UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------
FORM 10-Q
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-8777 COLOR TILE, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1606185
(state or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
515 Houston Street, Fort Worth, Texas 76102
(Address of principal executive office)
(Zip Code)
(817)870-9400
(Registrant's telephone number, including area code)
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 ___
All of the common stock of the registrant is held by Color Tile Holdings,
Inc., a Delaware corporation. The number of shares outstanding of the
registrant's common stock, $.01 par value, as of November 15, 1995 was 101.
Exhibit Index is on Page 17
<PAGE>
COLOR TILE, INC.
Table of Contents
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements 3
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 12
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
<PAGE>
<TABLE>
<CAPTION>
COLOR TILE, INC.
Condensed Consolidated Balance Sheet
October 1, 1995 and January 1, 1995
(Amounts in Thousands, except share amounts)
(Unaudited)
ASSETS
October 1, January 1,
1995 1995
--------- ---------
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 26,558 $ 630
Accounts and notes receivable, net of
allowance for bad debts of $3,141 and $753 9,902 16,032
Inventories 58,895 87,394
Other current assets 6,105 6,362
--------- ---------
Total Current Assets 101,460 110,418
--------- ---------
Property, plant and equipment, net 124,138 121,667
Goodwill, net 258,672 264,159
Other intangible assets, net 40,334 39,787
Deferred financing costs, net 6,474 5,757
Other assets 7,820 8,310
--------- ---------
Total Assets $ 538,898 $ 550,098
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current portion of long-term debt $ 220,833 $ 5,817
Accounts Payable 65,241 61,269
Employee compensation 4,556 5,089
Accrued interest 8,190 2,099
Accrued expenses 20,511 21,979
Customer deposits 9,024 6,878
--------- ---------
Total Current Liabilities 328,355 103,131
--------- ---------
Long-term debt 198,165 386,717
Other noncurrent liabilities 6,398 6,055
--------- ---------
Total Liabilities 532,918 495,903
--------- ---------
Commitments and contingencies (Note 4)
Redeemable preferred stock, $103,096
liquidation value at October 1, 1995 99,860 90,943
Common Stockholder's Deficiency:
Common Stock $.01 par avlue, 1,000,000 shares authorized
101 shares issued and outstanding
Additional paid-in capital 111,701 93,060
Accumulated deficit (205,581) (129,808)
--------- ---------
Total Common Stockholder's Deficiency (93,880) (36,748)
--------- ---------
Total Liabilities and Stockholder's Deficiency $ 538,898 $ 550,098
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
COLOR TILE, INC.
Condensed Consolidated Statement of Operations For the three
months and nine months ended October 1, 1995 and October 2, 1994
(Amounts in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- -------------------------
October 1, October 2, October 1, October 2,
1994 1994 1995 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Systemwide Sales $ 167,945 $ 175,450 $ 514,151 $ 522,713
========== ========== ========== ==========
Net Sales $ 160,604 $ 168,440 $ 491,487 $ 504,360
Cost and expenses:
Cost of sales 107,135 98,488 305,435 293,604
Selling, general and administrative 62,204 52,666 170,272 158,375
Depreciation and amortization 8,111 7,360 22,159 21,341
Special charges 34,934 29,600 34,934 29,600
---------- ---------- ---------- ----------
Total costs and expense 212,384 188,114 532,800 502,920
---------- ---------- ---------- ----------
Operating income (loss) (51,780) (19,674) (41,313) 1,440
Loss on disposal of a line of business (2,500)
Interest expense, net (11,258) (8,916) (33,942) (26,189)
---------- ---------- ---------- ----------
Loss before income taxes (63,038) (28,590) (75,255) (27,249)
Provision for income taxes 168 168 518 510
---------- ---------- ---------- ----------
Net loss $ (63,206) $ (28,758) $ (75,773) $ (27,759)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
COLOR TILE, INC.
Condensed Consolidated Statement of Common Stockholder's Deficiency
For the nine months ended October 1, 1995
(Amounts in Thousands, except share amounts)
(Unaudited)
Additional Total
Common Stock Paid-In Accumulated Common
Shares Amount Capital Deficit Deficit
------ ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 101 $ 93,060 $ (129,808) $ (36,748)
Senior Cumulative Preferred Stock
dividends, declared and undeclared (3,980) (3,980)
Accretion of difference between
redemption value and proceeds of
Senior Cumulative Preferred Stock (61) (61)
Senior Increasing Rate Preferred Stock
dividends, declared and undeclared (6,658) (6,658)
Accretion of difference between
redemption value and proceeds of
Senior Increasing Rate Preferred Stock (280) (280)
Conversion of Related Party
Subordinated Debt to Additional
Paid-In Capital 15,487 15,487
Stockholder Cash Contributions to
Additional Paid-In Capital 14,250 14,250
Cash dividends paid to stockholder (117) (117)
Net Loss (75,773) (75,773)
------ ------ ---------- ----------- ---------
Balance, October 1, 1995 101 $ 111,701 $ (205,581) $ (93,880)
====== ====== ========== =========== =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
COLOR TILE, INC.
Condensed Consolidated Statement of Cash Flows For the nine
months ended October 1, 1995 and October 2, 1994
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
------------------------------
October 1, October 2,
1995 1994
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (75,773) $ (27,759)
---------- ----------
Adjustments to reconcile to cash provided by operating activities:
Depreciation and amortization 22,606 21,949
Loss on disposal of a line of business - 2,500
Special Charges - non cash portion 31,778 29,600
(Increase) decrease in accounts and notes receivable 1,329 (4,634)
(Increase) decrease in inventories 14,761 (9,407)
Increase in other current assets (4,463) (4,272)
Increase in accounts payable and accrued expenses 3,537 10,407
Changes in other assets and liabilities (3,123) (2,391)
---------- ----------
Total adjustments 66,425 43,752
---------- ----------
Cash (used in) provided by operating activities (9,348) 15,993
---------- ----------
Cash flows from investing activities:
Purchase of property,plant and equipment (8,323) (17,152)
Other investing activities (2,005) (3,008)
---------- ----------
Cash used in investing activities (10,328) (20,160)
---------- ----------
Cash flows from financing activities:
Borrowings under revolving line of credit 82,650 173,000
Payments on revolving line of credit (74,850) (161,450)
Borrowings under subordinated debt 30,000 -
Payments on long-term debt (4,267) (3,925)
Stockholder contributions to additional paid-in capital 14,250 -
Dividends paid on common stock (117) -
Dividends pain on Senior Increasing Rate Preferred Stock (2,062) (6,003)
---------- ----------
Cash provided by financing activities 45,604 1,622
---------- ----------
Increase (decrease) in cash and cash equivalents 25,928 (2,545)
Cash and cash equivalents at beginning of period 630 4,522
---------- ----------
Cash and cash equivalents at end of period $ 26,558 $ 1,977
========== ==========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 26,717 $ 19,888
Income taxes $ 690 $ 547
Non-cash investing and financing activities
Capital lease obligations incurred for property plant and equipment $ 8,418 $ 465
Conversion of Subordinated debt to additional paid-in capital $ 15,487 $ -
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
COLOR TILE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
(unaudited)
1. Basis of Presentation:
The Color Tile, Inc. ("Color Tile" or the "Company") condensed,
consolidated financial statements are presented on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The condensed, consolidated financial statements
do not include any adjustments relating to recoverability or the classification
of recorded asset amounts or the amount or classification of liabilities or any
other adjustments that might be necessary should Color Tile be unable to
continue as a going concern.
Because of a generally weak retail environment for consumer products and
the Company's reduced advertising and inadequate inventories of salable
merchandise during August and September, resulting principally from the
Company's lack of adequate working capital, the Company suffered disappointing
sales and significant operating losses for the quarter ended October 1, 1995. As
a result the Company failed to meet certain financial covenants contained in its
Senior Credit Agreement as of October 1, 1995. On November 7, 1995, the Company
and the lenders under the Senior Credit Agreement entered into an amendment to
the Senior Credit Agreement pursuant to which the lenders (i) waived compliance
by the Company with the financial covenants contained in the Senior Credit
Agreement until June 30, 1996, subject to the Company's attaining positive
Consolidated Adjusted Operating Profit, as defined in the Senior Credit
Agreement, for the first quarter of 1996, (ii) agreed to permit the Company to
defer the payment of scheduled interest under the Senior Credit Agreement for
periods beginning after December 31, 1995, under certain circumstances, (iii)
agreed not to accelerate the payment of amounts due the lenders under the Senior
Credit Agreement in the event the Company fails to pay interest to the holders
of its Senior Notes or the $15,000 promissory note issued by Chemical Bank, N.A.
("Chemical") on September 19, 1995 (the "Chemical Promissory Note") when due,
unless the indebtedness represented by the Senior Notes or the Chemical
Promissory Note is accelerated as a result of such failure to pay interest and
(iv) agreed that the Company would continue to be able to draw under the
revolving credit facility portion of the Senior Credit Agreement.
Due to the Company's recent financial performance, the Company does not
believe that its cash flow from operations for the fourth quarter of 1995 will
be sufficient to meet both its working capital requirements as well as the
scheduled $10,750 interest payment on the Senior Notes due December 15, 1995 or
the scheduled $415 interest payment on the Chemical Promissory Note due December
31, 1995. Accordingly, the Company will not make these interest payments on the
Senior Notes and the Chemical Promissory Note in December 1995 and does not
intend to pay dividends on its preferred stock for the foreseeable future. The
failure to pay interest on the Senior Notes or the Chemical Promissory Note
would, after the expiration of the applicable grace periods, permit the
respective holders thereof to accelerate the maturity of such debt. In addition
to the liquidity to be provided by foregoing interest payments in respect of the
Senior Notes and the Chemical Promissory Note, the amounts that Color Tile
expects will be available to it under the revolving credit facility portion of
the Senior Credit Agreement (on which, as a result of the recent amendment of
the Senior Credit Agreement, Color Tile currently anticipates that it will
continue to be able to draw through the second quarter of 1996), together with
availability under its letters of credit facility with The Bank of Tokyo, Ltd.
(the "letters of credit facility"), are expected to be sufficient to meet the
Company's working capital requirements through the second quarter of 1996. The
Company, therefore, expects to be able to pay ongoing trade and operating
expenses in the ordinary course of business through the second quarter of 1996.
In light of the anticipated inability to pay interest due on the Senior
Notes and the Chemical Promissory Note, the Company intends to seek, on an
expedited basis, to restructure its obligations under the Senior Credit
Agreement, the Senior Notes and the Chemical Promissory Note. The Company will
seek to meet with representatives of the lenders under the Senior Credit
Agreement and the holders of Senior Notes and the Chemical Promissory Note with
a view to negotiation of a consensual plan for the restructuring of the
Company's obligations in respect of the Senior Credit Agreement, the Senior
Notes, the Chemical Promissory Note and the Company's equity capitalization. The
Company cannot predict the timing or outcome of any such negotiations, nor can
there be any assurance that any restructuring will be implemented. If
7
<PAGE>
such a restructuring cannot be implemented or should operating results fail
to improve, the Company may be compelled to refinance some or all of its
indebtedness, sell assets, restructure its operations, raise additional equity,
or seek protection under Chapter 11 of the United States Bankruptcy Code. No
assurance can be given that any of the foregoing, non-bankruptcy alternatives
could be accomplished or, if accomplished, would raise sufficient funds for the
Company to continue as a going concern.
Color Tile is a wholly-owned subsidiary of Color Tile Holdings, Inc.
("Holdings"). Reference is made to the summary of significant accounting
policies in the Company's Annual Report on Form 10-K for the fiscal year ended
January 1, 1995. These financial statements and the related notes should be read
in connection with such Form 10-K.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of the Company as of October 1, 1995 and January
1, 1995 and its results of operations for the three months and nine months ended
October 1, 1995 and October 2, 1994 and cash flows for the nine months ended
October 1, 1995 and October 2, 1994. Information included in the Condensed
Consolidated Balance Sheet as of January 1, 1995 has been derived from the
Company's audited financial statements in its Annual Report on Form 10-K.
The results of operations for the three months and nine months ended
October 1, 1995 may not be indicative of the results of operations for the full
fiscal year ending December 31, 1995.
2. Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
October 1, January 1,
1995 1995
------------------ ----------------
<S> <C> <C>
Finished Goods $56,885 $85,176
Work in Progress 829 563
Raw Materials 1,181 1,655
------------------ ----------------
$58,895 $87,394
================== ================
</TABLE>
3. Long-Term Debt:
On May 19, 1995 and June 12, 1995, the Company entered into Credit
Agreements (the "Investcorp Credit Agreements") with an affiliate of INVESTCORP,
S.A., which indirectly has the power to vote a majority of the voting shares of
Holdings. The Investcorp Credit Agreements provided for $15,000 in unsecured
revolving credit facilities due in November 1995. Outstanding borrowings under
these facilities accrued interest at 13% per annum. On September 28, 1995,
Investcorp contributed these borrowings and accrued interest of $487 to
Holdings, which contributed these sums to the Company and terminated the notes
representing such indebtedness. The Company has recorded this contribution as
additional paid-in capital.
On September 19, 1995, the Company entered into an amendment of its Senior
Credit Agreement. The amendment provides for less restrictive financial
covenants from the previous agreement and defers previously scheduled principal
payments under the Senior Credit Agreement from 1996 to 1997. As a condition to
obtaining the consent of the Bank of Tokyo to the fifth and sixth amendments to
the Senior Credit Agreement, in its capacity as a lender under the Senior Credit
Agreement, the Company was required to reduce its availability under its letters
of credit facility with The Bank of Tokyo, Ltd. from $10,000 to $8,000.
8
<PAGE>
On September 28, 1995, the Company issued the Chemical Promissory Note in
the amount of $15,000 to Chemical Bank in return for an equal amount of cash.
The Chemical Promissory Note is due on March 31, 1997, and accrues interest at
10.75% per annum, with interest payable quarterly. The Chemical Promissory Note
is unsecured.
On November 7, 1995, the Company and the lenders under the Senior Credit
Agreement entered into an amendment of the Senior Credit Agreement pursuant to
which the lenders (i) waived compliance by the Company with the financial
covenants contained in the Senior Credit Agreement until June 30, 1996, subject
to the Company's attaining positive Consolidated Adjusted Operating Profit, as
defined in the Senior Credit Agreement, for the first quarter of 1996, (ii)
agreed to permit the Company to defer the payment of scheduled interest under
the Senior Credit Agreement for periods beginning after December 31, 1995, under
certain circumstances, (iii) agreed not to accelerate the payment of amounts due
the lenders under the Senior Credit Agreement in the event the Company fails to
pay interest to holders of its Senior Notes and the Chemical Promissory Note
when due, unless the indebtedness represented by the Senior Notes or the
Chemical Promissory Note is accelerated as a result of such failure to pay
interest and (iv) agreed that the Company would continue to be able to draw
under the revolving credit facility portion of the Senior Credit Agreement. The
amendment also eliminates the Company's ability to convert borrowings to
Eurodollar loans. As existing Eurodollar loans expire in December 1995 and
January 1996, the principal represented by such loans will begin to accrue
interest at the agent bank's announced reference rate (8.75% at October 1, 1995)
plus 1 1/2% which is anticipated to be a higher interest rate than borne by
Eurodollar loans. At October 1, 1995, the Company had $163,000 of Eurodollar
loans outstanding at an average interest rate of 8.77% per annum.
In connection with the foregoing transactions, on August 15, 1995, in
accordance with its obligations under the Senior Credit Agreement, the Company
pledged the shares of its wholly-owned subsidiary, American Blind and Wallpaper
Factory, Inc. ("ABWF") to secure the Company's obligation under the Senior
Credit Agreement and caused ABWF to execute a guaranty of the Company's
obligations under the Senior Credit Agreement and to grant a security interest
in its assets to secure such guaranty.
