Severance Agreement, the office Severance Agreement
shall control.
10. NON-COMPETITION. If this Agreement is terminated for any
reason specified in subparagraphs (a) through (e) of Paragraph 7, Employee
shall refrain, for a period of one year after the termination of this
Agreement, from carrying on a business that competes with a business
conducted by DMI within the geographic areas described as follows:
The 50 states of the United States of America and Puerto
Rico, except for the states of Washington, Oregon, Idaho,
Colorado, Wyoming, North Dakota and South Dakota.
For the purposes of this paragraph, a business shall be deemed carried on by
Employee if carried on by a proprietorship, partnership, association, or
corporation, or other business entity with which Employee is connected,
except that Employee shall not be deemed to be connected with a business
competitive to that conducted by DMI to the extent that Employee is merely a
passive investor therein or not engaged in the business operations thereof as
an officer, director, employee, agent, consultant, sales representative, or
other provider of personal services in a capacity that would enable him to
use his knowledge or DMI's trade secrets, customer lists or unique business
methods to compete against DMI. It is agreed that in the event of a breach
or a threatened breach of the foregoing, no adequate remedy exists at law to
protect DMI's interests and that DMI shall be entitled to appropriate
injunctive relief. Should the foregoing covenant be adjudged to any extend
invalid by any court of competent jurisdiction, such covenant shall be deemed
modified to the extend necessary to make it enforceable.
11. PLACE OF EMPLOYMENT. DMI agrees that the principal location
at which Employee is to render his services hereunder will continue to be
Louisville, Kentucky.
12. NOTICES. Any notice to DMI or Employee hereunder may be
given by delivering it to, or by depositing it in the United States mail,
postage pre-paid, addressed to the parties at the following addresses:
DMI:
Mr. Joseph G. Hill
DMI Furniture, Inc.
One Oxmoor Place
101 Bullitt Lane
Louisville, KY 40222
with a required copy to:
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<PAGE>
Chairman, Compensation / Stock Option Committee
DMI Furniture, Inc.
One Oxmoor Place
101 Bullitt Lane
Louisville, KY 40222
EMPLOYEE:
Mr. Donald D. Dreher
8508 Westover Dr.
Louisville, KY 40059
13. ENTIRE AGREEMENT. This Agreement and the Officer Severance
Agreement (a) contain the complete and entire understanding and agreement of
DMI and Employee respecting the subject matter hereof; (b) supersede and
cancel all understandings or agreements, oral or written, respecting the
employment of Employee in connection with the business of DMI; and (c) may
not be modified except by an instrument in writing executed by DMI and
Employee.
14. WAIVER OF BREACH. The waiver by either party, of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of either party.
15. ASSIGNMENT. Employee may not assign his rights or
obligations under this agreement. The rights and obligations of DMI shall
inure to the benefit of and shall be binding upon the successors and assigns
of DMI.
16. CAPTIONS. All captions and headings used herein are for
convenient reference only and do not form part of this Agreement.
IN WITNESS WHEREOF, DMI and Employee have caused this Agreement
to be duly executed and delivered on the day and year first above written,
but effective January 1, 1996.
DMI FURNITURE, INC.
ATTEST: By
------------------ -------------------------------
Joseph G. Hill
Vice President, Finance, Chief Financial
Officer, Secretary and Treasurer
- -------------------------------
Donald D. Dreher
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EHHIBIT 10(G)
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (
this "Amendment" or "Second Amendment") has been executed as of the ____ day
of August, 1998 (the "Second Amendment Effective Date") by DMI FURNITURE,
INC., a Delaware corporation (the "Company"), DMI MANAGEMENT, INC.
("Guarantor") and BANK ONE, INDIANA, NATIONAL ASSOCIATION (the "Bank").
RECITALS
1. The Company and the Bank are parties to an Amended and
Restated Credit Agreement, dated October 3, 1997, which was amended by a
First Amendment to Amended and Restated Credit Agreement, dated as of July 2,
1998 (as in effect immediately prior to the execution of this Amendment, the
"Existing Agreement").
2. The Company has requested the Bank to amend the Existing
Agreement, effective as of the Second Amendment Effective Date, as set forth
in this Second Amendment, and the Bank has agreed to so amend the Existing
Agreement, subject to the terms and conditions of this Second Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the Recitals and for other good
and valuable considerations, the receipt and sufficiency of which are hereby
acknowledged by each of the parties to this Second Amendment, it is agreed as
follows:
1. DEFINITIONS. Terms which are defined in the Existing
Agreement shall have the same meanings in this Amendment as are ascribed to
them in the Existing Agreement, as amended hereby, excepting only those terms
which are expressly defined in this Amendment, which shall have the meanings
ascribed to them in this Amendment.
2. AMENDMENTS TO EXISTING AGREEMENT.
(a) AMENDMENTS TO DEFINITIONS. Each of the following definitions
which are set forth in Section 1.01 of the Existing Agreement are amended and
restated in their respective entireties as of the Second Amendment Effective
Date to read as follows:
"ADVANCE" means a disbursement of proceeds of the Revolving Loan or either
of the Term Loans.
"AGREEMENT" means this Amended and Restated Credit Agreement, as amended by
the First Amendment and the Second Amendment, and as may be further
amended, modified, supplemented and/or restated from time to time and at
any time.
"APPLICABLE SPREAD II" means that number of percentage points to be taken
into account in determining the rate per annum at which interest will
accrue on Term Loan A and Term Loan B, which shall be determined by
reference to the Ratio of Total Funded Debt to EBITDA in accordance with
the following table:
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<TABLE>
If determining If determining
Ratio of Total a LIBOR-based a Prime-based
Funded Debt Rate on the Rate on the
to EBITDA Term Loan Term Loan
-------------- -------------- -------------
<S> <C> <C>
4.00 and above 2-1/2% 1/4 %
3.50 to 3.99 2-1/4% 0 %
3.00 to 3.49 2 % 0 %
2.50 to 2.99 1-3/4 % 0 %
less than 2.50 1-1/2% 0 %
</TABLE>
Applicable Spread II shall be determined on the Second Amendment Effective
Date on the basis of the Ratio of Total Funded Debt to EBITDA in effect on
the Second Amendment Effective Date (which the Company and the Bank agree
for purposes of Applicable Spread II is greater than 4.0 as of the Second
Amendment Effective Date and funding of the Term Loans) and shall be
redetermined and adjusted as of the close of each fiscal quarter of the
Company thereafter, concurrently with any adjustment to the Ratio of Total
Funded Debt to EBITDA (as provided in the definition of Ratio of Total
Funded Debt to EBITDA in this Agreement), with such redetermined Applicable
Spread II to be effective for the entire fiscal quarter of the Company
which immediately follows each such fiscal quarter.
"LOAN" means the Revolving Loan, the Term Loan, Term Loan A, Term Loan B,
any Remarketing Reimbursement Loan-1993 Bonds, or any Remarketing
Reimbursement Loan-1994 Refunding Bonds, as the context requires, and when
used in the plural form refers to all of the Loans or any combination of
them, as the context requires.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Revolving Note,
Term Note A, Term Note B, the Security Agreement, the Mortgages, the
Mortgage Amendments, the Guaranty, the Reimbursement Agreements, all other
instruments, agreements and documents executed and delivered or to be
delivered by the Company pursuant to or by virtue of this Agreement and any
and all interest hedging agreements which at any time from and after the
Closing Date may be made between the Company and the Bank, as each may be
amended, modified, extended, renewed, supplemented and/or restated from
time to time and at any time, and when used in the singular form, means any
of the Loan Documents, as the context requires.
"NOTES" means the Revolving Note, the Term Note, Term Note A, Term Note B,
any Remarketing Reimbursement Note-1993 Bonds, or any Remarketing
Reimbursement Note-1994 Refunding Bonds, as the context requires, and when
used in the plural form refers to all of the Notes or any combination of
them, as the context requires.
(b) PARTIAL AMENDMENT OF DEFINITIONS. The definition of "Applicable
Spread I" in Section 1.01 of the Existing Agreement is amended, effective as of
the Second Amendment Effective Date, by deleting the phrase "3.50 to 399" in the
second line of the lefthand column thereof and replacing same with the phrase
"3.50 to 3.99". In addition, the word "ov" in the third line from the bottom of
paragraph (a) of the definition of "Change in Control" is deleted, as of the
Second Amendment Effective Date, and replaced with the word "of".
(c) NEW DEFINITIONS. Section 1.01 of the Existing Agreement amended,
effective as of the Second Amended Effective Date, by adding thereto the
following new definitions:
"CLASS C PREFERRED SHARES" is used as defined in Section 2.04(a).
"NET REQUIRED ANNUAL MINIMUM REDEMPTION AMOUNT" means the Required Annual
Minimum Redemption Amount, less the principal amount of 1993 Bonds actually
redeemed by the 1993 Trustee during the twelve (12) calendar months
immediately prior to the 1994 Redemption Date for which the Net Required
Annual Minimum Redemption Amount is being calculated pursuant to the
Company's having exercised its option with respect thereto pursuant to
Section 3.01(a)(2) of this Agreement.
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"1993 REDEMPTION DATE" is used as defined in Section 3.01(a)(2).
"1994 REDEMPTION DATE" is used as defined in Section 3.01(b)(2).
"REQUIRED ANNUAL MINIMUM REDEMPTION AMOUNT" means for any consecutive
twelve (12) month period beginning on or after October 1, 1999, the
principal sum of $1,400,000.00, less the principal amount of payments
actually made by the Company on Term Loan A during the twelve (12) month
period immediately preceding any date of calculation thereof.
"SCHEDULED TERM LOAN A MATURITY DATE" means May 31, 2002, or such
subsequent date to which the Company and the Bank may hereafter agree.
SCHEDULED TERM LOAN B MATURITY DATE" means August 31, 2003, or such
subsequent date to which the Company and the Bank may hereafter agree.
"SECOND AMENDMENT" means the Second Amendment to Amended and Restated
Credit Agreement, dated as of the Second Amendment Effective Date, executed
by the Company, Guarantor and the Bank.
"SECOND AMENDMENT EFFECTIVE DATE" is used as defined in the Preamble.
"TERM LOAN A" is used as defined in Section 2.04(a).
"TERM LOAN A MATURITY DATE" means the earlier of (i) the Scheduled Term
Loan A Maturity Date, and (ii) that date upon which the Bank accelerates
payment of Term Loan A in accordance with Section 8.02 of this Agreement.
"TERM LOAN B" is used as defined in Section 2.05(a).
"TERM LOAN B MATURITY DATE" means the earlier of (i) the Scheduled Term
Loan B Maturity Date, and (ii) that date upon which the Bank accelerates
payment of Term Loan B in accordance with Section 8.02 of this Agreement.
"TERM LOANS" means Term Loan A and Term Loan B.
"TERM NOTE A" is used as defined in Section 2.04(b).
"TERM NOTE B" is used a defined in Section 2.05(b).
(d) PARTIAL AMENDMENT OF SECTION 2.02(c). The phrase "LIBOR-based
Rate" in the nineteenth (19th) line of Section 2.02(c) of the Existing Agreement
is deleted, as of the Second Amendment Effective Date, and replaced with the
phrase "London Interbank Offered Rate."
(e) PARTIAL AMENDMENT OF SECTION 2.03(f). The phrase "Applicable
Documentary Letter of Credit Fee Percentage" in the third (3rd) line of Section
2.03(f) of the Existing Agreement is deleted as of the Second Amendment
Effective Date, and replaced with the phrase "Applicable Documentary Letter of
Credit Commission Rate."
(f) AMENDMENT OF SECTION 2.04. Section 2.04 of the Existing
Agreement is amended and restated, effective as of the Second Amendment
Effective Date, in its entirety to read as follows:
"SECTION 2.04 TERM LOAN A.
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(a) TERM LOAN A -- GENERAL. The Bank agrees, subject to the terms
and conditions of this Agreement, to loan to the Company the maximum
principal amount of Five Million Three Hundred Thousand and 00/00
Dollars ($5,300,000.00) for the term period beginning on the Second
Amendment Effective Date and ending on the Term Loan A Maturity Date
("TERM LOAN A"). Term Loan A under this Agreement is a continuation
and increase, on amended terms, of the "Term Loan" extended to the
Company by the Bank under the Existing Agreement, and the Company
affirms, acknowledges and agrees that the unpaid principal balance of
the Term Loan as of the Second Amendment Effective Date is
$2,960,310.00.
The Bank agrees, subject to the terms and conditions of this
Agreement, to make an Advance or Advances to the Company under Term
Loan A on or after the Second Amendment Effective Date, provided that
such Advance(s) must be made on or before August 28, 1998, in a
principal amount not to exceed the aggregate of sum of $2,300,000.00
to be used by the Company to partially finance the redemption by the
Company of a portion of the Company's Class C Convertible Preferred
Stock Series (the "Class C Preferred Shares") on or before August 31,
1998.
(b) TERM NOTE A/PAYMENTS. The Obligation of the Company to repay
Term Loan A shall be evidenced by a promissory note executed by the
Company to the Bank in the form of EXHIBIT "A" attached to the Second
Amendment (as the same may be amended, modified, extended, renewed,
supplemented, replaced and/or restated from time to time and at any
time, "TERM NOTE A"). The principal of Term Loan A shall be repayable
in equal monthly installments from and after the Second Amendment
Effective Date until the Term Loan A Maturity Date, each in an amount
equal to the principal sum of $116,666.67, plus interest. Such
monthly installments shall be due and payable on the last Banking Day
of September, 1998, and on the last Banking Day of each successive
calendar month thereafter until the Term Loan A Maturity Date, at
which time the entire principal balance of Term Loan A and all unpaid,
accrued interest thereon, shall be due and payable in full without
demand. Subject to the contemporaneous payment of any Prepayment
Premium which would become due on account of any proposed prepayment,
the principal of Term Loan A may be prepaid at any time in whole or in
part, provided that any partial prepayment shall be in an amount which
is an integral multiple of Fifty Thousand Dollars ($50,000) and
provided further that all partial prepayments shall be applied to the
latest maturing installments of principal payable under Term Loan A in
the inverse order of their maturities.
(d) INTEREST ON TERM LOAN A. The principal amount of Term Loan A
outstanding from time to time shall bear interest until the Term
Loan A Maturity Date at a rate per annum equal to the Prime Rate,
plus Applicable Spread II, except that at the option of the
Company, exercised from time to time as provided in this
Agreement, interest may accrue prior to maturity on that portion
or on the entire outstanding balance of Term Loan A as to which
no LIBOR-based Rate previously elected remains in effect, at a
LIBOR-based Rate (for an Interest Period selected by the Company
as provided in this Agreement), plus Applicable Spread II,
provided that an election of a LIBOR-based Rate for an Interest
Period extending beyond the Scheduled Term Loan A Maturity Date
shall be permitted only at the discretion of the Bank. From and
after the Term Loan A Maturity Date, and until paid in full, Term
Loan A shall bear interest at a per annum rate equal to the Prime
Rate, plus Applicable Spread II, plus two percent (2%) per annum,
except that as to any portion of Term Loan A for which the
Company may have elected a LIBOR-based Rate for an Interest
Period that has not expired at the Term Loan A Maturity Date,
such portion shall, during the remainder of such period, bear
interest at the greater of the Prime Rate, plus Applicable
Spread II, plus two percent (2%) per annum or the London
Interbank Offered Rate then in effect, plus Applicable Spread II,
plus two percent (2%) per annum. Each change in the rate of
interest to be charged with reference to a Prime-based Rate
shall become effective on the date of each change in the Prime
Rate. Each change in the rate of interest to be charged with
reference to a LIBOR-based Rate shall become effective without
notice on the commencement of each Interest Period based on the
London Interbank Offered Rate for that Interest Period then in
effect. With respect to that portion of Term Loan A, if any,
which bears interest at the Prime-based Rate, accrued interest
shall be due and payable monthly on the last Banking Day of each
month until the Term Loan A Maturity Date. With respect to these
portions of
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<PAGE>
(e) Term Loan A that bear interest LIBOR-based Rates, accrued
interest shall be due and payable
(f) on the last day of each Interest Period (except that if the
Interest Period is six months, the accrued interest shall be due
on the 90th day of such Interest Period and then on the last day
of such Interest Period) until the Term Loan A Maturity Date. On
the Term Loan A Maturity Date, the entire unpaid principal
balance of Term Loan A evidenced by Term Note A and all unpaid,
accrued interest thereon, shall be due and payable in full
without demand. From and after the Term Loan A Maturity Date,
interest on Term Loan A shall be payable as accrued and without
demand."