In light of the Company's recent financial performance, the Company does
not believe that its cash flow from operations for the fourth quarter of 1995
will be sufficient to meet both its working capital requirements, as well as the
scheduled $10,750 interest payment on the Senior Notes due December 15, 1995 and
the scheduled $415 interest payment of the Chemical Promissory Note due December
31,1995. Accordingly, the Company will not make the interest payments on the
Senior Notes and Chemical Promissory Note in December 1995 and does not intend
to pay dividends on its preferred stock for the foreseeable future. The failure
to pay interest on the Senior Notes or the Chemical Promissory Note would, after
expiration of the applicable grace periods, permit the respective holders to
accelerate the maturity of such debt. In addition to the liquidity to be
provided by foregoing interest payments in respect of the Senior Notes and the
Chemical Promissory Note, the amounts that Color Tile expects will be available
to it under the revolving credit facility portion of the Senior Credit Agreement
(on which, as a result of the recent amendment of the Senior Credit Agreement,
Color Tile currently anticipates that it will continue to be able to draw
through the second quarter of 1996), together with availability under its
letters of credit facility with The Bank of Tokyo, Ltd., are expected to be
sufficient to meet its working capital requirements through the second quarter
of 1996. The Company therefore expects to be able to pay ongoing trade and
operating expenses in the ordinary course of business through the second quarter
of 1996.
Given the Company's intent to forego interest payments on the Senior Notes
and Chemical Promissory Note in December 1995, and the ability of the holders to
accelerate the indebtedness, after expiration of applicable grace periods, these
borrowings have been classified as current in the accompanying condensed,
consolidated balance sheet.
There can be no assurance that the Company will be in compliance with the
financial covenants of the Senior Credit Agreement when the waivers expire on
June 30, 1996. If the Company is unable to maintain compliance with such
financial covenants, or other covenants, it will be necessary to obtain a
further waiver or amendment of such covenants from the lenders under the Senior
Credit Facility in order for the Company to continue to be able to draw under
the revolving credit facility portion of the Senior Credit Agreement after June
30, 1996.
4. Commitments and Contingencies:
There are various claims and pending actions incident to the business
operations of the Company. In the opinion of management, the Company's potential
liability in all pending actions and claims, in the aggregate, is not material.
During the third quarter of 1995, the Company and the purchaser of its wood
manufacturing plant mutually terminated and released each other from the supply
agreement for wood flooring products pursuant to which the Company, subject to
certain exceptions and a minimum annual purchase requirement, was required to
purchase all of its requirements for hardwood flooring through May 1998.
9
<PAGE>
5. Common Stockholder's Deficiency
On September 28, 1995, Investcorp contributed the notes under the
Investcorp Credit Agreements and accrued interest of $487 to Holdings, which
contributed these sums to the Company and terminated the notes representing such
indebtedness. Concurrent with the Fifth Amendment to the Senior Credit Agreement
and issuance of the Promissory Note, Holdings contributed $14,250 in cash to the
Company. The Company has recorded these contributions as additional paid-in
capital.
6. Systemwide Sales:
Systemwide sales include retail sales of all Company stores, retail sales
of all Franchise stores, sales of American Blind and Wallpaper Factory ("ABWF")
and sales of manufactured products to outside third parties.
7. Advertising:
The Company adopted the AICPA's, Statement of Position 93-7 (SOP 93-7),
"Reporting on Advertising Costs", effective for the three month period ended
April 2, 1995 and subsequent periods. Pursuant to the provisions of SOP 93-7,
the Company expenses the costs of advertising in the annual period in which
those costs are incurred, except for direct response advertising of ABWF (e.g.
magazine, newspaper and television advertisements containing ABWF's products),
which is capitalized and amortized over its expected period of future benefits.
These direct-response advertising costs are amortized over the period following
publication of the advertisements during which future benefits of the specific
advertising are to be recognized. At October 1, 1995, $793 of ABWF advertising
costs were deferred.
8. Special Charges:
During the third quarter of 1995, following a review of its operations, the
Company established provisions with respect to its program to eliminate
underperforming, excess and obsolete merchandise from its ceramics, resilient
and wood product lines, for closures of underperforming Company and certain
terminated or delinquent franchise stores, and for the revaluation of certain
assets and liabilities. As a result, the Company recorded a $34,934 charge to
earnings in the third quarter which consisted of:
Inventory reduction program $ 15,480
Store closures 6,352
Valuation of assets and liabilities
due to change in management strategy 13,102
---------
$ 34,934
=========
During the third quarter of fiscal 1994, following a detailed study of its
operations, the Company recorded a write-down for the impairment of certain
intangible assets and property, plant and equipment based upon discounted cash
flows, established provisions for future cash outflows for store closures and
conversions and provided for a write-down on an unfavorable long term inventory
purchase commitment and certain discontinued minor product categories. These
write-downs and provisions, which aggregated $29,600 and are reflected as
Special Charges in the Condensed Consolidated Statement of Operations, consist
of:
Impairment of assets $14,500
Unfavorable purchase commitment/product write-down 9,700
Store closures and conversions 5,400
----------
$29,600
==========
10
<PAGE>
9. Loss on Disposal of a Line of Business
On May 20, 1994 the Company sold its wholly owned Canadian subsidiary,
Factory Carpet, which operated 37 retail stores in Canada (including 8
franchised stores). In connection with the disposition of Factory Carpet, the
Company recorded a charge to continuing operations of $8,651 in 1993 and an
additional estimated loss on sale of $2,500 in the second quarter of 1994.
10. Impairment of Long-Lived Assets
In anticipation of the Company's adoption of the 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"), the
Company has undertaken a study under SFAS No. 121 to determine the
recoverability of certain long-lived assets, including property, plant and
equipment, goodwill and intangible assets. The Company anticipates that, at the
conclusion of this study during the fourth quarter of 1995, the Company will
adopt SFAS No. 121 and a substantial charge will be recorded to earnings to
reflect an impairment of these assets as required by SFAS No. 121.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Amounts in thousands)
Results of Operations
During the third quarter of 1995, following a review of its operations, the
Company established provisions with respect to its program to eliminate
underperforming, excess and obsolete merchandise from its ceramics, resilient
and wood product lines, for closures of underperforming Company and certain
terminated or delinquent franchise stores, and for the revaluation of certain
assets and liabilities. As a result, the Company recorded a $34,934 charge to
earnings in the third quarter which consisted of:
Inventory reduction program $ 15,480
Store Closures 6,352
Valuation of Assets and Liabilities
due to change in management strategy 13,102
--------
$ 34,934
========
In addition, the Company, in anticipation of the adoption of 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"),
has undertaken a study under SFAS No. 121 to determine the recoverability of
certain long-lived assets, including property, plant and equipment, goodwill,
and intangible assets. The Company anticipates that, at the conclusion of this
study during the fourth quarter of 1995, a substantial charge will be recorded
to earnings to reflect an impairment of these assets as required by SFAS No.
121.
Three months ended October 1, 1995, compared to three months ended October 2,
1994.
Net Sales. Net sales for the three months ended October 1, 1995 decreased
$7,836, or 4.6%, to $160,604 compared to the prior-year period. The decrease in
net sales results principally from (i) a 6.2% decrease in sales of Company
operated retail stores open over one year, (ii) a 6.8% reduction in the number
of Company operated retail stores and (iii) a 8.2% decrease in sales by ABWF,
the effects of which were partially offset by (i) increased sales of merchandise
to franchisees and (ii) sales generated at stores open less than one year. The
Company believes that the decline in the U. S. floor covering market that began
in the first quarter of 1995 continued throughout the second and third quarters
of 1995 as consumer confidence remained low.
At October 1, 1995, there were 802 retail stores in operation selling the
Company's products, including 148 stores operated by franchisees as compared to
826 retail stores in operation as of October 2, 1994, including 124 stores
operated by franchisees.
Cost of Sales. Cost of sales increased by $8,647 for the three months ended
October 1, 1995, compared to the prior-year period, as the Company continued its
program to eliminate slow-moving inventory. As a percentage of net sales, cost
of sales increased to 66.7% for the three months ended October 1, 1995 as
compared to 58.5% for the prior-year period. The increase in cost of sales as a
percentage of sales resulted primarily from (i) the sale of slow-moving
inventory at reduced retail prices, (ii) a 34.1% increase in merchandise sales
to franchisees and (iii) reduced margins from manufacturing operations. A
non-recurring charge of $4,058 was recorded in the third quarter. Net of the
charge, cost of sales would have been $103,077 for the third quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased as a percentage of net sales to 38.7% for the
three months ended October 1, 1995 as compared to 31.3% for the prior-year
period. Such expenses increased by $9,538 from the prior-year period primarily
due to (i) higher insurance costs resulting primarily from increased medical and
workers' compensation claims activity ($3,940), (ii) consulting costs related to
the Company's strategic repositioning projects ($1,671) and (iii) the costs of
closing unprofitable stores ($462). A non-recurring charge of $3,742 was
recorded in the third quarter. Net of this charge selling, general and
administrative expense would have been $58,462 for the quarter as compared to
$52,666 during the prior year period.
12
<PAGE>
Interest Expense, Net. Interest expense, net, increased $2,342 for the
three months ended October 1, 1995 as compared to the prior-year period. The
increased interest expense resulted from additional borrowings of $29,000 under
the term loan portion of the Senior Credit Agreement during the fourth quarter
1994, borrowings under the Investcorp Credit Agreements through September 28,
1995, borrowings under the Chemical Promissory Note from September 28, 1995 and
higher interest rates on total borrowings under the Company's Senior Credit
Agreement.
Pre-Tax Loss. Pre-tax loss was $63,038 for the three months ended October
1, 1995 as compared to a pre-tax loss of $28,590 for the prior-year period. The
increased 1995 pre-tax loss, resulted from the 1995 special charge of $34,934, a
non-recurring charge to cost of sales and selling, general and administrative
expense of $7,800 and the decrease in profit from Company stores and ABWF due to
lower sales and margins during the period, the increase in selling, general and
administrative expenses described above and the increase in interest expense.
The 1994 results include special charges of $29,600.
Income Taxes. Income tax expense was $168 for the three months ended
October 1, 1995 and October 2, 1994.
Net Loss. Net loss for the three months ended October 1, 1995 was $63,206
as compared to a net loss of $28,758 in the prior-year period. The current
period net loss resulted principally from the decrease in operating income from
Company-owned retail stores and ABWF due to lower sales during the period,
increased selling, general and administrative expenses and the increase in
interest expense.
Nine months ended October 1, 1995, compared to nine months ended October 2,
1994.
Net Sales. Net sales for the nine months ended October 1, 1995 decreased
$12,873, or 2.6%, compared to the prior-year period. The decrease in sales
resulted from (i) a 5.3% decrease in retail sales by Company stores open over
one year, (ii) a 6.8% reduction in the number of Company-operated retail stores
and (iii) lower sales by ABWF. This sales decline was partially offset by (i)
increased sales of merchandise to franchisees and (ii) sales generated by stores
open for less than one year. The Company believes that the U.S. floor coverings
market declined throughout the first nine months of 1995 as major home
remodeling projects were deferred in response to weak existing home sales and
low consumer confidence.
At October 1, 1995, there were 802 retail stores in operation selling the
Company's line of products, 148 of which were operated by franchisees.
Cost of Sales. Cost of sales increased by $11,831 for the nine months ended
October 1, 1995 as compared to the prior-year period. As a percentage of Net
Sales, cost of sales increased to 62.1% for the nine months ended October 1,
1995 as compared to 58.2% for the prior-year period. The increase in cost of
sales as a percentage of Net Sales resulted primarily from the ongoing sales mix
shift caused by increased sales of merchandise to franchisees and the inventory
reduction program initiated in the second quarter. Gross margins were also
negatively impacted by lower retail sales activity and decreased capacity
utilization at the Company's manufacturing facilities. A non-recurring charge of
$4,058 was recorded to cost of sales in the third quarter. Net of this
non-recurring charge, costs of sales of would have been $301,377 for the nine
months ended October 1, 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased as a percentage of Net Sales to 34.6% for the
nine months ended October 1, 1995 as compared to 31.4% for the prior-year
period. Such expenses increased in aggregate dollar amount by $11,897 for the
nine months ended October 1, 1995, as compared to the prior-year period due
primarily to (i) higher insurance costs resulting from increased medical and
workers' compensation claims activity, (ii) consulting costs related to the
Company's strategic repositioning projects and (iii) costs incurred in
connection with the introduction of ABWF's carpet program. A non-recurring
charge of $3,742 was recorded in the third quarter. Net of this non-recurring
charge, selling, general and administrative expenses would have been $166,530
for the nine month period ended October 1, 1995.
13
<PAGE>
Interest Expense, Net. Interest expense, net, increased $7,753 for the nine
months ended October 1, 1995 as compared to the prior-year period. The increased
interest expense resulted from additional borrowings of $29,000 under the term
loan portion of the Senior Credit Agreement during the fourth quarter of 1994,
borrowings under the Investcorp Credit Agreements through September 28, 1995,
borrowings under the Chemical Promissory Note from September 28, 1995 and higher
interest rates on total borrowings, and interest incurred in conjunction with
various sales promotions.
Pre-Tax Loss. Pre-tax loss for the nine months ended October 1, 1995 was
$75,255 as compared to pre-tax loss of $27,249 for the prior-year period. The
increased pre-tax loss, for the nine months ended October 1, 1995 was due
primarily to (i) the 1995 special charge, (ii) lower retail sales by
Company-operated stores and ABWF, (iii) increased cost of sales resulting from
the continuing sales shift to lower margin product lines and the inventory
reduction program, (iv) increased selling, general and administrative expenses
as described above, (v) increased interest expense resulting from increased
borrowing levels and higher interest rates on variable rate borrowings and (vi)
certain non-recurring charges recorded to cost of sales and selling, general and
administrative expense during the third quarter of 1995. Pre-tax loss for the
nine months ended October 2, 1994 included a $2,500 loss on disposal of the
Company's Canadian operations and special charges of $29,600.
Income Taxes. Income tax expense was $518 for the nine months ended October
1, 1995 as compared to $510 in the prior-year period.
Net Loss. Net loss was $75,773 for the nine months ended October 1, 1995 as
compared to net loss of $27,759 in the comparable prior-year period. The
increase in net loss from the comparable prior-year period resulted primarily
from the decrease in operating income, the increase in selling, general, and
administrative expenses and the increase in interest expense.
Liquidity and Capital Resources
As of October 1, 1995, the Company had outstanding debt of approximately
$419,000 (including capitalized lease obligations and the current portion of
long-term debt), preferred stock with a liquidation preference of approximately
$103,100 and a common stockholder's deficiency of approximately $93,900. The
current portion of long-term debt was $220,833, which includes the Senior Notes
and the Chemical Promissory Note.
At October 1, 1995, the Company had $173,400 in outstanding borrowings
under the Senior Credit Agreement and the average fluctuating interest rate on
such borrowings approximated 8.8% per annum. As of November 10, 1995, the
Company had $12,150 of availability under the Senior Credit Agreement and $3,934
under the letters of credit facility.
During the remainder of fiscal 1995, the Company's principal payments due
under its long-term mortgage indebtedness and payments due under capitalized
leases will aggregate approximately $1,469. Interest payments under the Senior
Credit Agreement are generally due at the end of each calendar quarter and are
anticipated to be approximate $4,100 quarterly. Interest payments of $10,750 on
the Senior Notes and of $415 on the Chemical Promissory Note (as defined below)
are payable on December 15, 1995 and December 31, 1995, respectively.
Approximately $8,600 annually of cash dividends were scheduled to be paid
quarterly on the Series A Shares during 1995 of which the Company paid $2,062 in
January 1995. As of January 15, 1995, the Company's Redeemable Senior Preferred
Stock began to accrue cash dividends of approximately $5,200 annually, scheduled
to be paid quarterly. The Company did not pay the scheduled quarterly cash
dividends on the preferred stock in April, July and October of 1995 and does not
intend to pay dividends on its preferred stock for the foreseeable future.