(g) AMENDMENT OF SECTION 2.05. Effective as of the Second Amendment
Effective Date, Section 2.05 of the Existing Agreement is amended by
redesignating same as Section 2.06 and by inserting immediately prior thereto a
new Section 2.05 which shall in its entirety read as follows:
"SECTION 2.05. TERM LOAN B.
(a) TERM LOAN B - GENERAL. The Bank agrees, subject to the terms and
conditions of this Agreement, to loan to the Company the maximum
principal amount of One Million Five Hundred Thousand and 00/100
Dollars ($1,500,000.00) for the term period beginning on the Second
Amendment Effective Date and ending on the Term Loan B Maturity Date
("Term Loan B"). Term Loan B is a new credit, not previously extended
to the Company pursuant to the Existing Agreement.
The Bank agrees, subject to the terms and conditions of this
Agreement, to make an Advance or Advances to the Company under Term
Loan B on or after the Second Amendment Effective Date, provided that
such Advance(s) must be made on or before August 28, 1998, in a
principal amount not to exceed the aggregate sum of $1,500,000.00 to
be used by the Company to partially finance the redemption by the
Company of a portion of the Company's Class C preferred Shares on or
before August 31, 1998.
(b) TERM NOTE B/PAYMENTS. The Obligation of the Company to repay
Term Loan B shall be evidenced by a promissory note executed by the
company to the Bank in the form of Exhibit "B" attached to the Second
Amendment (as the same may be amended, modified, extended, renewed,
supplemented, replaced and/or restated from time to time and at any
time, "Term Note B"). The principal of Term Loan B shall be repayable
on the basis of a fifteen (15) year amortization schedule in equal
monthly installments from and after the Second Amendment Effective
Date until the Term Loan B Maturity Date, each in an amount equal to
the principal sum of $8,333.33, plus interest. Such monthly
installments shall be due and payable on the last Banking Day of
September, 1998, and on the last Banking Day of each successive
calendar month thereafter until the Term Loan B Maturity Date, at
which time the entire principal balance of Term Loan B and all unpaid,
accrued interest thereon, shall be due and payable in full without
demand. Subject to the contemporaneous payment of any Prepayment
Premium which would become due on account of any proposed prepayment,
the principal of Term Loan B may be prepaid at any time in whole or in
part, provided that any partial prepayment shall be in an amount which
is an integral multiple of Fifty thousand Dollars ($50,000.00) and
provided further that all partial prepayments shall be applied to the
latest maturing installments of principal payable under Term Loan B in
the inverse order of their maturities.
(c) INTEREST ON TERM LOAN B. The principal amount of Term Loan B
outstanding from time to time shall bear interest until the Term
Loan B Maturity Date at a rate per annum equal to the Prime Rate,
plus Applicable Spread II, except that at the option of the
Company, exercised from time to time as provided in this
Agreement, interest may accrue prior to maturity on that portion
or on the entire outstanding balance of Term Loan B as to which
no LIBOR-based Rate previously elected remains in effect, at a
LIBOR-based Rate (for an Interest Period selected by the Company
as provided in this Agreement), plus Applicable Spread II,
provided that an election of a LIBOR-based Rate for an Interest
Period extending beyond the Scheduled Term Loan B Maturity Date
shall be permitted only at the discretion of the Bank. From and
after the Term Loan B Maturity Date, and until paid in full, Term
Loan B shall bear interest at a per annum rate
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<PAGE>
equal to the Prime Rate, plus Applicable Spread II, plus two percent
(2%) per annum,
(d) except that as to any portion of Term Loan B for which the
Company may have elected a LIBOR-based Rate for an Interest
Period that has not expired at the Term Loan B Maturity Date,
such portion shall, during the remainder of such period, bear
interest at the greater of the Prime Rate, plus Applicable
Spread II, plus two percent (2%) per annum or the London
Interbank Offered Rate then in effect, plus Applicable Spread II,
plus two percent (2%) per annum. Each change in the rate of
interest to be charged with reference to a Prime-based Rate
shall become effective on the date of each change in the Prime
Rate. Each change in the rate of interest to be charged with
reference to a LIBOR-based Rate shall become effective without
notice on the commencement of each Interest Period based on the
London Interbank Offered Rate for that Interest Period then in
effect. With respect to that portion of Term Loan B, if any,
which bears interest at the Prime-based Rate, accrued interest
shall be due and payable monthly on the last Banking Day of each
month until the Term Loan B Maturity Date. With respect to these
portions of the Term Loan B that bear interest LIBOR-based Rates,
accrued interest shall be due and payable on the last day of each
Interest Period (except that if the Interest Period is six
months, the accrued interest shall be due on the 90th day of such
Interest Period and then on the last day of such Interest Period)
until the Term Loan B Maturity Date. On the Term Loan B Maturity
Date, the entire unpaid principal balance of Term Loan B
evidenced by Term Note B and all unpaid, accrued interest
thereon, shall be due and payable in full without demand. From
and after the Term Loan B Maturity Date, interest on Term Loan B
shall be payable as accrued and without demand."
(h) AMENDMENT TO SECTION 2.06. Effective as of the Second Amendment
Effective Date, Section 2.06 of the Existing Agreement is hereby redesignated as
Section 2.07.
(i) AMENDMENT OF SECTION 3.01(a)(2). Section 3.01(a)(2) of the
Existing Agreement is amended and restated, effective as of the Second Amendment
Effective Date, in its entirety to read as follows:
"(2) PRINCIPAL DEPOSITS IN DESIGNATED ACCOUNT. From and after the
Second Amendment Effective Date, the Company shall exercise its
option to cause the 1993 Trustee to redeem principal of the 1993 Bonds
on the Interest Rate Adjustment Date nearest to, but not later than
October 1st of each year, beginning on October 1, 1999 and continuing
through October 1, 2003 (each such date being a "1993 REDEMPTION
DATE"). The amount of each such redemption shall be an amount equal
to the Required Annual Minimum Redemption Amount calculated as of the
then current 1993 Redemption Date. The Company and the Bank agree
that it is their intent that no optional redemption of the 1993 Bonds
is to occur until Term Loan A has been paid and satisfied in full. On
the Business Day of the first calendar month after payment in full of
Term Loan A which is two (2) Business Days prior to an Interest
Payment Date for the 1993 Bonds, and on the Business Day which is two
(2) Business Days prior to an Interest Payment Date during each
calendar month thereafter until the 1993 Bonds are paid in full, the
Company shall deposit into the Designated Account, in addition to all
other amounts required to be deposited into the Designated Account
under the terms of this Agreement, an amount equal to one-twelfth
(1/12 of) the Required Annual Minimum Redemption Amount of the 1993
Bonds that the Company will be required to redeem on the next
following 1993 Redemption Date. The fact that any 1993 Redemption
Date falls on or beyond the initial expiration date of the 1993
Direct-Pay Letter of Credit shall not be construed as a commitment on
the part of the Bank to extend the 1993 Direct-Pay Letter of Credit
beyond its original or any subsequent expiration date, and nothing
herein shall be deemed or construed to be an extension of the maturity
of the 1993 Bonds even if a balloon payment is required at the
maturity of such 1993 Bonds."
(j) PARTIAL AMENDMENT OF SECTION 3.01(a)(3). The first sentence of
Section 3.01 (a)(3) of the Existing Agreement is amended and restated, effective
as of the Second Amendment Effective Date, in its entirety to read as follows:
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"COMMISSION AND TRANSACTION FEES. On the first Banking Day of
each November, February, May and August of each year from and after
the Second Amendment Effective Date (each of which days is hereafter
referred to in this Section 3.01(a)(3) as a "COMMISSION DUE DATE"),
the Company shall pay to the Bank a commission for maintaining the
1993 Direct-Pay Letter of Credit, computed on the adjusted 1993
Refunding Maximum Available Credit at a rate per annum equal to the
Applicable Credit Enhancement Letter of Credit Commission Rate in
effect for each Commission Due Date, for the period beginning on the
Commission Due Date and ending on the next following Commission Due
Date.". . .
(k) AMENDMENT OF SECTION 3.01(b)(2). Section 3.01(b)(2) of the
Existing Agreement is amended and restated, effective as of the Second Amendment
Effective Date, in its entirety to read as follows:
"(2) PRINCIPAL DEPOSITS IN DESIGNATED ACCOUNT. From and after the
Second Amendment Effective Date, the Company shall exercise its
option to cause the 1994 Refunding Trustee to redeem principal of the
1994 Refunding Bonds on the Interest Rate Adjustment Date nearest to,
but not later than June 1st of each year, beginning on June 1, 2000
and continuing through June 1, 2004 (each such date being a "1994
REDEMPTION DATE"). The amount of each such redemption shall be an
amount equal to the Net Required Annual Minimum Redemption Amount
calculated as of the then current 1994 Redemption Date. The Company
and the Bank agree that it is their intent that no optional redemption
of the 1994 Refunding Bonds is to occur until Term Loan A and the 1993
Bonds have been paid and satisfied in full. On the Business Day of
the first calendar month after payment in full of Term Loan A and the
1993 Bonds which is two (2) Business Days prior to an Interest Payment
Date for the 1994 Refunding Bonds, and on the Business Day which is
two (2) Business Days prior to an Interest Payment Date during each
calendar month thereafter until the 1994 Bonds are paid in full, the
Company shall deposit into the Designated Account, in addition to all
other amounts required to be deposited into the Designated Account
under the terms of this Agreement, an amount equal to one twelfth
(1/12) of the Net Required Annual Minimum Redemption Amount of the
1994 Refunding Bonds that the Company will be required to redeem on
the next following 1994 Redemption Date. The fact that any 1994
Redemption Date falls on or beyond the initial expiration date of the
1994 Refunding Letter of Credit shall not be construed as a commitment
on the part of the Bank to extend the 1994 Refunding Letter of Credit
beyond its original or any subsequent expiration date, and nothing
herein shall be deemed or construed to be an extension of the maturity
of the 1994 Refunding Bonds even if a balloon payment is required at
the maturity of such 1994 Refunding Bonds."
(l) PARTIAL AMENDMENT OF SECTION 3.01(b)(3). The first sentence of
Section 3.01(b)(3) of the Existing Agreement is amended and restated, effective
as of the Second Amendment Effective Date, in its entirety to read as follows:
"COMMISSION AND TRANSACTION FEES. On the first Banking Day of
each November, February, May and August of each year from and after
the Second Amendment Effective Date (each of which days is hereafter
referred to in this Section 3.01(b)(3) as a "COMMISSION DUE DATE"),
the company shall pay to the Bank a commission for maintaining the
1994 Direct-Pay Letter of Credit, computed on the adjusted 1994
Maximum Available Credit at a rate per annum equal to the Applicable
Credit Enhancement Letter of Credit Commission Due Date, for the
period beginning on the Commission Due Date and ending on the next
following Commission Due Date.". . .
(m) PARTIAL AMENDMENT OF SECTION 6.01(b). The word "quarter" in the
third line of Section 6.01(b)(2) of the Existing Agreement is deleted, as of the
Second Amendment Effective Date, and replaced with the word "month".
3. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Bank that:
E-31
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<PAGE>
(a)(i) The execution, delivery and performance of this
Amendment and all agreements and documents delivered pursuant hereto by the
Company have been duly authorized by all necessary corporate action and do not
and will not violate any provision of any law, rule, regulation, order,
judgment, injunction, or writ presently in effect applying to the Company, or
its articles of incorporation, or result in a breach of or constitute a default
under any material agreement, lease or instrument to which the Company is a
party or by which it or any of its properties may be bound or affected; (ii) no
authorization, consent, approval, license, exemption or filing of a registration
with any court or Governmental Authority, department, agency or instrumentality
is or will be necessary to the valid execution, delivery or performance by the
Company of this Amendment and all agreements and documents delivered pursuant
hereto; and (iii) this Amendment and all agreements and documents delivered
pursuant hereto by the Company are the legal, valid and binding obligations of
the Company, as a signatory thereto, and enforceable against the Company in
accordance with the terms thereof.
(b) After giving effect to the amendments contained in this
Amendment, the representations and warranties contained in Article IV of the
Agreement are true and correct on and as of the Second Amendment Effective Date
with the same force and effect as if made on and as of the Second Amendment
Effective Date, except that the representation in Section 4.01(d) of the
Agreement shall be deemed to refer to the Financial Statements of the Company
most recently delivered to the Bank prior to the Second Amendment Effective
Date.
(c) No Event of Default has occurred and is continuing or will exist
under the Agreement as of the Second Amendment Effective Date.
4. SPECIAL PROVISION. Anything in the Existing Agreement to the
contrary notwithstanding, the Company and the Bank agreed for purposes of
determination and application of Applicable Spread I that (i) the Ratio of Total
Funded Debt to EBITDA as of the Second Amendment Effective Date and funding of
the Term Loans in greater than 4.0; and (ii) the parties have agreed that
pricing of the Revolving Loan shall immediately upon the Second Amendment
Effective Date be increased to the highest defined tier (i.e., 2-1/2% if
determining a LIBOR-based Rate and 1/4% if determining a Prime-based Rate),
which rate spreads shall remain in effect until such time as a downward
adjustment in rate is required pursuant to the terms of the definition of
Applicable Spread I.
5. CONDITIONS. The obligation of the Bank to execute and to perform
this Amendment shall be subject to full satisfaction of the following conditions
precedent on or before the Second Amendment Effective Date:
(a) Copies, certified as of the Second Amendment Effective Date, of
such corporate documents of the Company as the Bank may request evidencing
necessary partnership action by the Company with respect to this Second
Amendment and all other agreements or documents delivered pursuant hereto as the
Bank may request.
(b) This Amendment shall have been duly executed and delivered by the
Company to the Bank and executed by the Bank.
(c) The Company shall have duly executed and delivered to the Bank
Term Note A and Term Note B in substantially the form and substance of the
attached Exhibit "A" and Exhibit "B", respectively.
(d) The Company shall have paid to the Bank the agreed commitment fee
of $38,000.00, which is equal to one percent (1%) of the $3,800,000.00 total
represented by the $2,300,000.00 increase included as a part of Term Loan A and
the amount of Term Loan B.
(e) The Company shall have paid all costs and expenses incurred by
the Bank in connection with the negotiation, preparation and closing of this
Amendment and the other documents and agreements delivered pursuant hereto,
including the reasonable fees and out-of-pocket expenses of Messrs. Baker &
Daniels, special counsel to the Bank.
(f) The Bank shall have received such additional agreements,
documents and certifications, fully executed by the Company, as may be
reasonably requested by the Bank.
E-32
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<PAGE>
6. SUPPLEMENTAL DOCUMENTS AND FURTHER ASSURANCES. The Company shall
at any time on or after the Second Amendment Effective Date, and upon Bank's
request, execute and deliver, or cause to be executed and delivered, such
additional documents, agreements and instruments as may be reasonably required
by the Bank or appropriate to give full force and effect to the intents and
purposes of this Amendment and the Agreement, including but not limited to
execution and delivery by the Company of further amendments to the Mortgage, so
as to properly reflect the increased amount of Obligations owed by the Company
as a result of the Bank having extended Term Loan A and Term Loan B to the
Company. The Company's failure to comply with the terms of this Section 6
within thirty (30) days after the Bank's request shall at the Bank's sole
discretion and election be deemed an Event of Default under Section 8.01 of the
Agreement.