Failure of the Company to pay scheduled preferred stock dividends will not cause
a default or acceleration of any financial obligations of the Company. However,
although the relevant terms of the two outstanding series of preferred stock
differ somewhat, in general if six quarterly preferred stock dividends are not
paid, the holders of the preferred stock will be entitled to elect an aggregate
of up to four directors of the Company. The Company currently has three
directors and, if the preferred stockholders were to become entitled to elect
four directors and assuming no change in the authorized number of directors, the
directors selected by the preferred stockholders would hold four of the seven
director positions.
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In mid-August, a series of transactions was initiated which, based upon the
Company's then assumptions and projections, the Company believed would provide
sufficient liquidity both to finance its operations and to pay its obligations
with respect to borrowed money. These transactions consisted of the following:
(i) On September 19, 1995, the Company entered into an amendment to its
Senior Credit Agreement providing for less restrictive financial covenants than
the previous agreement and deferred previously scheduled principal payments
under the Senior Credit Agreement from 1996 to 1997. As a condition to obtaining
the consent of The Bank of Tokyo, Ltd. to the Amendment to the Senior Credit
Agreement, in its capacity as a lender under the Senior Credit Agreement, the
Company was required to reduce its availability under its letters of credit
facility with The Bank of Tokyo, Ltd. from $10,000 to approximately $8,300.
(ii) In May and June 1995, the Company had borrowed $15,000 under the
Investcorp Credit Agreements from an affiliate of Investcorp, which borrowings
bore interest at the rate of 13% per annum. On September 28, 1995, prior to
maturity in November 1995, Investcorp contributed all outstanding borrowings
under the Investcorp Credit Agreements ($15,000) and accrued interest of $487 to
the capital of Holdings and Holdings then contributed these amounts to the
capital of the Company, thus relieving the Company of any obligation to repay
the borrowings. As a result, these agreements terminated.
(iii) On September 28, 1995, the Company received cash of $15,000 from the
issuance of a new promissory note to Chemical Bank, N.A. (the "Chemical
Promissory Note"), due on March 31, 1997, which bears interest at 10.75% per
annum.
(iv) Also on September 28, 1995, the Company received a $14,250 cash
capital contribution from Holdings which was funded by a $15,000 equity
contribution to Holdings by Investcorp.
(v) In anticipation of these transactions, on August 15, 1995, in
accordance with its obligations under the Senior Credit Agreement, the Company
pledged the shares of its wholly-owned subsidiary, American Blind and Wallpaper
Factory, Inc. ("ABWF"), to secure the Company's obligation under the Senior
Credit Agreement and caused ABWF to execute a guaranty of the Senior Credit
Agreement and to grant a security interest in its assets to secure such
guaranty.
At October 1, 1995, the Company was not in compliance with the trailing
three month operating profits and net worth covenants in the amended Senior
Credit Agreement, which are measured quarterly. Such non-compliance resulted
from the decline in operating results in the third quarter. On November 7, 1995,
the Company and the lenders under the Senior Credit Agreement entered into an
amendment of the Senior Credit Agreement pursuant to which the lenders (i)
waived compliance by the Company with the financial covenants contained in the
Senior Credit Agreement until June 30, 1996, subject to the company's attaining
positive Consolidated Adjusted Operating Profit, as defined, for the first
quarter of 1996, (ii) agreed to permit the Company to defer the payment of
scheduled interest under the Senior Credit Agreement for periods beginning after
December 31, 1995, under certain circumstances, (iii) agreed not to accelerate
the payment of amounts due to them in the event the Company fails to pay
interest on its Senior Notes or the Chemical Promissory Note when due, unless
the indebtedness represented by the Senior Notes or the Chemical Promissory Note
were to be accelerated as a result of such failure to pay interest and (iv)
agreed that the Company would continue to be able to draw under the revolving
credit facility portion of the Senior Credit. As a condition of obtaining the
consent of the Bank of Tokyo to the Sixth Amendment to the Senior Credit
Agreement, in its capacity as a lender under the Senior Credit Agreement, the
Company was required to reduce its availability under its letters of credit
facility with The Bank of Tokyo, Ltd. from $8,300 to $8,000.
As discussed above, the Company's operating results for the third quarter
declined much more than anticipated as a result of which the Company's prior
assessment as to its near-term liquidity has been revised. Based upon its recent
financial performance, the Company does not believe that its cash flow from
operations for the fourth quarter of 1995 will be sufficient to meet both its
working capital requirements as well as the interest payments required to be
made in respect of the Senior Notes and the Chemical Promissory Note in December
1995. Accordingly, the Company will not make the interest payments on the Senior
Notes and the Chemical Promissory Note in December 1995 and does not intend to
pay dividends on its preferred stock for the foreseeable future. The failure to
pay interest on the Senior Notes and the Chemical Promissory Note would, after
the expiration of applicable grace periods, permit the respective holders
thereof to accelerate the maturity of such debt. In addition to the liquidity to
be provided by foregoing interest payments in respect of the Senior Notes and
the Chemical Promissory Note, the amounts that Color Tile expects will be
available to it under the revolving credit portion of the Senior Credit
Agreement (on which, as a result of the recent sixth amendment of the Senior
Credit Agreement, Color Tile expects that it will continue to be able to draw
through the second quarter of 1996), together with availability under its
letters of credit facility, are expected to be sufficient to meet the Company's
working capital requirements through the second quarter of 1996. The Company
therefore expects to be able to pay ongoing trade and operating expenses in the
ordinary course of business through the second quarter of 1996.
15
<PAGE>
There can be no assurance that the Company will be in compliance with the
financial covenants in the Senior Credit Agreement when the waivers expire on
June 30, 1996. If the Company is unable to maintain compliance with the
financial, or other covenants, in the Senior Credit Agreement, it will be
necessary to obtain a further waiver or amendment of such covenants from the
lenders under the Senior Credit Agreement in order for the Company to continue
to draw under the revolving credit facility of the Senior Credit Agreement.
A default under the Senior Credit Agreement does not give rise to a default
under the Senior Notes but would give rise to a default under certain of the
Company's other financing facilities. If such default were to occur and the
Company was unable to secure the requisite waivers or covenant modifications,
the Company would have to refinance some or all of its indebtedness, sell
assets, restructure its operations or raise additional equity. No assurance can
be given that any of the foregoing could be accomplished or, if accomplished,
would raise sufficient funds for the Company to satisfy its debt service and
other financial obligations on a timely basis.
Capital expenditures for the nine months ended October 1, 1995 were $8,323
as compared to $17,152 for the prior year period. These capital expenditures
were funded through borrowings under the revolving credit portion of the Senior
Credit Agreement and the Investcorp Credit Agreements. During the remainder of
fiscal 1995, the Company anticipates total capital expenditures of approximately
$2,800. Capital expenditures for 1995 have been reduced significantly from the
level contemplated at the beginning of the year in view of the decline in
operating results.
In light of the anticipated inability to pay interest due on the Senior
Notes, the Company intends to seek, on an expedited basis, to restructure its
obligations under the Senior Credit Agreement, the Senior Notes and the Chemical
Promissory Note. The Company will seek to meet with representatives of lenders
under the Senior Credit Agreement and holders of the Senior Notes and the
Chemical Promissory Note with a view to negotiation of a consensual plan for the
restructuring of the Company's obligations in respect of the Senior Credit
Agreement, the Senior Notes, the Chemical Promissory Note and the Company's
equity capitalization. The Company cannot predict the timing or outcome of any
such negotiations, nor can there be any assurance that any restructuring will be
implemented. If such restructuring cannot be implemented or should operating
results fail to improve, the Company may be compelled to refinance some or all
of its indebtedness, sell assets, restructure its operations, raise additional
equity or seek protection under Chapter 11 of the United States Bankruptcy Code.
No assurance can be given that any of the foregoing, non-bankruptcy alternatives
could be accomplished or, if accomplished, would raise sufficient funds for the
Company to continue as a going concern.
Impact of Inflation and Changing Prices; Seasonality
Inflation and changing prices have not historically had a material effect
on the Company's overall operations. Generally, the Company has been able to
offset the effect of increases in product costs through a combination of price
increases, modifications in promotional strategies and the implementation of
operating efficiencies.
The Company's business shows some seasonal variation, with lower sales
levels generally occurring during the winter months.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10(dd) Amendment No. 5, dated as of September 19, 1995, to the Credit
Agreement, dated as of November 27, 1991, as amended, among the
Company, the lenders party thereto and Chemical Bank as agent.
10(ee) Amendment No. 6, dated as of November 7, 1995, to the Credit
Agreement dated as of November 27, 1991, as amended, among the
Company, the lenders party thereto and Chemical Bank as agent.
10(ff) Receivables Purchase and Transfer Agreement, dated as of September 20,
1995, between Color Tile, Inc. and First Interstate Bank of Texas, N.A.
10(gg) Letters of Credit Agreement among Color Tile, Inc. and The Bank of
Tokyo, Ltd. as of September 19, 1995.
10(hh) Agreement Re Resignation and Consulting between Color Tile, Inc.,
Color Tile Holdings, Inc., and Eddie M. Lesok, dated as of August 21,
1995.
10(ii) Agreement Re Resignation and Consulting between Color Tile, Inc.,
Color Tile Holdings, Inc., and N. Laurence Nagle, dated as of July 15,
1995.
10(jj) Amendment to the Agreement Re Resignation and Consulting between Color
Tile, Inc., Color Tile Holdings, Inc., and N. Laurence Nagle, dated as
of July 15, 1995, amended as of August 21, 1995
10(kk) Promissory Note between Color Tile, Inc. as borrower and Chemical
Bank, N.A., as lender, $15,000,000, dated as of September 28, 1995.
10(ll) Employment agreement between Bart A. Brown, Jr. and Color Tile, Inc.,
dated August 21, 1995.
10(mm) Form of Agreement between Bart A. Brown, Jr. and Investcorp Bank,
E.C., dated August 21, 1995.
10(nn) Amendment to the Letters of Credit Agreement among Color Tile, Inc.
and the Bank of Tokyo, Ltd., dated as of November 9, 1995.
10(oo) Indemnity Agreement between Perry Odak and Investcorp Bank, E.C., an
updated.
10(pp) Amendment to the Promissory Note between Color Tile, Inc. as borrower
and Chemical Bank, N.A., as lender, $15,000,000 dated as of
September 28, 1995, amended as of November 9, 1995
(b) Reports on Form 8-K
None
17
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SIGNATURE Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COLOR TILE, INC.
(Registrant)
Date:
November 15, 1995 /s/ Bart A. Brown, Jr.
Bart A. Brown, Jr.,
Chairman of the Board
and Chief Executive Officer
18
FIFTH AMENDMENT
FIFTH AMENDMENT (this "Amendment"), dated as of September 19, 1995, to the
Credit Agreement dated as of November 27, 1991 (as heretofore amended,
supplemented or otherwise modified, the "Credit Agreement"; capitalized terms
used but not defined herein shall have the respective meanings set forth in the
Credit Agreement), among Color Tile, Inc., a Delaware corporation (the
"Company"), the financial institutions party thereto (collectively, the "Banks")
and Chemical Bank, as agent for the Banks (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Company has requested that the Agent and the Banks consent to
certain amendments of specified provisions of the Credit Agreement; and
WHEREAS, the Agent and the Banks are willing to consent to the requested
amendments, but only on the terms and subject to the conditions contained
herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Amendments to Section 1. (a) Section 1 of the Credit Agreement is hereby
amended by deleting the definition of "Required Banks" from subsection 1.1 and
by adding the following definitions thereto in their proper alphabetical
sequence:
"Acceleration Event": the first to occur of (a) a Bankruptcy Event and (b)
the acceleration of the maturity of the Loans and the termination of the
Commitments.
"Bank Tokyo Amount": with respect to any prepayment for which this
calculation is required to be made pursuant to the last sentence of subsection
5.4(e), an amount equal to the product of (a) the amount of such prepayment
(prior to giving effect to any reduction in the amount of such prepayment by
reason of this calculation) times (b) a fraction, the numerator of which is the
Bank Tokyo Exposure and the denominator of which is an amount equal to the sum
of the Bank Tokyo Exposure and the aggregate amount of the Exposure of all Banks
on the Fifth Amendment Effective Date.
<PAGE>
"Bank Tokyo Exposure": $8,366,050
"Bank Tokyo L/C Facility": the Letter of Credit Facility Agreement, dated
as of September 19, 1995, between The Bank of Tokyo, Ltd., New York Agency and
the Company.
"Bankruptcy Event": the occurrence of an Event of Default under paragraph
(f) of Section 10 of this Agreement.
"Excess Cash Flow": shall mean an amount, but in no event less than zero,
equal to (a) for the fiscal quarter ended on or about December 31, 1995, the
lesser of (i) Fifth Amendment Adjusted Actual Cash Flow for the period of
September 1, 1995 through the end of such fiscal quarter plus $2,906,000 and
(ii) $3,526,000; (b) for the fiscal quarter ended on or about March 31, 1996,
the lesser of (i) Fifth Amendment Adjusted Actual Cash Flow for the period of
September 1, 1995 through the end of such fiscal quarter plus $4,138,000 and
(ii) $7,052,000; (c) for the fiscal quarter ended on or about June 30, 1996, the
lesser of (i) Fifth Amendment Adjusted Actual Cash Flow for the period of
September 1, 1995 through the end of such fiscal quarter plus $5,808,000 and
(ii) $10,578,000; (d) for the fiscal quarter ended on or about September 30,
1996, the lesser of (i) Fifth Amendment Adjusted Actual Cash Flow for the period
of September 1, 1995 through the end of such fiscal quarter plus $5,750,000 and
(ii) $14,104,000; and (e) for the fiscal quarter ended on or about December 31,
1996, the lesser of (i) Fifth Amendment Adjusted Actual Cash Flow for the period
of September 1, 1995 through the end of such fiscal quarter plus $7,547,000 and
(ii) $17,630,000.
"Exposure": as to any Bank, on any date of determination thereof, an amount
equal to the aggregate amount of all obligations of the Company under this
Agreement to such Bank outstanding on such date, as shown on the Fifth Amendment
Schedule or a Reallocation Event Schedule, as the case may be, constituting the
principal of such Bank's Term Loans and Revolving Credit Commitment.
"Fifth Amendment Adjusted Actual Cash Flow": for any period, Fifth
Amendment Consolidated Adjusted Operating Profit for such period minus, without
duplication for such period, (a) interest expense (net of interest income) which
would, in conformity with GAAP and consistent with the Company's past practices,
be included on the Company's income statement, (b) the principal portion of
capital lease cash payments made, (c) the
2
<PAGE>
principal portion of cash payments on account of industrial revenue bonds
and mortgages permitted hereunder and (d) any decrease in reserves pertaining to
the store closing reserve in existence prior to the period beginning July 2,
1995 or pertaining to the shutdown of the Canadian operation, the van operations
and the Mannington Wood contract, to the extent such decrease results in an
increase to Fifth Amendment Consolidated Adjusted Operating Profit, plus any
increase in any of the above reserves (other than the store closing reserve) to
the extent they result in a decrease to Fifth Amendment Consolidated Adjusted
Operating Profit.
"Fifth Amendment Capital Expenditures": for any period, all amounts which
would, in accordance with GAAP, be set forth as capital expenditures (exclusive
of any amount attributable to capitalized interest) on the consolidated
statement of cash flows or other similar statement of the Company and its
Subsidiaries for such period; provided that (a) any Fifth Amendment Capital
Expenditures financed with the proceeds of any Indebtedness permitted hereunder
(other than Indebtedness incurred hereunder or Subordinated Debt) shall be
deemed to be a Fifth Amendment Capital Expenditure only in the period in which,
and by the amount by which, any principal of such Indebtedness is repaid, (b)
payments under Financing Leases shall not be considered Fifth Amendment Capital
Expenditures and (c) expenditures for data processing software development and
samples development and related costs shall be considered Fifth Amendment
Capital Expenditures to the extent capitalized by the Company in accordance with
GAAP.