7. GUARANTOR CONSENT AND AFFIRMATION. DMI Management, Inc., in its
capacity as Guarantor under the Guaranty Agreement, by its execution of this
Amendment, expressly consents to the execution, delivery and performance by the
Company and the Bank of this Amendment and each of the other documents,
instruments and agreements to be executed pursuant hereto, and agrees that
neither the provisions of this Amendment nor any action taken or not taken in
accordance with the terms of this Amendment shall constitute a termination,
extinguishment, release or discharge of any of its guaranty obligations or
provide a defense, set-off, or counterclaim to it with respect to any of its
obligations under the Guaranty Agreement or other Loan Documents. DMI
Management, Inc., by its execution of this Amendment, affirms to the Bank that
its Guaranty remains in full force and effect, is a valid and binding obligation
of it, and continues to secure and support the Obligations (as the same may
increase by virtue of this Amendment), the payment of which is guaranteed by it
thereunder.
8. BINDING ON SUCCESSORS AND ASSIGNS. All of the terms and
provisions of this Amendment shall be binding upon and inure to the benefit of
the parties hereto, their respective successors, assigns and legal
representatives.
9. GOVERNING LAW/ENTIRE AGREEMENT/SURVIVAL. This Amendment is a
contract made under, and shall be governed by and construed in accordance with,
the laws of the State of Indiana applicable to contracts made and to be
performed entirely within such state and without giving effect to the choice or
conflicts of laws principles of any jurisdiction. This Amendment constitutes
and expresses the entire understanding between the parties with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
commitments, inducements or conditions, whether express or implied, oral or
written. All covenants, agreements, undertakings, representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and shall not be affected by any investigation made by any
Person. Except as expressly provided otherwise in this Amendment, the Existing
Agreement, as amended hereby, remains in full force and effect in accordance
with its terms and provisions.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered by their respective authorized signatories as of the
Second Amendment Effective Date.
BANK ONE, INDIANA,
NATIONAL ASSOCIATION
By:______________________________________
Thomas W. Harrison, Vice President
(the "Bank")
E-33
<PAGE>
DMI FURNITURE, INC.
By:______________________________________
Joseph G. Hill, Vice President-Finance and
Chief Financial Officer
(the "Company")
DMI MANAGEMENT, INC.
By:______________________________________
Joseph G. Hill, Vice President-Finance and
Chief Financial Officer
(the "Guarantor")
TERM NOTE A
$5,300,000.00 Dated: August __, 1998
Indianapolis, Indiana Final Maturity: May 31, 2002
FOR VALUE RECEIVED, on or before May 31, 2002, DMI FURNITURE, INC., a
Delaware corporation ("Maker"), unconditionally promises to pay to the order of
BANK ONE, INDIANA, NATIONAL ASSOCIATION, a national banking association (the
"Bank"), at Bank One Center/Tower, 111 Monument Circle, Suite 1911, P.O. Box
7700, Indianapolis, Indiana 46277-0119, the principal sum of Five Million Three
Hundred Thousand and 00/100 Dollars ($5,300,000.00), with interest thereon at
the rates provided in and in accordance with the terms of the Amended and
Restated Credit Agreement, dated October 30, 1997, as amended by First Amendment
dated July 2, 1998 and Second Amendment dated the date hereof, by and between
Maker and the Bank (referred to herein, as the same may hereafter be modified,
amended, restated, and/or extended from time to time and at any time, as the
"Credit Agreement"). Capitalized terms used herein but not defined herein shall
have the meaning ascribed thereto in the Credit Agreement.
This promissory note is "Term Note A" referred to in the Credit
Agreement, to which reference is made for the terms upon which Maker may make
prepayments from time to time and at any time prior to the maturity of this Term
Note A and the terms of any prepayment premiums or penalties which may be due
and payable in connection therewith, and for the terms and conditions upon which
the maturity of this Term Note A is or may be accelerated and the unpaid balance
of principal and accrued interest thereon declared immediately due and payable.
The principal of this Term Note A and all interest accruing thereon shall be
due and payable by Maker on such dates and in accordance with the terms of the
Credit Agreement. All amounts received on this Term Note A shall be applied in
accordance with the terms of the Credit Agreement.
E-34
<PAGE>
If any installment of principal or interest due under the terms of
this Term Note A falls due on a day which is not a Banking Day, the due date
shall be extended to the next succeeding Banking Day and interest will be
payable at the applicable rate for the period of such extension. All amounts
payable under this Term Note A shall be payable without relief from valuation
and appraisement laws, and with all collection costs and attorneys' fees.
The holder of this Term Note A, at its option, may make extensions of
time for payment of the indebtedness evidenced by this Term Note A, or reduce
the payments thereon, release any collateral securing payment of such
indebtedness or accept a renewal note or notes (whether term, or otherwise)
therefor, all without notice to Maker or any endorser(s), and Maker and all
endorsers
Exhibit "A" hereby severally consent to any such extensions, reductions,
releases and renewals, all without notice, and agree that any such action
shall not release or discharge any of them from any liability hereunder.
Maker and endorser(s), jointly and severally, waive demand, presentment for
payment, protest, notice of protest and notice of nonpayment or dishonor of
this Term Note A and each of them consents to all extensions of the time of
payment hereof.
MAKER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN MAKER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO
THIS TERM NOTE A OR ANY OTHER LOAN DOCUMENT. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE
LOAN DOCUMENTS. The validity, interpretation and enforcement of this Term
Note A shall be governed by the internal laws of the state of Indiana without
regard to the choice or conflicts of laws provisions of any jurisdiction.
Maker agrees that the courts of the State of Indiana located in Indianapolis,
Indiana, and the federal courts located in the southern district of Indiana,
Marion County, have exclusive jurisdiction over any and all actions and
proceedings involving this Term Note A or any other agreement made in
connection herewith and maker hereby irrevocably and unconditionally agrees
to submit to the jurisdiction of such courts for purposes of any such action
or proceeding. Maker hereby irrevocably and unconditionally waives any
objection that it may now or hereafter have to the venue of any such action
or proceeding, including any claim that such court is an inconvenient forum,
and consents to service of process provided the same is in accordance with
the terms hereof. Final judgment in any such proceeding after all appeals
have been exhausted or waived shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment. Maker and the Bank agree that
upon the written demand of either party, whether made before or after the
institution of any legal proceedings, but prior to the rendering of any
judgment in that proceeding, all disputes, claims and controversies between
them, whether individual, joint, or class in nature, arising from this Term
Note A, any related document or otherwise, including without limitation
contract disputes and tort claims, shall be resolved by binding arbitration
pursuant to the Commercial Rules of the American Arbitration Association.
Any arbitration proceeding held pursuant to this arbitration provision shall
be conducted in the city nearest the Maker's address having an AAA regional
office, or at any other place selected by mutual agreement of the parties.
No act to take or dispose of any collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary, or
preliminary rights and/or remedies, judicial or otherwise, for the purposes
of realizing upon, preserving, protecting, foreclosing upon or proceeding
under forcible entry and detainer for possession of, any real or personal
property, and any such action shall not be deemed an election of remedies.
Such remedies include, without limitation, obtaining injunctive relief or a
temporary restraining order, invoking a power of sale under any deed of trust
or mortgage, obtaining a writ of attachment or imposition of a receivership,
or exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code or when applicable, a judgment by
confession of judgment. Any disputes, claims or controversies concerning the
lawfulness or reasonableness of an act, or exercise of any right or remedy
concerning any collateral, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral, shall also be
arbitrated; provided, however that no arbitrator shall have the right or the
power to enjoin or restrain any act of
E-35
<PAGE>
either party. Judgment upon any award rendered by any arbitrator may be
entered in any court having jurisdiction. Nothing in this arbitration provision
shall preclude either party from seeking equitable relief from a court of
competent jurisdiction. The statute of limitations, estoppel, waiver, laches
and similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement of an
action for these purposes. The Federal Arbitration Act (Title 9 of the United
States Code) shall apply to the construction, interpretation, and enforcement of
this arbitration provision.