"Fifth Amendment Consolidated Adjusted Operating Profit": for any period,
the consolidated net income of the Company and its Subsidiaries for such period,
plus, without duplication and to the extent reflected as a charge in the
statement of such consolidated net income for such period, the sum of (a) taxes
measured by income, (b) interest expense (net of interest income) which would,
in conformity with GAAP and consistent with the Company's past practices, be
included on the Company's income statement, (c) depreciation and amortization
expense, (d) fees and expenses paid by the Company (i) pursuant to subsection
12.5 or (ii) for professionals retained in connection with any financial
restructuring of the Company and (e) the increase in non-cash reserves or asset
write-downs directly attributable to store closings or discontinuance of product
lines, minus the amount utilized of any such reserves created during the
3
<PAGE>
current period or any prior period (commencing with the period beginning on
July 2, 1995).
"Fifth Amendment Consolidated Net Worth": at a particular date, all amounts
which would, in conformity with GAAP, be included under shareholders' equity and
preferred stock (without duplication) on the consolidated balance sheet of the
Company and its Subsidiaries as at such date; provided, however, (i) if there
are any changes in amortization, depreciation, or taxes as a result of any GAAP
required change in the Company's accounting policy, the amount set forth in
subsection 9.8 for any fiscal quarter shall be increased or decreased, as the
case may be, by the cumulative actual impact on Fifth Amendment Consolidated Net
Worth of such changes as of the end of such fiscal quarter, (ii) the amount set
forth in subsection 9.8 for the third fiscal quarter of 1996 shall be increased
or decreased, as the case may be, by the amount that Fifth Amendment
Consolidated Adjusted Operating Profit for the third fiscal quarter of 1995 is
greater or less, as the case may be, than $8,392,000, (iii) the amount set forth
in subsection 9.8 for the fourth fiscal quarter of 1996 shall be increased or
decreased, as the case may be, by the amount that Fifth Amendment Consolidated
Adjusted Operating Profit for the period of the two fiscal quarters ending on or
about December 31, 1995 is greater or less, as the case may be, than $16,160,000
and (iv) the amount set forth in subsection 9.8 for any fiscal quarter shall be
decreased for any non-cash reserves or non-cash asset write-downs directly
attributable to store closings or discontinuance of product lines taken by the
Company since July 2, 1995 through the end of such fiscal quarter."
"Fifth Amendment Effective Date": the "Effective Date", as such term is
defined in the Fifth Amendment to this Agreement.
"Fifth Amendment Interest Coverage Ratio": on the last day of any fiscal
quarter the ratio of (a) Fifth Amendment Consolidated Adjusted Operating Profit
on such day plus $30,000,000 to (b) interest expense (net of interest income)
which would, in conformity with GAAP and consistent with the Company's past
practices, be included on the Company's income statement, in each case for the
period of four fiscal quarters ending on such day (or if less than four fiscal
quarters have occurred since July 2, 1995, for the period from July 2, 1995 to
the end of such fiscal quarter) on a consolidated basis for the Company and its
Subsidiaries.
4
<PAGE>
"Fifth Amendment Percentage": as to each Bank, the percentage that the
aggregate Exposure of such Bank on the Fifth Amendment Effective Date
constitutes of the aggregate Exposure of all Banks on such date, as such
percentage may be modified from time to time pursuant to a Commitment Transfer
Supplement.
"Fifth Amendment Schedule": Schedule I to the Fifth Amendment to this
Agreement, setting forth the Fifth Amendment Percentage of each Bank on the
Fifth Amendment Effective Date, as modified from time to time to give effect to
any Commitment Transfer Supplement.
"Reallocation Event": (a) an Acceleration Event and (b) after the
occurrence of an Acceleration Event but before the effective date of any plan of
reorganization confirmed in any case relating to the Company under Chapter 11 of
the United States Bankruptcy Code, the expiration or cancellation of any undrawn
Letter of Credit or any dishonor of any proposed drawing on any Letter of
Credit, provided that for purposes of this clause (b), a Reallocation Event
shall not be deemed to have occurred until 30 days after the date of expiration
or cancellation of such Letter of Credit or until any dispute with respect to
any such dishonor has been finally determined in favor of the propriety of such
dishonor.
"Reallocation Event Percentage": as to each Bank with respect to any
Reallocation Event, the percentage that the aggregate Exposure of such Bank on
the date of such Reallocation Event constitutes of the aggregate Exposure of all
Banks on such date, as shown on the applicable Reallocation Event Schedule.
"Reallocation Event Purchase Amount": as to each Bank determined, pursuant
to subsection 5.14, to be a Reallocation Event Purchasing Bank with respect to
any Reallocation Event, an amount (as shown on the Reallocation Event Schedule
relating to such Reallocation Event) equal to (a) the aggregate amount of such
Bank's reduction in Exposure during the period from the Fifth Amendment
Effective Date to the date of such Reallocation Event (after giving effect to
any prior Reallocation Events) minus (b) an amount equal to such Bank's Fifth
Amendment Percentage of the aggregate amount of the reduction in Exposure of all
Banks during such period.
"Reallocation Event Purchasing Bank": with respect to any Reallocation
Event, any Bank whose Fifth Amendment Percentage is greater than its
Reallocation Event
5
<PAGE>
Percentage as shown on the Reallocation Event Schedule relating to such
Reallocation Event.
"Reallocation Event Sale Amount": as to each Bank determined, pursuant to
subsection 5.14, to be a Reallocation Event Selling Bank with respect to any
Reallocation Event, an amount (as shown on the Reallocation Event Schedule
relating to such Reallocation Event) equal to (a) the amount of such Bank's
Fifth Amendment Percentage of the aggregate reduction in Exposure of all Banks
during the period from the Fifth Amendment Effective Date to the date of such
Reallocation Event minus (b) the aggregate amount of such Bank's reduction in
Exposure during such period (after giving effect to any prior Reallocation
Events).
"Reallocation Event Schedule": for any Reallocation Event, the Schedule
prepared by the Agent pursuant to subsection 5.14 setting forth, among other
things, (a) the Reallocation Event Percentage for each Bank, (b) the
Reallocation Event Sale Amount for each Reallocation Event Selling Bank and (c)
the Reallocation Event Purchase Amount for each Reallocation Event Purchasing
Bank, in each case with respect to such Reallocation Event.
"Reallocation Event Selling Bank": with respect to any Reallocation Event,
any Bank whose Fifth Amendment Percentage is less than its Reallocation Event
Percentage, as shown on the Reallocation Event Schedule relating to such
Reallocation Event.
"Required Banks": at any time, the holders of at least 51% of the sum of
(a) the aggregate Revolving Credit Commitments in effect at such time (or if the
Revolving Credit Commitments have been terminated, the sum of (i) the aggregate
unpaid principal amount of the Revolving Credit Loans outstanding at such time
plus (ii) the aggregate undrawn amount of all Letters of Credit outstanding at
such time) plus (b) the aggregate unpaid principal amount of the Term Loans
outstanding at such time.
(b) (i) The definition of "Indebtedness" contained in subsection 1.1 of the
Credit Agreement is hereby amended by deleting the phrase "which are not overdue
for a period of more than 90 days or, if overdue for more than 90 days, as to
which a dispute exists and adequate reserves in conformity with GAAP have been
established on the books of such Person" contained in said definition and (ii)
the definition of "Revolving Credit Commitment" contained in subsection 1.1 of
the Credit Agreement is hereby amended by deleting the
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reference to subsection "5.4(b)" contained therein and by substituting
therefor a reference to subsection "5.4(e)."
2. Amendments to Section 5. (a) Subsection 5.3(a) of the Credit Agreement
is hereby amended by adding the following phrase immediately before the period
at the end of the first sentence of said subsection: ", provided that any
payment made with respect to any permanent reduction of the Revolving Credit
Commitments pursuant to this subsection 5.3 shall be applied as provided in
subsection 5.4(e)".
(b) Subsection 5.4(a) of the Credit Agreement is hereby amended by adding
the following phrase immediately before the period at the end of the first
sentence of said subsection: "and provided, further, that any prepayment of the
Term Loans (but not the Revolving Credit Loans) pursuant to this subsection
5.4(a) shall be applied to the prepayment of the Term Loans and the reduction of
the Revolving Credit Commitments in accordance with subsection 5.4(e)".
(c) Subsection 5.4(b)(i) of the Credit Agreement is hereby amended by (i)
deleting the word "Promptly" at the beginning of said subsection and by
substituting therefor the phrase "Not more than two Business Days", (ii)
deleting the phrase "the Company shall, unless the Required Banks otherwise
agree with the Company, apply:" at the end of the first paragraph of said
subsection and by substituting therefor the following: "the Net Proceeds of any
Asset Sale, Excess Debt Issuances, Real Estate Financing or Excess New Senior
Debt Issuance permitted hereunder shall be applied by the Company to the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments in accordance with subsection 5.4(e) (or if not permitted hereunder,
as set forth in a consent (consistent with subsection 5.4(e)), if any, provided
by the Required Banks)" and (iii) deleting clauses "(A)(I)", "(B)(I)", "(B)(II)"
and "(B)(III)" of said subsection in their entirety.
(d) Subsection 5.4(b) of the Credit Agreement is hereby further amended by
inserting a new clause (ii) in said subsection as follows:
"(ii) Not later than 30 days after the end of each fiscal quarter of the
Company during the period from December 31, 1995 through December 31, 1996, the
Company shall (A) deliver to the Agent and each Bank a Schedule prepared by a
Responsible Officer setting forth the calculation of Excess Cash Flow for such
fiscal quarter and (B) apply an amount equal to the Excess Cash Flow calculated
for such fiscal quarter (less the aggregate amount of any payments of Excess
Cash Flow made in respect of prior fiscal quarters) to the prepayment of
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the Term Loans and the reduction of the Revolving Credit Commitments in
accordance with subsection 5.4(e)."
(e) Subsection 5.4(b)(iii) of the Credit Agreement is hereby amended by (i)
deleting the word "Promptly" at the beginning of said subsection and by
substituting therefor the phrase "Not more than two Business Days" (ii)
inserting the following phrase immediately prior to clause (w) in line 3 thereof
"(v) Net Proceeds of the equity contributions described in Sections 10(b) and
10(c) of the Fifth Amendment to this Agreement" and (iii) deleting all of the
text of said subsection immediately following the comma after the end of the
parenthetical in line 14 thereof and by substituting therefor the following:
"the Company shall apply such Net Proceeds to the prepayment of the Term Loans
and the reduction of the Revolving Credit Commitments in accordance with
subsection 5.4(e)".
(f) Subsection 5.4(b)(v) of the Credit Agreement is hereby amended by
adding the following phrase immediately after the phrase "shall be applied" in
the second sentence of said subsection:
"to the prepayment of the Term Loans and the reduction of the Revolving
Credit Commitments in accordance with subsection 5.4(e) and, to the extent not
inconsistent with subsection 5.4(e), such application shall be made".
(g) Subsection 5.4(c) of the Credit Agreement is hereby amended by deleting
said subsection in its entirety and by substituting therefor the following: "(c)
The Term Loans will mature on December 31, 1998. The Term Loans and the
Revolving Credit Loans shall be repaid, and the Revolving Credit Commitments
shall be permanently reduced, on the dates set forth on Schedule II (each such
day, an "Installment Payment Date"), commencing on March 31, 1997. The aggregate
amount payable by the Company with respect to the Terms Loans and the Revolving
Credit Loans on each Installment Payment Date shall be the amount set forth
opposite such Installment Payment Date under the column "Total Amount" on
Schedule II (less any amounts that have been applied to prepay any such
installment in accordance with the terms of this Agreement) and shall be applied
to the repayment of the Term Loans and the reduction of the Revolving Credit
Commitments in accordance with subsection 5.4(e)."
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(h) Subsection 5.4 of the Credit Agreement is hereby further amended by
adding the following new paragraph (e) thereto as follows:
(e) Any prepayment or payment required by the terms of this Agreement to be
applied pursuant to this subsection 5.4(e) shall be applied to the prepayment of
the Term Loans and the reduction of the Revolving Credit Commitments, pro rata,
based upon the then outstanding principal amount of the Tranche A Term Loans,
the Tranche B Term Loans, the Tranche C Term Loans and, in the case of the
Revolving Credit Commitments, based upon the aggregate Revolving Credit
Commitments. The amount of any prepayment under this subsection 5.4(e) (other
than pursuant to subsection 5.4(c)) shall reduce, on a pro rata basis, the
installments (other than the final installment thereof) set forth in subsection
5.4(c), provided that any prepayment pursuant to subsection 5.4(b)(ii) shall
reduce the next scheduled installment set forth on Schedule II. The pro rata
amount of such prepayment or payment to be applied to the reduction of the
Revolving Credit Commitments pursuant to the preceding sentence shall be applied
as follows: first, to the prepayment in full of any Swing Line Loans then
outstanding, second, to the prepayment in full of any Revolving Credit Loans
then outstanding; third, to the payment in full of any outstanding L/C
Obligations; fourth, to cash collateralize 105% of the face amount of any
outstanding and undrawn Letters of Credit on terms reasonably satisfactory to
the Agent (which terms shall provide for a first Lien to secure the Company's
reimbursement obligations with respect to such Letters of Credit and a second
Lien to secure the Company's other obligations under this Agreement); and fifth,
to the reduction of the Revolving Credit Commitments (the actual cash available
for which this reduction fifth has been implemented shall be applied to the
prepayment of the Term Loans (but not to the further reduction of the Revolving
Credit Commitments) in accordance with the first sentence of this subsection
5.4(e). The Revolving Credit Commitment of each Bank shall be permanently
reduced by such Bank's Revolving Credit Commitment Percentage of the pro rata
amount applied to the Revolving Credit Commitments pursuant to the first
sentence of this subsection 5.4(e); provided, however, that the L/C
Participating Interest of each Bank with respect to any issued and undrawn
Letter of Credit cash collateralized under this subsection shall not be
terminated until any L/C Obligation
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with respect to such Letter of Credit is paid in full by the Company or 30
days after such Letter of Credit is cancelled or expires undrawn. The amount of
any cash collateral for a Letter of Credit remaining 30 days after the
expiration of such Letter of Credit (after giving effect to the use, if any, of
such cash collateral to reimburse any drawings under such Letter of Credit)
shall be applied to the prepayment of the Term Loans and the reduction of the
Revolving Credit Commitments in accordance with the first sentence of this
subsection 5.4(e). Notwithstanding anything to the contrary contained in this
subsection 5.4(e), but subject to the proviso set forth below, during the period
from the Fifth Amendment Effective Date through March 31, 1997, the amount of
any prepayment required by subsection 5.3 or 5.4 (including any Asset Sale
permitted hereunder or with the consent of the Required Banks, but not any
payment under subsection 5.4(c)) to be applied in accordance with this
subsection 5.4(e) to the prepayment of the Term Loans and the reduction of the
Revolving Credit Commitments shall be reduced by an amount equal to the Bank
Tokyo Amount, provided that (x) the Company applies an amount equal to the Bank
Tokyo Amount to the reduction of availability under the Bank Tokyo L/C Facility
and (y) availability under the Bank Tokyo L/C Facility during such period shall
not be less than an amount equal to the Bank Tokyo Exposure (except as reduced
as contemplated by this sentence)."
(i) Subsection 5.9(b) of the Credit Agreement is hereby amended by (i)
deleting clause "Fifth" in subsection 5.9(b)(i) in its entirety and by
substituting therefor the following: "Fifth, to the prepayment of the Term Loans
and the reduction of the Revolving Credit Commitments in accordance with
subsection 5.4(e);" and (ii) deleting clause "Third" in subsection 5.9(b)(ii) in
its entirety and by substituting therefor the following: "Third, to the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments in accordance with subsection 5.4(e);".
(j) Section 5 of the Credit Agreement is hereby further amended by adding
the following new subsection 5.14 thereto as follows:
"5.14 Reallocation Events (a) Each Bank agrees that, upon the occurrence of
any Reallocation Event, such Bank shall, to the extent set forth on the
Reallocation Event Schedule relating to such Reallocation Event, and
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in the manner set forth in this subsection 5.14, (i) if it is a
Reallocation Event Selling Bank, sell, assign and transfer to the Reallocation
Event Purchasing Banks a direct ownership interest in a portion of the Notes
held by such Reallocation Event Selling Bank in an aggregate amount equal to its
Reallocation Event Sale Amount or (ii) if it is a Reallocation Event Purchasing
Bank, purchase a direct ownership interest in a portion of the Notes held by the
Reallocation Event Selling Banks in an aggregate amount equal to its
Reallocation Event Purchase Amount, in either case such that after giving effect
to all such purchases and sales by the Banks, the Reallocation Event Percentage
of each Bank shall be equal to its Fifth Amendment Percentage. Every purchase
and sale pursuant to this subsection 5.14 shall be deemed made without recourse,
representation or warranty of any kind, except each Reallocation Event Selling
Bank shall be deemed to represent and warrant to the Reallocation Event
Purchasing Banks that it is the sole owner of its Notes, free and clear of any
Liens or other encumbrances.
(b) Within 15 Business Days after the date of any Reallocation Event, the
Agent shall prepare and deliver to each Bank a Reallocation Event Schedule
pursuant to which the Agent shall (i) determine the Reallocation Event
Percentage of each Bank, (ii) determine which Banks, if any, are Reallocation
Event Selling Banks and the Reallocation Event Sale Amount for any such
Reallocation Event Selling Bank, (iii) determine which Banks, if any, are
Reallocation Event Purchasing Banks and the Reallocation Event Purchase Amount
for any such Reallocation Event Purchasing Bank and (iv) set forth the date (the
"Purchase and Sale Date") which shall be no earlier than 15 Business Days after
the date of delivery of such Reallocation Event Schedule to the Banks. For
purposes of preparing the Reallocation Event Schedule in respect of any
Reallocation Event under clause (b) of the definition thereof, a Bank's Exposure
shall not be deemed reduced by the amount, if any, that any expired, cancelled
or dishonored Letter of Credit was cash collateralized pursuant to subsection
5.4(e).
(c) No later than the Purchase and Sale Date, each Bank shall surrender its
Notes to the Agent, and each Reallocation Event Purchasing Bank shall make
available to the Agent, in funds immediately available to the Agent, its
Reallocation Event Purchase Amount, all as set forth on the applicable
Reallocation Event Schedule. Promptly after such Purchase and Sale Date, (i) the
Agent shall distribute to each Reallocation Event Selling Bank an amount (to the
extent funds therefor have been made available to the Agent for such purpose)
equal to its
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Reallocation Event Sale Amount and (ii) the Company, at is own expense,
shall execute and deliver to the Agent new Notes to the order of each Bank which
shall reflect the purchase and sale transactions implemented pursuant to this
subsection 5.14 for such Reallocation Event. The Agent shall, promptly after
receipt thereof, deliver the new Notes to the Banks and, simultaneously
therewith, deliver to the Company the Notes surrendered to the Agent.
(d) Each Bank and the Company shall execute and deliver such additional
documents as requested by the Agent to implement the transactions contemplated
by this subsection 5.14.
3. Amendments to Section 6. (a) Subsection 6.2 is hereby amended by (i)
deleting the reference to "September 29, 1991" contained in said subsection and
by substituting therefor a reference to "March 31, 1997" and (ii) by adding the
following at the end of said subsection: "Notwithstanding anything to the
contrary contained in this subsection 6.2, during the period from the Fifth
Amendment Effective Date through March 31, 1997, this subsection 6.2 shall be
deemed replaced in its entirety as follows:
6.2 No Change. Since the Fifth Amendment Effective Date there has been no
change, and no development or event involving a prospective change, which has
had or could reasonably be expected to have a material adverse effect on the
Company's ability to achieve its financial projections (distributed to the Banks
prior to the Fifth Amendment Effective Date) for the third or fourth fiscal
quarters of 1995 or any fiscal quarter of 1996 and its financial covenants set
forth herein for the period September 1, 1995 to March 31, 1997."
(b) Subsection 6.14 of the Credit Agreement is hereby amended by deleting
the word "could" in the 19th line of said subsection and by substituting
therefor the word "would".
(c) Subsection 6.16 of the Credit Agreement is hereby amended by adding at
the end thereof the following sentence: "For purposes of the representation
contained in this subsection 6.16, Schedule 6.16 shall be deemed to include any
supplements thereto delivered by the Company
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to the Agent prior to the date any such representation is deemed made."
4. Amendments to Section 8. (a) Subsection 8.1 of the Credit Agreement is
hereby amended by (i) changing clauses "(e)", "(f)", "(g)" and "(h)" thereof to
clauses "(i)", "(j)", "(k)" and "(l)", respectively, and (ii) inserting the
following new clauses after clause (d) of said subsection:
"(e) On the first Wednesday of every calendar month of each year,
commencing with October, 1995, a forecast (the "Receipts and Disbursements
Forecast"), in a format reasonably satisfactory to the Agent, of the Company's
forecast of receipts and disbursements of the Company for the next thirteen
weeks;
(f) No later than 30 days after the end of each calendar month of each
year, commencing with September, 1995, a monthly reporting package, in a format
reasonably satisfactory to the Agent, showing: (i) a brief analysis of the
Company's "Management Initiatives Program" (tests, progress and results) for the
month then ended, with a comparison in reasonable detail to the forecast of the
Company's "Management's Initiatives Program" for such month and (ii) a brief
analysis of the Company's "Inventory Reduction Program" results for the month
then ended, with a comparison in reasonable detail to the forecast of the
Company's "Inventory Reduction Program" for such month;
(g) No later than 30 days after the end of each fiscal quarter of each
year, commencing with the fiscal quarter ending on or about September 30, 1995,
a forecast of the income statement, balance sheet and cash flow of the Company
by fiscal quarter through December 31, 1996, provided that if the Company
prepares such forecast on a monthly basis, such forecast shall be delivered no
later than 30 days after the end of every calendar month of each year, and such
forecast will be on a monthly basis through December 31, 1996;
(h) Each Wednesday, commencing on Wednesday, September 27, 1995, a weekly
report covering the one week period ended on the preceding Sunday, in a format
reasonably acceptable to the Agent, showing: (i) the actual cash flow of the
Company as compared to the most recent Receipts and Disbursements Forecast,
together with a brief written explanation in footnote format of all material
variances; (ii) the weekly sales and gross margin of the Company by division for
the current week as compared to the sales and gross margin of the prior year for
the corresponding week, together with a brief written
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explanation in footnote format of any material variances from such
corresponding period of the prior year and (iii) the weekly sales and gross
margin of the Company by major product category for the current week as compared
to the prior year for the corresponding week, together with a brief written
explanation in footnote format of the material variances from such corresponding
period of the prior year;"
(b) Subsection 8.3 of the Credit Agreement is hereby amended by deleting
the phrase "Pay, discharge or otherwise satisfy" in the first sentence thereof
and by substituting therefor the phrase "During the period from the Fifth
Amendment Effective Date through March 31, 1997, use reasonable efforts (taking
into account all of the circumstances of the Company and its Subsidiaries) to
pay, discharge or otherwise satisfy, and at all times thereafter, pay, discharge
or otherwise satisfy,".
(c) Subsection 8.5(a) of the Credit Agreement is hereby amended by (i)
deleting the word "Keep" at the beginning of said subsection and by substituting
therefor the phrase "During the period from the Fifth Amendment Effective Date
through March 31, 1997, use reasonable efforts (taking into account all of the
circumstances of the Company and its Subsidiaries) to keep, and at all times
thereafter, keep".
(d) Section 8 of the Credit Agreement is hereby further amended by adding
new subsections 8.12 and 8.13 thereto as follows:
"8.12 Additional Collateral. Upon the acquisition by the Company or by any
of its Domestic Subsidiaries of any personal property or any interest therein
that is not subject to a Lien created pursuant to a Security Document, the
Company shall, or shall cause such Domestic Subsidiary to, execute and deliver
to the Agent, for the ratable benefit of the Banks, appropriate pledge
agreements and security agreements covering such property or interest in such
property in accordance with the terms of the Credit Documents, all in form and
substance reasonably satisfactory to the Agent, together with such further acts,
documents and assurances as may be necessary or as the Agent may reasonably
request in order to carry out the purpose of this subsection (including, without
limitation, the execution and delivery of UCC financing statements and similar
documents), each of which pledge agreements and security agreements shall be
accompanied by such resolutions, incumbency certificates and legal opinions as
are reasonably requested by the Agent.
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8.13 Business Plan; Meetings. Not later than January 15, 1996, deliver to
the Agent and each Bank a business plan for the Company and its Subsidiaries
covering the period from January 1, 1996 through December 31, 1997 and
specifically addressing the management changes implemented at the Company.
Unless otherwise agreed to by the Company and the Required Banks, the Company
will schedule and attend monthly meetings with the Banks (it being understood
that such meetings will alternate between being held in person at the Company
and by teleconference), at which the Company will report to the Banks on its
financial performance, prospects and compliance with the terms of this Agreement
and the other Credit Documents."
5. Amendments to Section 9. (a) Subsection 9.1(e) of the Credit Agreement
is hereby amended by deleting the reference to "$50,000,000" contained therein
and by substituting therefor a reference to "$1,000,000".
(b) Subsection 9.6(c) of the Credit Agreement is hereby amended by adding
the words "or creation" after the word "investment" in line 10 of said
subsection.
(c) Subsection 9.6(i) of the Credit Agreement is hereby amended by deleting
the reference to "$10,000,000" contained therein and by substituting therefor a
reference to "$8,000,000".
(d) Subsection 9.6(j) of the Credit Agreement is hereby amended by deleting
the reference to "$5,000,000" contained therein and by substituting therefor a
reference to "$500,000".
(e) Subsection 9.7 of the Credit Agreement is hereby amended by adding the
following at the end of said subsection:
"Notwithstanding anything to the contrary contained in this subsection 9.7,
during the period from July 1, 1995 through December 31, 1996, this subsection
shall be deemed replaced in its entirety as follows:
Make or commit to make Fifth Amendment Capital Expenditures in the
aggregate, for the Company and its Subsidiaries, exceeding the amount set forth
for each period set forth below:
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Period Amount
09/01/95 - 12/31/99 $ 7,500,000
09/01/95 - 06/30/96 $15,000,000
09/01/95 - 12/31/96 $22,500,000
09/01/95 - 03/31/97 $26,250,000"
(f) Subsection 9.8 of the Credit Agreement is hereby amended by adding the
following at the end of said subsection:
"Notwithstanding anything to the contrary contained in this subsection 9.8,
during the period from July 1, 1995 through December 31, 1996, this subsection
9.8 shall be deemed replaced in its entirety as follows:
At the last day of any fiscal quarter set forth below, permit Fifth
Amendment Consolidated Net Worth to be less than the amount set forth below for
such fiscal quarter:
Fiscal Year Fiscal Quarter Amount
1995 Third $57,000,000
Fourth $44,500,000
1996 First $35,000,000
Second $26,000,000
Third $21,000,000
Fourth $15,000,000
(g) Subsection 9.9 of the Credit Agreement is hereby amended by adding the
following at the end of said subsection:
"Notwithstanding anything to the contrary contained in this subsection 9.9,
during the period from July 1, 1995 through December 31, 1996, this subsection
9.9 shall be deemed replaced in its entirety as follows:
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At the last day of any fiscal quarter set forth below, permit Fifth
Amendment Consolidated Adjusted Operating Profit for the period of four fiscal
quarters ending on such date (or if less than four fiscal quarters have occurred
since July 1, 1995, for the period from July 1, 1995 to the end of such fiscal
quarter) to be less than the amount set forth below for such fiscal quarter.
Fiscal Year Fiscal Quarter Amount
1995 Third $ 5,500,000
Fourth $12,000,000
1996 First $21,000,000
Second $31,000,000
Third $35,000,000
Fourth $39,000,000
(h) Subsection 9.10 of the Credit Agreement is hereby amended by adding the
following at the end of said subsection:
"Notwithstanding anything to the contrary contained in this subsection
9.10, during the period from July 1, 1995 through December 31, 1996, this
subsection 9.10 shall be deemed replaced in its entirety as follows:
At the last day of any fiscal quarter set forth below, permit the Fifth
Amendment Interest Coverage Ratio for the period of four fiscal quarters ending
on such date (or if less than four fiscal quarters have occurred since July 1,
1995, for the period from July 1, 1995 to the end of such fiscal quarter) to be
less than the ratio set forth below for such fiscal quarter.
Fiscal Year Fiscal Quarter Ratio
1995 Fourth 1.94 to 1
1996 First 1.57 to 1
Second 1.39 to 1
Third 1.47 to 1
Fourth 1.54 to 1"
(i) Subsection 9.11 of the Credit Agreement is hereby amended by adding the
phrase ", at any time after March 31, 1997," immediately after the reference to
each of clauses "(b)", "(d)" and "(e)" of said subsection.
(j) Subsection 9.12 of the Credit Agreement is hereby amended by (i)
deleting all of the text thereof immediately preceding the words "provided,
however, and by substituting therefore the phrase "Enter into any transaction,
including without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate,", (ii) deleting the phrase
", directors or consultants" in clause (y) thereof and by substituting therefore
the words "or directors" and (iii) inserting the phrase "in the ordinary course
of business" immediately after the word "maintenance" in clause (z) thereof.
(k) Subsection 9.14(a) of the Credit Agreement is hereby amended by (i)
adding the phrase ", at any time after March 31, 1997," immediately after the
words "other than" in each of clause (i), (ii) and (iii) of said subsection,
(ii) deleting the word "or" immediately before clause "(iii)" of said subsection
and by replacing it with a comma and (iii) adding a new clause (iv) immediately
before the period at the end of said subsection as follows:
"or (iv) the Indebtedness referred to in Section 10(b) of the Fifth
Amendment to this Agreement (other than consummation of the transaction
contemplated by Section 10(b) of the Fifth Amendment to this Agreement)".
6. Amendment to Section 12. (a) Subsection 12.6(e) of the Credit Agreement
is hereby amended by adding the following new sentence at the end of said
subsection: "Promptly after such Transfer Effective Date, the Agent shall
distribute to the Banks a new Fifth Amendment Schedule giving effect to such
Commitment Transfer Supplement."
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(b) Subsection 12.11 of the Credit Agreement is hereby amended by deleting
clauses (i), (ii), (iii) and (viii) thereof in their entirety and by renumbering
the remaining clauses in the proper sequence.
7. Additional Amendments. Clause (ii)(D) of subsection 6.13, clause (m)(ii)
of subsection 9.2 and clause (j) of subsection 9.5 are each hereby amended by
deleting the text thereof in their entirety and by substituting in lieu thereof
the following:
"any condemnation or eminent domain proceeding affecting any real property,
other than any real property at which the Company maintains a manufacturing
facility or its chief executive offices, provided that no such condemnation or
eminent domain proceeding, individually or in the aggregate, could have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries taken as
a whole".
8. Schedules. (a) Schedule II to the Credit Agreement is hereby deleted in
its entirety and Schedule II to this Amendment is hereby substituted therefore.
(b) The Banks hereby agree that no representation or warranty contained in
any Credit Document shall be deemed to be untrue or incorrect in any material
respect and no Default or Event of Default shall be deemed to occur or to have
occurred or be continuing as a result of the existence or continued existence of
the matters set forth on Schedule III hereto.
9. Waiver; Consent. (a) The Banks hereby waive the occurrence and
continuance of any Default or Event of Default by reason of the Company's
failure to comply with subsection 8.1, 8.2 or 8.7(a) of the Credit Agreement,
provided that any such Default or Event of Default shall have been cured prior
to the Fifth Amendment Effective Date.