If any installment of principal or interest due under the terms of
this Term Note A is late by ten (10) days or more, Maker will be charged 5.0% of
the regularly scheduled payment or $25.00, whichever is greater, up to the
maximum $1,500.00 per late charge. Each late payment fee assessed shall be due
and payable on the earlier of the next regularly scheduled interest payment date
or the maturity of this Term Note A. Waiver by the Bank of any late payment fee
assessed, or the failure of the Bank in any instance to assess a late fee shall
not be construed as a waiver by the Bank of its right to assess late payment
fees thereafter.
Executed and delivered this ____ day of August, 1998.
DMI FURNITURE, INC.,
a Delaware corporation
By:________________________________
Joseph G. Hill, Vice President-Finance
and Chief Financial Officer
("Maker")
TERM NOTE B
$1,500,000.00 Dated: August __, 1998
Indianapolis, Indiana Final Maturity: August 31, 2003
FOR VALUE RECEIVED, on or before August 31, 2003, DMI FURNITURE, INC.,
a Delaware corporation ("Maker"), unconditionally promises to pay to the order
of BANK ONE, INDIANA, NATIONAL ASSOCIATION, a national banking association (the
"Bank"), at Bank One Center/Tower, 111 Monument Circle, Suite 1911, P.O. Box
7700, Indianapolis, Indiana 46277-0119, the principal sum of One Million Five
Hundred Thousand and 00/100 Dollars ($1,500,000.00), with interest thereon at
the rates provided in and in accordance with the terms of the Amended and
Restated Credit Agreement, dated October 30, 1997, as amended by First Amendment
dated July 2, 1998 and Second Amendment dated the date hereof, by and between
Maker and the Bank (referred to herein, as the same may hereafter be modified,
amended, restated, and/or extended from time to time and at any time, as the
"Credit Agreement"). Capitalized terms used herein but not defined herein shall
have the meaning ascribed thereto in the Credit Agreement.
E-36
<PAGE>
This promissory note is "Term Note B" referred to in the Credit
Agreement, to which reference is made for the terms upon which Maker may make
prepayments from time to time and at any time prior to the maturity of this Term
Note B and the terms of any prepayment premiums or penalties which may be due
and payable in connection therewith, and for the terms and conditions upon which
the maturity of this Term Note B is or may be accelerated and the unpaid balance
of principal and accrued interest thereon declared immediately due and payable.
The principal of this Term Note B and all interest accruing thereon shall be due
and payable by Maker on such dates and in accordance with the terms of the
Credit Agreement. All amounts received on this Term Note B shall be applied in
accordance with the terms of the Credit Agreement.
If any installment of principal or interest due under the terms of
this Term Note B falls due on a day which is not a Banking Day, the due date
shall be extended to the next succeeding Banking Day and interest will be
payable at the applicable rate for the period of such extension. All amounts
payable under this Term Note B shall be payable without relief from valuation
and appraisement laws, and with all collection costs and attorneys' fees.
The holder of this Term Note B, at its option, may make extensions of
time for payment of the indebtedness evidenced by this Term Note B, or reduce
the payments thereon, release any collateral securing payment of such
indebtedness or accept a renewal note or notes (whether term, or otherwise)
therefor, all without notice to Maker or any endorser(s), and Maker and all
endorsers
Exhibit "B"
hereby severally consent to any such extensions, reductions, releases and
renewals, all without notice, and agree that any such action shall not release
or discharge any of them from any liability hereunder. Maker and endorser(s),
jointly and severally, waive demand, presentment for payment, protest, notice of
protest and notice of nonpayment or dishonor of this Term Note B and each of
them consents to all extensions of the time of payment hereof.
MAKER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN MAKER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO
THIS TERM NOTE B OR ANY OTHER LOAN DOCUMENT. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE
LOAN DOCUMENTS. The validity, interpretation and enforcement of this Term
Note B shall be governed by the internal laws of the state of Indiana without
regard to the choice or conflicts of laws provisions of any jurisdiction.
Maker agrees that the courts of the State of Indiana located in Indianapolis,
Indiana, and the federal courts located in the southern district of Indiana,
Marion County, have exclusive jurisdiction over any and all actions and
proceedings involving this Term Note B or any other agreement made in
connection herewith and maker hereby irrevocably and unconditionally agrees
to submit to the jurisdiction of such courts for purposes of any such action
or proceeding. Maker hereby irrevocably and unconditionally waives any
objection that it may now or hereafter have to the venue of any such action
or proceeding, including any claim that such court is an inconvenient forum,
and consents to service of process provided the same is in accordance with
the terms hereof. Final judgment in any such proceeding after all appeals
have been exhausted or waived shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment.
E-37
<PAGE>
Maker and the Bank agree that upon the written demand of either party,
whether made before or after the institution of any legal proceedings, but
prior to the rendering of any judgment in that proceeding, all disputes, claims
and controversies between them, whether individual, joint, or class in nature,
arising from this Term Note B, any related document or otherwise, including
without limitation contract disputes and tort claims, shall be resolved by
binding arbitration pursuant to the Commercial Rules of the American Arbitration
Association. Any arbitration proceeding held pursuant to this arbitration
provision shall be conducted in the city nearest the Maker's address having an
AAA regional office, or at any other place selected by mutual agreement of the
parties. No act to take or dispose of any collateral shall constitute a waiver
of this arbitration agreement or be prohibited by this arbitration agreement.
This arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary, or
preliminary rights and/or remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing upon or proceeding under
forcible entry and detainer for possession of, any real or personal property,
and any such action shall not be deemed an election of remedies. Such remedies
include, without limitation, obtaining injunctive relief or a temporary
restraining order, invoking a power of sale under any deed of trust or mortgage,
obtaining a writ of attachment or imposition of a receivership, or exercising
any rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code or when applicable, a judgment by confession of judgment. Any
disputes, claims or controversies concerning the lawfulness or reasonableness of
an act, or exercise of any right or remedy concerning any collateral, including
any claim to rescind, reform, or otherwise modify any agreement relating to the
collateral, shall also be arbitrated; provided, however that no arbitrator shall
have the right or the power to enjoin or restrain any act of either party.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing in this arbitration provision shall preclude
either party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches and similar
doctrines which would otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for these
purposes. The Federal Arbitration Act (Title 9 of the United States Code) shall
apply to the construction, interpretation, and enforcement of this arbitration
provision.
If any installment of principal or interest due under the terms of
this Term Note B is late by ten (10) days or more, Maker will be charged 5.0% of
the regularly scheduled payment or $25.00, whichever is greater, up to the
maximum $1,500.00 per late charge. Each late payment fee assessed shall be due
and payable on the earlier of the next regularly scheduled interest payment date
or the maturity of this Term Note B. Waiver by the Bank of any late payment fee
assessed, or the failure of the Bank in any instance to assess a late fee shall
not be construed as a waiver by the Bank of its right to assess late payment
fees thereafter.
Executed and delivered this ____ day of August, 1998.
DMI FURNITURE, INC.,
a Delaware corporation
By:________________________________
Joseph G. Hill, Vice President-Finance
and Chief Financial Officer
("Maker")
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Page 80
<PAGE>
EXHIBIT (N)
EXTENSION AND RENEWAL OF
EMPLOYMENT AGREEMENT
THIS AGREEMENT, as of this 9th day of October, 1997 by and between DMI
FURNITURE, INC., a Delaware corporation ("DMI" or the "Corporation") and JOSEPH
G. HILL ("Employee").
WHEREAS, Employee and DMI have entered into an Employment Agreement dated
as of September 1, 1986, which has been amended from time to time and extended
and renewed for additional terms through December 31, 1998;
WHEREAS, the Employment Agreement, as amended, extended and renewed to
date, is intended to complement the terms of the Amendment to Employment
Agreement and Officer Severance Agreement dated as of May 19, 1988 between the
Employee and DMI (the "Officer Severance Agreement"), which provides for the
payment of certain benefits to Employee in certain circumstances following a
"change in control" of DMI (as defined in the Officer Severance Agreement).
WHEREAS, Employee and DMI desire to renew and extend the Employment
Agreement between them for an additional term expiring on August 31, 1999; and
NOW, THEREFORE, intending to be legally bound hereby and in consideration
of the mutual undertakings hereinafter set forth, DMI and Employee agree as
follows, effective October 9, 1997;
1. EMPLOYMENT. DMI or its successors hereby employs Employee and
Employee hereby accepts employment as Vice President-Finance and Chief Financial
Officer of DMI for a period commencing October 9, 1997 and ending August 31,
1999.