(b) The Banks hereby agree that the Lien permitted by subsection 9.2(q) of
the Credit Agreement to be granted by the Company to The Bank of Tokyo, Ltd.,
New York Agency on the property acquired by the Company pursuant to the Bank
Tokyo L/C Facility (the "Purchase Money L/C Property") shall be senior to any
Lien granted by the Company to the Agent and the Banks on the Purchase Money L/C
Property to secure the Company's obligations under the Credit Agreement and the
other Credit Documents, notwithstanding the time, place, order or method of
attachment or perfection of either such Lien.
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(c) In furtherance of the consent and agreement of the Agent and the Banks
pursuant to Section IV.9 of the Fourth Amendment, but subject to the proviso
contained therein, the Agent and the Banks hereby agree that the interest of the
purchaser in any accounts receivable from time to time sold by the Company as
contemplated by Section 10(f)(ii) of this Amendment shall be prior to any Lien
granted by the Company to the Agent and the Banks on any such accounts
receivable.
10. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Effective Date") on which all of the following conditions
precedent shall have been satisfied:
(a) The Agent shall have received an original executed copy of this
Amendment for each Bank, duly executed and delivered by a duly authorized
officer of the Company, the Agent and each Bank.
(b) The $15,000,000 aggregate principal amount of (plus all accrued and
unpaid interest on) the loans made by Invifin S.A. to the Company pursuant to
the Credit Agreement dated as of June 12, 1995 and the Credit Agreement dated as
of May 19, 1995, shall have been extinguished for no additional consideration
(other than the recording of an additional capital contribution).
(c) There shall have been contributed to the capital of the Company at
least $15,000,000 (less $750,000 being retained by Holdings, in lieu of a
dividend by the Company already permitted under the Credit Agreement, to enable
Holdings to repurchase certain shares of Class C stock of Holdings held by
certain former employees of the Company (it being understood that such retained
amount shall reduce the dividend amount otherwise permitted to be made under
subsection 9.11(f)(iii) of the Credit Agreement)) in cash from the issuance of
equity of Holdings (in addition to the transaction referred to in clause (b) of
this Section 10).
(d) The Company shall have received cash proceeds of at least $15,000,000
of unsecured loans made by one or more lenders, which loans shall have a stated
maturity no earlier than March 31, 1997, bear interest at a non- default rate
per annum no higher than 10.75%, and have covenants and events of default no
more restrictive than those contained in the Credit Agreement.
(e) The Agent shall have received an original executed copy for each Bank
of a consent duly executed and delivered by a duly authorized officer of
Holdings
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and each Subsidiary party to the Subsidiary Guarantee, pursuant to which
Holdings and each such Subsidiary shall have consented to this Amendment and
reaffirmed its obligations under the Guarantee executed by it.
(f) The Agent shall have received evidence reasonably satisfactory to it
that (i) the Bank Tokyo L/C Facility shall remain in full force and effect
through March 31, 1997, substantially in accordance with its terms as in effect
on the Effective Date, including letter of credit availability thereunder of no
less than an aggregate amount equal to the Bank Tokyo Exposure (except as
reduced as contemplated by subsection 5.4(e) of the Credit Agreement), and (ii)
the Receivables Purchase and Transfer Agreement, between First Interstate Bank
of Texas, N.A. and the Company, dated as of September 20, 1995, shall provide
for the continued purchase and sale from time to time from the Effective Date
through March 31, 1997 of at least $2,000,000 of account receivables of the
Company.
(g) The Agent shall have received, dated the Effective Date and addressed
to the Agent and each Bank, an opinion of Gibson, Dunn & Crutcher, in form and
substance reasonably satisfactory to the Agent, each Bank and their counsel.
(h) The Agent shall have received evidence reasonably satisfactory to it
that any outstanding fees and expenses due and payable by the Company pursuant
to subsection 12.5, and presented to the Company for payment prior to the Fifth
Amendment Effective Date, shall have been paid in full.
11. Continuing Effect of Credit Documents. Except as expressly amended,
modified and supplemented hereby including without limitation, Schedule III
hereto, the provisions of the Credit Agreement, the Notes and the other Credit
Documents are and shall remain in full force and effect in accordance with their
respective terms.
12. Representations. (a) The Company hereby represents and warrants to the
Agent and each Bank that, after giving effect to this Amendment, each of the
representations and warranties made by the Company, Holdings and the Company's
Subsidiaries set forth in the Credit Agreement and the other Credit Documents
shall be true and correct in all material respects on and as of the Effective
Date as if made on and as of such date (unless stated to relate to a specific
earlier date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date).
20
<PAGE>
(b) The Company hereby represents and warrants to the Agent and each Bank
that (i) except as set forth on Schedule IV hereto, substantially all of the
assets of the Company and each Domestic Subsidiary have been pledged to the
Agent, for the ratable benefit of the Banks, pursuant to the Security Documents,
(ii) all Guarantees required, pursuant to the terms of the Credit Agreement, to
be executed and delivered by any Person in favor of the Agent and the Banks have
been so executed and delivered and are in full force and effect and (iii) all
Liens on and security interests in any property required, pursuant to the terms
of the Credit Documents, to be granted by any Person to secure the obligations
of Holdings, the Company and its Subsidiaries to the extent required by and
under the Credit Documents have been granted and are in full force and effect
and perfected.
(c) The Company hereby represents and warrants to the Agent and each Bank
that, after giving effect to this Amendment, no Default or Event of Default
shall have occurred and be continuing.
13. Affirmation of Guarantees. Each of Holdings and each Subsidiary party
to the Subsidiaries Guarantee hereby consents to the execution and delivery of
this Amendment and reaffirms its obligations under the Guarantee executed by
such Person.
14. Governing Law. This Amendment shall be governed by, construed and
interpreted in accordance with, the laws of the State of New York.
15. Counterparts. This Amendment may be executed by the parties hereto on
any number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective duly authorized officers as of the day first above
written.
COLOR TILE, INC.
By: /s/ Bart A. Brown, Jr.
Title: Chief Executive Officer
and President
21
<PAGE>
CHEMICAL BANK, as Agent and as a Bank
By: /s/ Mary Ellen Egbert
Title: Vice President
THE BANK OF TOKYO TRUST COMPANY
By: /s/ Victor Bulzaccehelli
Title: Vice President
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: /s/ Iain A. Whyte
Title: Assistant Vice President
By: /s/ Mark A. Harrington
Title: Vice President and
Regional Manager
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By: /s/ Sean Mounier /s/ Marcus Edward
Title: First Vice President Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Alan Sidrane
Title: Vice President
FIRST SOURCE FINANCIAL LLP
By First Source Financial, Inc.,
its agent and manager
By: /s/ Robert Coseo
Title: Senior Vice President
22
<PAGE>
SOCIETE GENERALE
By: /s/ Philippe Daube
Title: First Vice President
BANQUE PARIBAS
By: /s/ Edward Canale
Title: Senior Vice President
By: /s/ Gary Binning
Title: Vice President
CRESCENT CAPITAL CORPORATION,
as Portfolio Manager and
Attorney-in-Fact for
CRESCENT/MACH I PARTNERS, L.P.
By: /s/ Justin Driscoll
Title: Vice President
FLEET BANK OF MASSACHUSETTS
By: /s/ William Theriault
Title: Banking Officer
NATIONSBANK OF TEXAS, N.A.
By: /s/ William Livingston
Title: Senior Vice President
PILGRIM PRIME RATE TRUST
By: /s/ Kathleen Lenarcic
Title: Assistant Portfolio Manager
23
<PAGE>
PROSPECT STREET SENIOR PORTFOLIO, L.P.
By:Prospect Street Senior Loan Corp.,
as Managing General Partner
By: /s/ Preston I. Carnes, Jr.
Title: Vice President
VAN KAMPEN MERRITT PRIME RATE INCOME TRUST
By: /s/ Kathleen Zarn
Title: Vice President
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ Roger Fruendt
Title: Vice President
THE DAIWA BANK LTD.
By: /s/ James Wang
Title: Vice President and Manager
By: /s/
Title: Vice President
24
<PAGE>
Each of the following guarantors hereby confirms that it has duly executed
and delivered a Guarantee, consents to the execution and delivery of the
foregoing Amendment and reaffirms its obligations under the Guarantee executed
by it.
COLOR TILE HOLDINGS, INC.
By: Bart A. Brown, Jr.
Title: Chief Executive Officer and
President
COLOR TILE FRANCHISING, INC.
By: Bart A. Brown, Jr.
Title: Chief Executive Officer and
President
COLOR TILE MANUFACTURING, INC.
By: Bart A. Brown, Jr.
Title: Chief Executive Officer and
President
C. TILE TRANSPORTATION, INC.
By: Bart A. Brown, Jr.
Title: Chief Executive Officer and
President
AMERICAN BLIND AND WALLPAPER
FACTORY, INC.
By: Bart A. Brown, Jr.
Title: Chief Executive Officer
26
<PAGE>
<TABLE>
<CAPTION>
Schedule I
Commitments and Percentages Schedule I
Bank Revolving Credit Term Loan A Term Loan B Term Loan C Total Exposure ($) Total Exposure (%)
- ------------------------------ ---------------- ------------- ------------ ------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Bank of Tokyo Trust $ 6,250,000.00 $2,375,000.00 $500,000.00 $0.00 $ 9,125,000.00 5.214285714286
Banque Francaise du Commerce 2,916,666.66 1,108,333.33 233,333.33 0.00 4,258,333.32 2.433333325714
Banque Paribas 14,600,000.00 0.00 49,230.77 0.00 14,649,230.77 8.370989011429
Chemical Bank 14,983,333.35 0.00 2,051.28 0.00 14,985,384.63 8.563076931429
Compagnie Financiere de
L'Union 6,250,000.00 2,090,000.00 569,230.77 0.00 8,909,230.77 5.090989011429
Credit Lyonnais 10,416,666.67 3,958,333.33 833,333.33 0.00 15,208,333.33 8.690476188571
Crescent Capital Corp. 0.00 0.00 3,076,923.08 1,900,000.00 4,976,923.08 2.843956045714
Daiwa Bank, LTD. 10,000,000.00 0.00 0.00 0.00 10,000,000.00 5.714285714286
First Interstate Bank of Texas 10,000,000.00 0.00 0.00 3,000,000.00 13,000,000.00 7.428571428571
First Source Financial LLP 6,250,000.00 2,375,000.00 500,000.00 0.00 9,125,000.00 5.214285714286
Fleet Bank of Massachusetts 4,166,666.66 0.00 717,948.72 0.00 4,884,615.38 2.791208788571
NationsBank of Texas 4,166,666.66 0.00 717,948.72 0.00 4,884,615.38 2.791208788571
Pilgrim Prime Rate Trust 0.00 7,093,333.34 0.00 8,100,000.00 15,193,333.34 8.681904765714
Prospect St. Senior Portfolio 0.00 7,600,000.00 0.00 6,000,000.00 13,600,000.00 7.771428571429
Societe Generale 10,000,000.00 3,800,000.00 800,000.00 0.00 14,600,000.00 8.342857142857
Van Kampen Merritt Prime Rate
Inc. 0.00 7,600,000.00 0.00 10,000,000.00 17,600,000.00 10.057142857143
- ------------------------------ ---------------- ------------- ------------ ------------- ------------------ ------------------
Total $100,000,000.00 $38,000,000.00 $8,000,000.00 $29,000,000.00 $175,000,000.00 100.00000000000%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II
Subsection 5.4(c) Commitment Reductions
Revolving Credit
Installment Payment Date Total Amount Term Loan A Term Loan B Term Loan C Commitment
<S> <C> <C> <C> <C> <C>
March 31, 1997 $ 18,236,000.00 $ 3,959,817.14 $ 833,645.71 $ 3,021,965.71 $10,420,571.44
June 30, 1997 4,132,000.00 897,234.28 188,891.43 684,731.43 2,361,142.86
September 30, 1997 4,132,000.00 897,234.29 188,891.42 684,731.43 2,361,142.86
December 31, 1997 4,132,000.00 897,234.29 188,891.43 684,731.42 2,361,142.86
March 31, 1998 11,092,000.00 2,408,548.57 507,062.86 1,838,102.86 6,338,285.71
June 30, 1998 11,092,000.00 2,408,548.57 507,062.86 1,838,102.86 6,338,285.71
September 30, 1998 11,092,000.00 2,408,548.57 507,062.86 1,838,102.86 6,338,285.71
December 31, 1998 111,092,000.00 24,122,834.29 5,078,491.43 18,409,531.43 63,481,142.85
</TABLE>
<PAGE>
Schedule III
Section 8(b) Disclosure
1. Disclosure The Company and its Subsidiaries receive from time to time
notices of investigations and related proceedings by governmental agencies
relating to product advertisements by the Company or a Subsidiary, their
respective consumer sales and franchise arrangements. The Company is currently
the subject of two such investigations brought in late 1993 and early 1994 by
district attorneys in California with respect to alleged false comparative
advertising and perpetual sales. The complaints requested injunctive and
monetary relief of approximately $500,000 in the aggregate. The Company is
currently in the process of negotiating a settlement of both proceedings.
2. The Company is currently a defendant in Cassandra Stevenson v. Color
Tile, Inc., filed in 1991, in which it is alleged that the Company illegally
discriminated against a female, minority employee with respect to promotions. No
amount of damages was claimed in the complaint other than that necessary for the
jurisdiction of the applicable court. The matter has not reached the discovery
stage, which has been delayed pending resolution of the plaintiff's request to
certify as a class all current and former employees and applicants for
employment at the Company. The certification request alleges that the Company
illegally discriminated against female and minority employees in hiring, firing
and promotions. The court held hearings with respect to certification in
January, 1995 but has not ruled on the issue. The Company intends to immediately
appeal any class certification.
3. The Company and Color Tile Franchising, Inc. are currently defendants in
a civil case of Gregory J. Zinkel, Spectrum International, Inc., Estus R.
Alexander, Bruce Alden, Terratex Corporation, Roger M. Clark, Kathleen P. Clark,
Paris D. Colorado, Texas Roan, Inc., Lyle P. Hale, Cheryl Hale, Bruce E. Pesola,
Walter S. Rutherford, Yavapai Remodeling, LLC, Avery A. Shaw, Connie M. Shaw,
Daniel J. Turner, Lucille K. Turner, Two Guys From Duluth, Inc., Delta Carpet &
Tile, Inc., and W. Peter von Hohenberg v. Color Tile, Inc. and Color Tile
Franchising, Inc. (Case No. 95-CV-72124), filed in the United States District
Court for the Eastern District of Michigan, Southern Division, on May 25, 1995.
In this action fifteen former franchisees and other parties alleged, among other
things, RICO, fraud and misrepresentation, use of a contract that is void and
unenforceable due to its being an adhesion and/or unconscionable contract and
entered into by fraudulent inducement, breach of covenant of good faith and fair
dealing, breach of contract, breach of fiduciary duty and conversion, tortious
interference with a business relationship and/or contract and violation of
<PAGE>
Michigan franchise law, and requested rescission of their respective
franchise agreement, the return of all payments and repayment for all equipment
or property purchased. The Company believes that the complaint is without merit
and was filed in retaliation for the Company's suits against certain of the
franchisees for breach of the franchise agreements, trademark infringement and
non-payment of rents and royalties.
4. Individual store locations or portions thereof are the subject of
governmental takings actions from time to time. Currently Store No. 9138 in El
Cajon, California is the subject of a governmental condemnation proceeding that
will prevent the Company from utilizing such real property.
5. During a 1994 conversion from a main-frame type computer system to
another system, certain financial and operational information relating to the
Company and its Subsidiaries was incorrectly captured or recorded. This
conversion failure affected information relating to the period from June 1994 to
December 1994. The Company has reconstructed and reconciled its accounts, and an
unqualified opinion letter was delivered to the Company by its auditors with
respect to the Company's financial statements for the fiscal year ended January
1, 1995. However, the Company continues to dedicate significant resources to
resolve systems deficiencies, to review account status and to enhance controls
and reporting procedures that were negatively impacted by the 1994 systems
conversion.
6. The filing by the Company and its Subsidiaries of consolidated tax
returns with Color Tile Holdings, Inc. may contravene indentures pursuant to
which certain industrial revenue bonds were issued on behalf of the Company.
7. The failure by the Company to timely deliver to the Agent certain
Collateral, which failure has been cured by the Company.
8. The failure by the Company to timely notify the Agent of the filing of
certain intellectual property with the United States Patent and Trademark
Office, which failure has been cured by the Company.
9. The execution, delivery and performance of the receivables purchase
agreements between the Company and First Interstate Bank of Texas, N.A., to the
extent the agreements could have been construed to be inconsistent with the
requirements of the Credit Agreement.
10. The adverse change in the financial condition of the Company and its
Subsidiaries insofar as such change may relate to covenants under Contractual
Obligations of the Company and the Subsidiaries.
1
<PAGE>
11. The Company and its Subsidiaries have delayed payment on certain
Contractual Obligations and Indebtedness and trade payables of the Company.
12. The failure by the Company to timely deliver certain information,
certificates and notices (including financial statements, certificates and
notices required to be delivered prior to the Fifth Amendment Effective Date
pursuant to Subsections 8.1, 8.2 and 8.7 of the Credit Agreement, which failure
has been cured by the Company).
13. The provision of consulting services by Perry Odak, to the extent he
might be construed to be an affiliate.
<PAGE>
Schedule IV
Schedule 12(b)
16. In accordance with the terms of the Credit Agreement, real Schedule
12(b) property not mortgaged by the Company or its Subsidiaries at the Closing
Date or pursuant to subsection 8.9.
17. Accounts released in connection with the Consent dated as of August 31,
1993 under the Credit Agreement.
SIXTH AMENDMENT AND WAIVER, dated as of November 7, 1995 (the "Amendment and
Waiver"), to the Credit Agreement, dated as of November 27, 1991 (as heretofore
amended, supplemented or otherwise modified, the "Credit Agreement"; capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Credit Agreement), among Color Tile, Inc., a Delaware corporation (the
"Company"), the financial institutions party thereto (collectively, the "Banks")
and Chemical Bank, as agent for the Banks (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, pursuant to a Fifth Amendment, dated as of September 19, 1995, to
the Credit Agreement, the Agent and the Banks consented to certain waivers and
amendments requested by the Company;
WHEREAS, the Company has again requested that the Agent and the Banks
consent to waive and amend certain provisions of the Credit Agreement; and
WHEREAS, the Agent and the Banks are willing to consent to the requested
waivers and amendments, but only on the terms and subject to the conditions
contained herein;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agrees
as follows:
I. WAIVERS.
1. Waiver of Subsections 8.1 and 8.2. The Banks hereby waive compliance by
the Company with subsections 8.1 and 8.2 of the Credit Agreement with respect to
the Company's failure to timely deliver the financial and other information and
related certificates required to be delivered on or before October 30, 1995 (for
the period ended on September 30, 1995), provided that such non-compliance is
cured on or before November 14, 1995.
2. Waiver of Subsection 9.8. The Banks hereby waive compliance by the
Company with subsection 9.8 of the Credit Agreement with respect to Fifth
Amendment Consolidated Net Worth for the third and fourth fiscal quarters of
1995 and the first fiscal quarter of 1996.
3. Waiver of Subsection 9.9. The Banks hereby waive compliance by the
Company with subsection 9.9 of the Credit Agreement with respect to Fifth
Amendment Consolidated Adjusted Operating Profit as of the end of the third and
fourth fiscal quarters of 1995 and the first fiscal quarter of 1996, provided
<PAGE>
that the waiver with respect to the first fiscal quarter of 1996 is subject
to the requirement that Fifth Amendment Consolidated Adjusted Operating Profit
for the single fiscal quarter ending on such date shall be greater than zero.
4. Waiver of Subsection 9.10. The Banks hereby waive compliance by the
Company with subsection 9.10 of the Credit Agreement with respect to Fifth
Amendment Interest Coverage Ratio as of the end of the third and fourth fiscal
quarters of 1995 and the first fiscal quarter of 1996.
5. Waiver of Section 10. The Banks hereby waive the occurrence and
continuance of an Event of Default under paragraph (e) of Section 10 of the
Credit Agreement by reason of any failure by the Company to pay interest due on
December 15, 1995 under the Indenture, dated as of December 15, 1993, made by
the Company in favor of U.S. Trust Company of Texas, N.A., as trustee (as in
effect on the date hereof, the "Indenture"); or any failure by the Company to
pay interest due on December 31, 1995 or March 31, 1996 under the Promissory
Note, dated September 28, 1995, made by the Company in favor of Chemical Bank;
including any such Event of Default which occurs and continues because any such
failure to pay interest under the Indenture or such Promissory Note constitutes
a default under any other Indebtedness or Contingent Obligation.
II. AMENDMENTS.
1. Conversion of Eurodollar Loans. Notwithstanding anything to the contrary
contained in the Credit Agreement, including without limitation, subsection 5.2,
from and after the Effective Date (as defined in Article III below), (a) each
outstanding Eurodollar Loan shall, at the end of the then-current Interest
Period, convert automatically and without need for compliance with the
conditions for conversion set forth in subsection 5.2 of the Credit Agreement to
an MHTC Rate Loan and (b) subject to the conversion set forth in (a) above, all
Loans shall be MHTC Rate Loans.
2. New Loans and Letters of Credit. Notwithstanding anything to the
contrary contained in the Credit Agreement, including without limitation,
Section 4, the aggregate amount outstanding at any one time during the period
from November 6, 1995 through and including November 17, 1995 of all new
Revolving Credit Loans (exclusive of any conversion of any Eurodollar Loan to an
MHTC Rate Loan), new Swing Line Loans and the face amount of any new Letters of
Credit shall not exceed $5,000,000.
3. Interest Deferral. Notwithstanding anything to the contrary contained in
the Credit Agreement, including without limitation, subsection 5.5, the Company
shall, subject to the terms set forth in this Section 3, be permitted to defer
the payment of interest on the Loans otherwise scheduled to be made on the March
31, 1996 Interest Payment Date if (a) the Company fails to make the interest
payment due under the Indenture on December 15, 1995 and such failure is
continuing on March 31, 1996, and (b) the sum of the balance of funds on deposit
in the
<PAGE>
Company's bank accounts, including its concentration account maintained
with Chemical Bank, plus the Available Revolving Credit Commitment
(collectively, the "Available Cash"), on March 31, 1996 would be less than
$5,000,000 after giving effect to the payment of interest otherwise scheduled to
be paid on such date. The Company represents, warrants and covenants that it
shall continue to maintain and utilize its concentration account at Chemical
Bank in accordance with its past practices. Notwithstanding any such deferral of
interest, the Company shall be required to make a partial interest payment on
the March 31, 1996 Interest Payment Date in an amount equal to the amount, if
any, by which the Available Cash on such date exceeds $5,000,000. Any interest
deferred pursuant to this Section 3 shall accrue interest at the non-default
rate and such deferred interest (and interest accrued thereon) shall be due and
payable on June 30, 1996 (or any such earlier date on which the Company pays the
interest due on December 15, 1995 under the Indenture), provided that on Friday
of each calendar week, commencing with the first such day to occur after March
31, 1996, the Company shall deliver to the Agent a certificate setting forth the
calculation of Available Cash as of such day, and the Company shall make a
payment on such day on account of such deferred interest (and interest accrued
thereon) in the amount, if any, by which Available Cash on such day exceeds
$5,000,000.
4. Amendment to Section 6. Subsection 6.2 of the Credit Agreement is hereby
amended by deleting said subsection in its entirety and by substituting therefor
the following:
"6.2 No Change. Since November 7, 1995, other than any non-cash charges or
reserves taken by the Company on or before December 31, 1995, there has been no
change, and no development or event involving a prospective change, which has
had or could reasonably be expected to have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of operations of
the Company and its Subsidiaries taken as a whole."
III. MISCELLANEOUS.
1. Conditions to Effectiveness. This Amendment and Waiver shall become
effective (the "Effective Date") as of the date first above written upon receipt
by the Agent of (a) an original executed copy of this Amendment and Waiver duly
executed and delivered by a duly authorized officer of the Company, the Agent
and each Bank and (b) a consent duly executed and delivered by a duly authorized
officer of Holdings and each Subsidiary party to the Subsidiary Guarantee,
pursuant to which Holdings and each such Subsidiary shall have consented to this
Amendment and Waiver and reaffirmed its obligations under the Guarantee executed
by it.
2. Limited Effect; No Default. The waivers and amendments contained herein
shall be limited precisely as drafted and shall not constitute a waiver or
amendment of any other terms of the Credit Agreement or otherwise constitute a
waiver by the
<PAGE>
Banks of any of their rights under applicable law with respect to the facts
or events giving rise to any "Default" or "Event of Default" waived herein, and
the provisions of the Credit Agreement, the Notes and the other Credit Documents
are and shall remain in full force and effect in accordance with their
respective terms. The Company hereby represents and warrants to the Agent and
each Bank that, after giving effect to this Amendment and Waiver, (a) each of
the representations and warranties made by the Company, Holdings and the
Company's Subsidiaries set forth in the Credit Agreement and the other Credit
Documents shall be true and correct in all material respects on and as of the
Effective Date as if made on and as of such date (unless stated to relate to a
specific earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date), and (b)
no Default or Event of Default shall have occurred and be continuing.
3. Costs and Expenses. The Company hereby agrees to pay on demand all costs
and expenses incurred in connection with the preparation, execution and delivery
of this Amendment and Waiver, including without limitation, the attorney's fees
and expenses incurred with respect thereto by Agent's counsel and counsel to
each Bank, including Bank group counsel.
4. Affirmation of Guarantees. Each of Holdings and each Subsidiary party to
the Subsidiaries Guarantee hereby consents to the execution and delivery of this
Amendment and Waiver and reaffirms its obligations under the Guarantee executed
by such Person.
5. Counterparts. This Amendment and Waiver may be executed by the parties
hereto on any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. This
Amendment and Waiver may be delivered by facsimile transmission of the relevant
signature pages hereof.
6. GOVERNING LAW. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment and Waiver
to be executed and delivered by their duly authorized officers as of the date
first above written.
COLOR TILE, INC.
By: /s/ Bart A. Brown, Jr.
Title: Chief Executive Officer and President
CHEMICAL BANK, as Agent and as a Bank
By: /s/ Mary Ellen Egbert
Title: Vice President
THE BANK OF TOKYO TRUST COMPANY
By: /s/ Victor Bulzaccehello
Title: Vice President
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: /s/ Iain A. Whyte
Title: Assistant Vice President
By: /s/ Mark A. Harrington
Title: Vice President and Regional Manager
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By: /s/ Sean mounier
Title: First Vice President
By: /s/ Marcus Edward
Title: Vice President
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Alan Sidrane
Title: Vice President
FIRST SOURCE FINANCIAL LLP
By First Source Financial, Inc.,
its agent and manager
By: /s/ Robert Coseo
Title: Senior Vice President
SOCIETE GENERALE
By: /s/ Philippe Daune
Title: First Vice President
BANQUE PARIBAS
By: /s/ Edward Canale
Title: Senior Vice President
By: /s/ Gary Binning
Title: Vice President
MERRILL LYNCH, PIERCE, FENNER
& SMITH, INC.
By: /s/
Title:
UBS MORTGAGE FINANCE, INC.
By: /s/
Title:
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By: /s/ William Livingston
Title: Senior Vice President
PILGRIM PRIME RATE TRUST
By: /s/ Kathleen Lenarcic
Title: Assistant Portfolio Manager
PROSPECT STREET SENIOR PORTFOLIO, L.P.
By: Prospect Street Senior Loan Corp.,
as Managing General Partner
By: /s/ Preston I. Carnes. Jr.
Title: Vice President
VAN KAMPEN MERRITT PRIME RATE
INCOME TRUST
By: /s/ Kathleen Zarn
Title: Vice President
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ Roger Fruendt
Title: Vice President
THE DAIWA BANK LTD.
By: /s/ James Wang
Title: Vice President and Manager
By: /s/
Title: Vice President
<PAGE>
Each of the following guarantors hereby confirms that it has duly executed
and delivered a Guarantee, consents to the execution and delivery of the
foregoing Amendment and Waiver and reaffirms its obligations under the Guarantee
executed by it.
COLOR TILE HOLDINGS, INC.
By:/s/ Bart A. Brown, Jr.
Title:Chief Executive Officer and
President
COLOR TILE FRANCHISING, INC.
By:/s/ Bart A. Brown, Jr.
Title:Chief Executive Officer and
President
COLOR TILE MANUFACTURING, INC.
By:/s/ Bart A. Brown, Jr.
Title:Chief Executive Officer and
President
C. TILE TRANSPORTATION, INC.
By:/s/ Bart A. Brown, Jr.
Title:Chief Executive Officer and
President
AMERICAN BLIND AND WALLPAPER
FACTORY, INC.
By:/s/ Bart A. Brown, Jr.
Title:Chief Executive Officer
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT
Dated as of September 20, 1995
between
COLOR TILE, INC.,
as Seller
and
FIRST INTERSTATE BANK OF TEXAS, N.A.,
as Purchaser
<PAGE>
CONTENTS
ARTICLE 1. Definitions.............................................. 1
Section 1. Certain Defined Terms........................... 1
Section 2. Other Terms..................................... 2
Section 3. Computation of Time Periods..................... 2
ARTICLE 2. Amounts and Terms of the Purchases....................... 2
Section 1. Purchase and Sale............................... 2
Section 2, Conveyance of Receivables....................... 2
Section 3. Collections of Purchased Receivables............ 3
Section 4. Further Action Evidencing Purchases............. 3
Section 5. Assignment...................................... 4
Section 6. Account Purchase Transaction.................... 4
Section 7. Repurchase Obligations.......................... 4
Section 8. Power of Attorney............................... 4
ARTICLE 3. Conditions of Purchase................................... 4
Section 1. Conditions Precedent to the Initial Purchase.... 4
Section 2. Conditions Precedent to All Purchases........... 5
ARTICLE 4. Representations and Warranties........................... 6
Section 1. Representations and Warranties of the Seller.... 6
ARTICLE 5. General Covenants of the Seller.......................... 7
Section 1. Affirmative Covenants of the Seller............. 7
Section 2. Reporting Requirements of the Seller............ 8
Section 3. Negative Covenants of the Seller................ 8
ARTICLE 6. Administration and Collection............................ 9
Section 1. Concerning the Purchaser........................ 9
Section 2. Notice of Action................................ 10
Section 3. Effect of Erroneous ACH Debits.................. 10
ARTICLE 7. Events of Purchase Termination........................... 10
Section 1. Events of Purchase Termination.................. 10
ARTICLE 8. Indemnification.......................................... 11
Section 1. INDEMNITIES BY THE SELLER....................... 11
Section 2. Notice; Participation........................... 13
ARTICLE 9. Miscellaneous............................................ 13
Section 1. Amendments, Etc................................. 13
Section 2. Notices, Etc.................................... 13
Section 3. No Waiver, Remedies............................. 13
Section 4. Binding Effect; Assignability................... 14
Section 5. Governing Law................................... 14
Section 6. Costs, Expenses and Taxes....................... 14
Section 7. No Proceedings.................................. 14
Section 8. Severability of Provisions...................... 14
Section 9. Execution in Counterparts....................... 14
Section 10. Table of Contents and Descriptive Headings...... 15
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Section 11. Savings Clause.................................. 15
Section 12. DTPA WAIVER..................................... 15
Section 13. NO ORAL AGREEMENTS.............................. 15
Section 14. Arbitration Program............................. 16
APPENDIX A - Definitions
SCHEDULE I - Location of Records
SCHEDULE 2.1(a) - Initial Purchased Receivables
ii
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RECEIVABLES PURCHASE AND TRANSFER AGREEMENT
Dated as of September 20, 1995
COLOR TILE, INC., a Delaware corporation (the "Seller"), and FIRST
INTERSTATE BANK OF TEXAS, N.A., a national banking association (the
"Purchaser"), agree as follows:
PRELIMINARY STATEMENTS
1. The Seller and the Purchaser heretofore entered into a Receivables
Purchase Agreement dated as of March 13, 1995 (the "Original Transfer
Agreement") pursuant to which, among other things, the Seller sold certain
Receivables to the Purchaser.