4. DUTIES OF EMPLOYEE. Employee further agrees as follows:
(g) To perform well and faithfully all such duties as are assigned
to him by the Board of Directors or the Chief Executive Officer of DMI; and
(h) To devote the time and attention to the performance of all
matters necessary and appropriate to the discharge of the duties so assigned
to him in the operation of DMI, it being the intention of this provision to
require that Employee serve as a "full-time" employee of DMI, to devote his
best efforts to the performance of the duties of him; and
(i) To refrain from investment or other involvement in any business
or other activity that competes with the business of DMI other than nominal
investments as a passive investor in publicly traded companies.
3. COMPENSATION. As compensation for his services pursuant to this
Agreement, Employee shall be paid as follows:
(a) SALARY. A minimum salary of $170,000 per year payable at the
rate of $7,083.33 semi-monthly during the term of this Agreement. Each year, on
the anniversary date of this Agreement, the Compensation Committee of the
Corporation's Board of Directors will review increases in the cost of living and
may negotiate upward revisions to salary with the Employee.
(b) CASH BONUS.
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<PAGE>
(i) ADJUSTED NET PRE-TAX INCOME. For each of the Corporation's
fiscal years during the term of this Agreement, Employee shall receive an
incentive bonus based on the "adjusted net pre-tax income" for said fiscal year.
For the purposes of this subsection, "adjusted net pre-tax income" shall mean
the pre-tax income as reported to the Securities and Exchange Commission on Form
10-K excluding as expenses all dividends paid by the Corporation to the holders
of any class of its preferred stock, as well as all interest paid by the
Corporation in connection with any funds borrowed for the redemption of 675,000
shares of preferred stock at $2.49 per share or $1,680,750 on August 28, 1989
and any future redemptions of preferred stock, and also excluding (i) any gains
or losses resulting from the sale, conversion or other disposition of capital
assets; (ii) accruals made in accordance with general accepted accounting
principles to recognize the costs associated with the permanent closure of an
operation and the carrying costs prior to the sale of the assets of that
operation; (iii) gain or loss resulting from non-operational litigation; and
(iv) charges or credits resulting from the adoption of a change in accounting
principle.
Employee shall receive a fractional share of the adjusted net pre-tax
income calculated as follows: X = (.0075 + .0045 {Y}) x Z where X equals the
bonus earned, Y equals the adjusted net pre-tax income expressed in millions of
dollars rounded to three decimal places, and Z equals the adjusted net pre-tax
income.
<TABLE>
<CAPTION>
<S> <C>
Example:
Reported income before income tax $1,525,169
Add back: Interest on borrowing for
Preferred stock redemption 201,500
Deduct: Gain on sale of building {156,000}
----------
Adjusted pre-tax income $1,570,369
then:
X = (.0075 + (.0045 x 1.570)) x $1,570,369
X = (.0075 + .0071) x $1,570,369
X = .0146 x $1,570,369
X = $22,927
</TABLE>
(ii) CASH BONUS PREMIUM. In lieu of a cash bonus plan for asset
management as provided by prior Employment Agreements between Employee and the
Corporation, Employee shall be paid a 33.33% cash premium of amounts earned
under Section 3(b)(i) of this Agreement.
(c) STOCK BONUS. For each fiscal year during the term of this
Agreement, Employee shall be eligible to earn a stock bonus as provided herein.
All stock granted pursuant to this bonus shall be granted as of the date upon
which the cash bonus earned by Employee is paid to him and shall be valued at
the bid price of the Corporation's common stock as listed by NASDAQ on the last
day of the fiscal year. To the extent feasible, stock (or other equity
securities of the Corporation) granted pursuant to this bonus shall be issued
under a plan meeting the terms and conditions of Rule 16b-3 under the Exchange
Act.
Employee shall have the option to receive a grant for shares of common
stock with a value equal to 45.45% of Employee's Cash Bonus, and Cash Bonus
Premium to a maximum Stock Bonus of 25% of Employee's weighted average base
salary.
Employee may decline to exercise the right to receive any stock grant
by so advising the Corporation within 10 days of the date upon which he is
advised of his bonus. The grant of stock referred to herein is subject to the
Corporation's shareholders having approved the issuance of sufficient shares of
stock to permit the grant of these shares. The Corporation agrees to seek such
approval, as and to the extent, required.
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Page 82
<PAGE>
(d) BONUS PAYMENTS. Any bonus under this paragraph 3 shall be paid
within one hundred thirty days of the end of the fiscal year.
For any fiscal year of DMI during which the period of Employee's
employment set forth in paragraph 1 (or any extension thereof) expires before
completion of the fiscal year, Employee shall receive a cash bonus and a stock
bonus equal to the bonuses that would have been due Employee under paragraphs
3(b) and 3(c) had Employee remained employed until the end of DMI's fiscal year
multiplied by a fraction, the numerator of which is the number of complete
calendar months during which Employee was employed during the fiscal year and
the denominator of which is 12.
5. FRINGE BENEFITS. DMI will provide Employee with fringe benefits as
follows:
(f) DMI will maintain, without contribution by Employee, life
insurance with benefits payable as designated by Employee in a face amount
equal to three times Employee's annual base salary rate hereunder provided
however the face amount of life insurance benefits is not to exceed $750,000.
(g) DMI will maintain health insurance at least as comprehensive as
provided for other key and executive employees.
(h) DMI will maintain, without contribution by Employee, travel
accident insurance with benefits payable as designated by Employee in a face
amount equal to $250,000 death benefits for accidental death in the course of
travel.
(i) DMI will provide Employee with an automobile comparable to
those furnished to other key executives, or its cash equivalent of $675 per
month, for Employee's business related use.
(j) Employee shall receive reimbursement for expenses incurred by
him in connection with Medical Care for Employees, his spouse and his
dependents, provided, however, that the amount paid by DMI to Employee
pursuant to this subsection in any fiscal year during the term of this
Agreement shall not exceed $2,000. For the purpose of this subsection the
term "Medical Care" means amounts paid for the diagnosis, care, medication,
treatment, or prevention of disease, or for the purpose of affecting any
structure or function of the body (including amounts paid for accident or
health insurance), or for transportation primarily for and essential to
Medical Care. Payments hereunder may be made from time to time as requested
by Employee with or without requiring proof of the medical expenses in
questions, in the discretion of the Board of Directors, and it is not
necessary that such medical expenses have already been paid by Employee, his
spouse, or his aforesaid dependents, but merely that, if not yet paid, there
exists an obligation to pay them. Premiums paid by DMI under any group
accident or health insurance policy that may be maintained by DMI covering or
for the benefit of some or all of its employees, and payments made by
insurers pursuant to said policy, shall not to any extent be regarded as
payments made pursuant to this subsection.
(f) Employee shall receive annual reimbursement for expenses incurred
by him in connection with personal or tax financial planning, not to exceed
$2,000 per year.
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<PAGE>
(g) Employee shall be entitled to participate in any benefit plan of
a type not specifically covered by this Agreement and established by DMI for key
employees during the term of Employee's employment hereunder on a basis
consistent with his age, position, responsibilities, and level of compensation.
(h) Employee shall be reimbursed for his reasonable out-of-pocket
travel and business expenses, including but not limited to, membership in
private clubs for business purposes. All such club memberships will be approved
by a majority of outside members of the Board of Directors.
5. VACATION. Employee shall be entitled to a four-week vacation with pay
in each 12-month period ending August 31. A maximum of one week of annual paid
vacation shall be cumulative and will not be deemed waived if not taken during
the applicable 12-month period. Employee's paid vacation shall be pro-rated
based on the number of months he has remained employed by DMI during any fiscal
year during which this Agreement expires or is terminated.
6. OTHER BOARD OF DIRECTORS ACTION. Nothing in this Agreement shall be
deemed to prevent the Board of Directors of DMI from taking any action it may
deem, in its sole discretion, to be desirable to make the terms and conditions
of this Employment Agreement more beneficial to Employee, or to add further
benefits to his employment with DMI, provided that Employee agrees to such
changes and additions.
7. TERMINATION. This Agreement shall terminate and, except to the extent
previously accrued or as otherwise provided in the Officer Severance Agreement,
all rights and obligations of DMI and Employee under this Agreement shall be
void, upon the earliest to occur of any of the following:
(a) Expiration of the period of employment set forth in paragraph 1,
unless the period of employment is extended by the Board of Directors, in which
event termination shall occur upon the expiration of the period of employment as
extended by the Board of Directors;
(b) Death of Employee;
(c) Mental or physical illness or disability of Employee that shall
incapacitate him, for a period of 90 successive days or for an aggregate period
of 120 days during any 12 calendar months, from fully performing the duties
assigned to him hereunder and in the good faith determination of the Board of
Directors and upon written notice to Employee.
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<PAGE>
(d) If Employee (i) is found guilty of having committed against
DMI any criminal act, including criminal fraud, or (ii) is found guilty of
having committed any criminal act involving moral turpitude, or (iii) the
willful and continued failure by the Employee to substantially perform the
Employee's duties with DMI after a written demand for substantial performance
is delivered to the Employee by the Board, which demand specifically
identifies the manner in which the Board believes that the Employee has not
substantially performed his duties; or (iv) the willful engaging by the
Employee in gross misconduct materially and demonstrably injurious to the
Corporation. For the purposes of this definition, no act, or failure to act
on the Employee's part shall be considered "willful" unless done or omitted
to be done by the Employee other than in good faith and without reasonable
belief that the Employee's action or omission was in the best interests of
DMI. The Employee shall not be deemed to have been terminated for Cause (as
defined in the Officer Severance Agreement) unless and until DMI has
delivered a Notice of Termination, as provided therein.
(e) Voluntary cessation by Employee of his duties and
responsibilities under this agreement.
If DMI terminates Employee's employment other than for Cause (as
defined in the Officer Severance Agreement), and a change in control (as defined
in the Officer Severance Agreement) occurs within 9 months thereafter, then
Employee shall be entitled to all benefits provided under the Officer Severance
Agreement.
Otherwise, if Employee's employment hereunder is terminated for any
other reason than those specified in subparagraphs (a) through (e) of this
paragraph 7, then DMI shall remain liable to Employee and shall pay Employee in
full settlement of DMI's obligations hereunder: (i) the full amount of the
balance of his base salary as provided in subparagraph 3(a) above, to the
expiration date of this Agreement or to such expiration date as may have been
extended by action of the Board of Directors pursuant to subparagraph 7(a), in a
lump sum; PLUS (ii) an amount equal to the cash bonus and the stock bonus that
would have been payable to Employee pursuant to subparagraphs 3(b) and 3(c)
above had Employee remained employed until the end of DMI's fiscal year,
multiplied by a fraction, the numerator of which is the number of complete
calendar months during which Employee was employed during the fiscal year and
the denominator of which is 12. The payments based upon the cash bonus and the
stock bonus shall be paid within 130 days of the delivery to DMI of the
financial statements upon which they shall be based.
8. COORDINATION WITH OFFICER SEVERANCE AGREEMENT. For the purposes of
the Officer Severance Agreement, this Agreement shall constitute a renewal and
extension of the Employment Agreement dated as of September 1, 1986 between
Employee and DMI. If any provision of this Agreement may be viewed as
conflicting with a provision of the Officer Severance Agreement, and the
provision at issue does not specifically state that it is intended to supersede
the Officer Severance Agreement, the office Severance Agreement shall control.
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<PAGE>
10. NON-COMPETITION. If this Agreement is terminated for any reason
specified in subparagraphs (a) through (e) of Paragraph 7, Employee shall
refrain, for a period of one year after the termination of this Agreement, from
carrying on a business that competes with a business conducted by DMI within the
geographic areas described as follows:
The 50 states of the United States of America and Puerto Rico, except
for the states of Washington, Oregon, Idaho, Colorado, Wyoming, North
Dakota and South Dakota.
For the purposes of this paragraph, a business shall be deemed carried on by
Employee if carried on by a proprietorship, partnership, association, or
corporation, or other business entity with which Employee is connected, except
that Employee shall not be deemed to be connected with a business competitive to
that conducted by DMI to the extent that Employee is merely a passive investor
therein or not engaged in the business operations thereof as an officer,
director, employee, agent, consultant, sales representative, or other provider
of personal services in a capacity that would enable him to use his knowledge or
DMI's trade secrets, customer lists or unique business methods to compete
against DMI. It is agreed that in the event of a breach or a threatened breach
of the foregoing, no adequate remedy exists at law to protect DMI's interests
and that DMI shall be entitled to appropriate injunctive relief. Should the
foregoing covenant be adjudged to any extend invalid by any court of competent
jurisdiction, such covenant shall be deemed modified to the extend necessary to
make it enforceable.
11. PLACE OF EMPLOYMENT. DMI agrees that the principal location at which
Employee is to render his services hereunder will continue to be Louisville,
Kentucky.
12. NOTICES. Any notice to DMI or Employee hereunder may be given by
delivering it to, or by depositing it in the United States mail, postage
pre-paid, addressed to the parties at the following addresses:
DMI:
Mr. Donald D. Dreher
DMI Furniture, Inc.
One Oxmoor Place
101 Bullitt Lane
Louisville, KY 40222
with a required copy to:
Chairman, Compensation / Stock Option Committee
DMI Furniture, Inc.
One Oxmoor Place
101 Bullitt Lane
Louisville, KY 40222
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<PAGE>
EMPLOYEE:
Mr. Joseph G. Hill
5506 Apache Road
Louisville, KY 40207
13. ENTIRE AGREEMENT. This Agreement and the Officer Severance Agreement
(a) contain the complete and entire understanding and agreement of DMI and
Employee respecting the subject matter hereof; (b) supersede and cancel all
understandings or agreements, oral or written, respecting the employment of
Employee in connection with the business of DMI; and (c) may not be modified
except by an instrument in writing executed by DMI and Employee.
14. WAIVER OF BREACH. The waiver by either party, of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach of either party.
15. ASSIGNMENT. Employee may not assign his rights or obligations under
this agreement. The rights and obligations of DMI shall inure to the benefit of
and shall be binding upon the successors and assigns of DMI.
16. CAPTIONS. All captions and headings used herein are for convenient
reference only and do not form part of this Agreement.
IN WITNESS WHEREOF, DMI and Employee have caused this Agreement to be duly
executed and delivered on the day and year first above written, but effective
September 1, 1996.
DMI FURNITURE, INC.
ATTEST: By
--------------------- -------------------------------------------
Donald D. Dreher
Chairman of the
Board, President, and
Chief Executive Officer
--------------------------
- ----------------------------------------------- Joseph G. Hill
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<PAGE>
EXHIBIT 21. LIST OF SUBSIDIARIES
DMI Management, Inc., a Kentucky corporation.
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<PAGE>
EXHIBIT 23.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Form S-8 Registration Statements No. 33-64188 and 33-85826.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
October 16, 1998
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-29-1997
<PERIOD-START> AUG-31-1997
<PERIOD-END> AUG-29-1997
<CASH> 1,093
<SECURITIES> 0
<RECEIVABLES> 10,402
<ALLOWANCES> 150
<INVENTORY> 16,296
<CURRENT-ASSETS> 28,916
<PP&E> 22,459
<DEPRECIATION> 10,522
<TOTAL-ASSETS> 41,329
<CURRENT-LIABILITIES> 8,174
<BONDS> 21,393
0
0
<COMMON> 389
<OTHER-SE> 9,868
<TOTAL-LIABILITY-AND-EQUITY> 41,329
<SALES> 64,272
<TOTAL-REVENUES> 64,727
<CGS> 49,803
<TOTAL-COSTS> 50,291
<OTHER-EXPENSES> 10,155
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 1,060
<INCOME-PRETAX> 3,131
<INCOME-TAX> 1,156
<INCOME-CONTINUING> 1,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,975
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.07
</TABLE>
<PAGE>
Exhibit 99. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's Annual Report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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