2. The Seller and the Purchaser desire to terminate the Original Transfer
Agreement, the Purchase Documents (as defined in the Original Transfer
Agreement) and any other agreements relating to the foregoing (the "Prior
Agreements").
3. Certain terms that are capitalized and used throughout this Agreement
(in addition to those defined above) are defined in Appendix A to this
Agreement.
4. The Seller has, and expects to have, Receivables that the Seller intends
from time to time to sell to the Purchaser pursuant to and in accordance with
the terms of this Agreement.
5. The Purchaser desires to purchase Receivables from the Seller.
6. The Seller shall provide the purchaser with written ACH Authorizations
to debit the accounts of Obligors in order to collect Purchased Receivables.
7. The Seller and the Purchaser agree that the transactions contemplated in
this Agreement are purchases and that they are "account purchase transactions"
within the meaning of Article 5069-1.14 of Vernon's Texas Civil Statutes.
8. Subject to the terms and conditions of this Agreement, the Seller will
sell weekly to the Purchaser, and the Purchaser will purchase weekly from the
Seller, Purchased Receivables until the Termination Date.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE 1.
Definitions
Section 1.1 Certain Defined TermsSection 1. Certain Defined Terms. For
purposes of this Agreement, the terms defined in the opening paragraph hereof,
the Preliminary Statements and Appendix A - Definitions hereto have the meanings
specified therein.
Section 1.2 Other TermsSection 2. Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles. All
RECEIVABLES PRUCHASE AND TRANSFER AGREEMENT - Page 1
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terms used in Chapter 9 of the Code in the State of Texas, and not
specifically defined herein, are used herein as defined in such Chapter 9.
Section 1.3 Computation of Time PeriodsSection 3. Computation of Time
Periods. Unless otherwise stated in this Agreement, in the computation of a
period of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each means "to but
excluding".
ARTICLE 2.
Amounts and Terms of the Purchases
Section 2.1 Purchase and SaleSection 2.1 Purchase and Sale.
(a) On the Effective Date, the Seller hereby sells, transfers, assigns,
sets over and conveys to the Purchaser, without recourse (but subject to the
representations, warranties, terms, conditions, and covenants contained herein),
and the Purchaser hereby purchases the Receivables described on Schedule 2.1(a)
hereto.
(b) On each subsequent Purchase Date, the Seller hereby sells, transfers,
assigns, sets over and conveys to the Purchaser, without recourse (but subject
to the representations, warranties, terms, conditions and covenants contained
herein), and the Purchaser hereby purchases any and all Receivables offered by
the Seller on each Purchase Date subject to the terms and conditions hereof.
Notwithstanding anything to the contrary contained herein, the Purchaser shall
have no obligation to purchase any Receivables (i) on or after the Termination
Date, (ii) during the existence of an event specified in Section 3.2(b)(ii) and
(iii) at any time if the aggregate Purchase Price for outstanding Purchased
Receivables plus the Purchase Price for proposed Receivables to be purchased
would exceed the Commitment Amount.
Section 2.2 Conveyance of Receivables.
(a) No later than Noon on each Purchase Date, the Seller will deliver, or
cause to be delivered, to the Purchaser the Purchase Report for the Receivables
to be purchased. Prior to the sale of each Receivable, the Seller shall possess
and maintain the Required Information with respect to each Receivable. The
Purchaser shall have no obligation to purchase any Receivable on such Purchase
Date if Seller does not have the Required Information relating to each
Receivable.
(b) Upon receipt of the Purchase Report for the Receivables and calculation
of the Purchase Price therefor, and subject to satisfaction of the conditions
precedent set forth in Article 3, the Purchaser shall pay to the Seller the
aggregate Purchase Price for the Receivables purchased on such Purchase Date by
wire or account transfer of immediately available funds to a specified account
in the name of the Seller or as otherwise directed by the Seller in writing.
(c) Following payment of the Purchase Price, the ownership of the related
Purchased Receivables will be fully vested in the Purchaser. The Seller shall
not take any action inconsistent with such ownership and shall not claim any
ownership interest in any Purchased Receivables. The Seller shall mark its
master books and records to reflect that the Purchaser owns each Purchased
Receivable. In addition, the Seller shall respond to any inquiries with respect
to the ownership of Purchased Receivables by stating that it is no longer the
owner of such Purchased Receivables and that the ownership of such Purchased
Receivables is held by the Purchaser pursuant to the terms of this Agreement.
Documents and
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 2
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the Required Information relating to Purchased Receivables shall be held in
trust by the Seller, for the benefit of the Purchaser as the owner thereof, and
retention and possession by the Seller is at the election of the Purchaser and
in a custodial capacity for the benefit of the Purchaser.
(d) On each Purchase Date and the Collection Date, the Purchaser shall pay
to the Seller any Deferred Purchase Price then owing.
Section 2.3 Collections of Purchased Receivables.
(a) The Purchaser shall directly collect the Purchased Receivables and the
Seller shall fully cooperate with the Purchaser in that regard (including
providing all authorizations (including ACH Authorizations) and information
necessary for making ACH Debits in respect thereof). The Seller shall not make
any ACH Debit in respect of or otherwise attempt to collect any Purchased
Receivable. In the event the Seller receives any Collections of Purchased
Receivables, it shall receive and hold such Collections in trust for Purchaser
and the Seller shall immediately deposit such Collections of Purchased
Receivables in the Purchaser's Account.
(b) ACH Debits. The Seller shall promptly notify the Purchaser of any
change in an Obligor's ACH Debit information. The Seller agrees not to initiate
any ACH Debit for Receivables involving an Obligor of a Purchased Receivable
until after 11:00 a.m. Houston, Texas time on the date the Purchaser could
initiate the same pursuant to the ACH Authorization.
(c) Purchaser Exercise of ACH Authorization. The Purchaser agrees to make
ACH Debits in respect of an Obligor on a Purchased Receivable(s) only on or
after the due date of such Purchased Receivables.
Section 2.4 Further Action Evidencing Purchases.
1. The Seller agrees that, from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or appropriate, or that the Purchaser may
reasonably request, in order to protect or more fully evidence the transfer of
ownership of Purchased Receivables or to enable the Purchaser to exercise or
enforce any of its rights hereunder. Without limiting the generality of the
foregoing, the Seller will, upon the reasonable request of the Purchaser, (i)
execute and file such financing or continuation statements, or amendments
thereto or assignments thereof, and such other instruments or notices, as may be
necessary or appropriate, or as the Purchaser may reasonably request, (ii) mark
conspicuously each invoice evidencing each Purchased Receivable with a legend,
acceptable to the Purchaser, evidencing that the Purchaser has purchased all of
Seller's right, title, and interest therein, (iii) send notification to Obligors
as to the Seller's sale of the Purchased Receivables to the Purchaser, and (iv)
mark its master records evidencing Purchased Receivables with such legend.
2. The Seller hereby authorizes the Purchaser to file one or more financing
or continuation statements, and amendments thereto and assignments thereof,
relating to all or any of the Purchased Receivables without the signature of the
Seller where permitted by law; provided, however, that the same shall clearly
reflect the respective roles of the Seller and the Purchaser as a seller and a
purchaser, respectively, hereunder.
Section 5. Assignment. The Seller does hereby sell, transfer, assign, set
over, and convey to the Purchaser all right, title, and interest of the Seller
in and to all
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 3
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Collections deposited, from time to time, in the Purchaser's Account. All
Collections in respect of Purchased Receivables received by the Seller shall be
held by the Seller in trust for the benefit of the Purchaser until such amounts
are deposited into the Purchaser's Account.
Section 6. Account Purchase Transaction. The Seller and the Purchaser
intend that the transactions contemplated by this Agreement are purchases and
sales and agree that each is an account purchase transaction (as defined in art.
5069-1.14 of Vernon's Texas Civil Statutes).
Section 7. Repurchase Obligations. Upon discovery by any party hereto of
any Purchased Receivable being a Disqualified Receivable at the time such
Purchased Receivable was purchased by Purchaser from Seller, the party
discovering such Disqualified Receivable shall give prompt written notice to the
other party hereto and the reasons why the Purchased Receivable is a
Disqualified Receivable. Thereafter, upon notice from the Purchaser, the Seller
shall on the next succeeding Business Day repurchase such Disqualified
Receivable by remitting to the Purchaser the Purchase Price previously paid by
the Purchaser of such Disqualified Receivable. Such amount shall be deemed to be
a Collection of such Disqualified Receivable and shall be deposited in the
Purchaser's Account. ANY SUCH REPURCHASE SHALL BE MADE WITHOUT RECOURSE TO, OR
WARRANTY, EXPRESS OR IMPLIED, OF, THE PURCHASER, except that the Purchaser shall
represent that it has the title conveyed to it by the Seller and that there are
no encumbrances created by, through or under the Purchaser. The Purchaser and
the Seller shall execute and deliver an assignment reasonably acceptable to the
Purchaser to vest ownership of such Disqualified Receivable in the Seller. To
the extent the Seller fails to meet its obligations hereunder, such Purchase
Price shall be deducted from any Deferred Purchase Price then or thereafter
owing to the Seller.
Section 8. Power of Attorney. To further effect this Agreement, the Seller
hereby irrevocably appoints the Purchaser the Seller's attorney-in-fact, with
full power and authority in the place and stead of the Seller and in the name of
the Seller or otherwise, from time to time in Purchaser's discretion, to take
any action and to execute any documents or instruments which the Purchaser may
deem necessary or appropriate to effect Collection of Purchased Receivables that
are unpaid because an ACH Debit is not honored. Such power of attorney is
irrevocable and coupled with an interest.
ARTICLE 3
Conditions of Purchase
Section 1. Conditions Precedent to the Initial Purchase. The initial
Purchase hereunder is subject to the condition precedent that the Purchaser
shall have received on or before the date of the initial Purchase under this
Agreement the following, each dated such date (unless otherwise indicated), in
form and substance satisfactory to the Purchaser:
1. A copy of resolutions adopted by the Board of Directors of the Seller
approving this Agreement and the other Related Documents to be delivered by it
hereunder and the transactions and matters contemplated hereby (including a
determination that the sales contemplated hereunder are at least equal to the
fair market value of the Purchased Receivables), certified by its Secretary or
Assistant Secretary;
2. The charter, as amended, of the Seller, certified by the Secretary of
State of the State of incorporation of the Seller, dated not earlier than 10
days prior to the initial Purchase Date;
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 4
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3. Good standing certificates for the Seller issued by the Secretary of
State of the State of incorporation of the Seller, dated not earlier than 10
days prior to the initial Purchase Date;
4. A copy of the Seller's by-laws, as amended, certified by its Secretary
or Assistant Secretary;
5. A certificate of the Secretary or Assistant Secretary of the Seller
certifying the names and true signatures of the officers authorized on its
behalf to sign this Agreement and the other Related Documents to be delivered by
it hereunder (on which certificate the Purchaser may conclusively rely until
such time as the Purchaser shall receive from the Seller a revised certificate
meeting the requirements of this subsection (e));
6. Proper Financing Statements (Form UCC-1), dated a date prior to the
initial Purchase Date, naming the Seller, as seller and assignor, the Purchaser,
as purchaser and assignee, or other similar instruments or documents, duly filed
under the Code or any comparable law of all jurisdictions as may be necessary
or, in the opinion of the Purchaser, desirable to evidence and confirm the
Purchaser's ownership interests in all Purchased Receivables which may be
assigned hereunder;
7. The Purchaser shall receive all monies owing to it under the Original
Transfer Agreement and its commitment thereunder shall have been cancelled by
the Seller in a writing delivered to the Purchaser and all parties shall have
released any claims or interests under the Prior Agreements;
8. Evidence of the right of the Seller to make ACH Authorizations; and
9. an effective Fifth Amendment to the Syndicated Credit Agreement.
Section 2. Conditions Precedent to All Purchases. Each Purchase (including
the initial Purchase) shall be subject to the further conditions precedent that:
1. on the date of such Purchase, the Seller shall have delivered to the
Purchaser the Purchase Report;
2. on the date of each Purchase the following statements shall be true and
correct and the Seller, by accepting payment of the Purchase Price for each such
Purchase, shall be deemed to have represented and warranted to the Purchaser
that:
3. The representations and warranties contained in Section 4.1 are true and
correct in all material respects on and as of such date before and after giving
effect to such Purchase and to the application of the proceeds therefrom, as
though made on and as of such date; and
4. no event has occurred and is continuing, or would result from such
Purchase or from the application of the proceeds therefrom, which constitutes an
Event of Purchase Termination or an Incipient Purchase Termination as a result
of a breach of Sections 2.3, 2.7, 4.1(f), 5.1(g), 5.2(a), 5.3, 8.1 or 9.6; and
5. (for all purposes of this clause (iii) capitalized terms have the
meanings ascribed to them in the Syndicated Credit Agreement and not as they may
otherwise be defined herein) the Commitments shall have terminated or the
Company has requested Loans or Letters of Credit and the Required Banks refuse
to make them available because a Default
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 5
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or Event of Default under Section 10(a) of the Syndicated Credit Agreement
shall have occurred and be continuing; and
6. the Required Loss Discount Amount is received by the Purchaser.
ARTICLE 4.
Representations and Warranties
Section 1. Representations and Warranties of the Seller. The Seller
represents and warrants to the Purchaser as follows:
1. The Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of its incorporation and is duly
qualified to do business, and is in good standing, in the State of Texas.
2. The execution, delivery, and performance by the Seller of this Agreement
and all other Related Documents to be delivered by it hereunder, and the
transactions contemplated hereby and thereby, and the Seller's use of proceeds
of the Purchases are within the Seller's corporate powers, have been duly
authorized by all necessary corporate action, do not contravene the Seller's
charter or by-laws or any law or any contractual restriction (including, without
limitation, any provision in any contract relating to a Purchased Receivable
regarding the sale or assignment of any party's rights or interests therein)
binding on or affecting the Seller, and do not result in or require the creation
of any Adverse Claim except as required or contemplated hereunder; and no
transaction contemplated hereby requires compliance with any bulk sales act or
similar law.
3. No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required for the due execution,
delivery, and performance by the Seller of this Agreement or any other Related
Document, or for the protection of or the exercise by the Purchaser of its
rights or remedies under this Agreement, except for the filing of the financing
statements referred to hereunder that are necessary because Section 9.102(a)(2)
of the Code makes the Code applicable to the sale of accounts, all of which, at
the time required hereunder, shall have been duly made and shall be in full
force and effect.
4. This Agreement constitutes, and the other Related Documents when
delivered hereunder shall constitute, the legal, valid, and binding obligations
of the Seller enforceable against the Seller in accordance with their respective
terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by general principles of equity.
5. Each Purchased Receivable of the Seller is not a Disqualified Receivable
and, if it is, will be repurchased in accordance with Section 2.7.
6. Each Receivable of the Seller is owned by the Seller free and clear of
any Adverse Claim. Upon each Purchase, the Purchaser shall acquire a valid 100
percent ownership interest in each Purchased Receivable, free and clear of any
Adverse Claim. Only the filing in the office of the Secretary of State of Texas
of financing statements that are necessary because Section 9.102(a)(2) of the
Code makes the Code applicable to the sale of accounts are required to protect
such interest and no effective financing statement or other instrument similar
in effect covering any Purchased Receivable is on file in any recording office
except such as may be filed in favor of (a) the Purchaser in accordance with
this
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 6
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Agreement and (b) the lenders under the Syndicated Credit Agreement in
respect of Permitted Encumbrances. The Purchase Report and the Required
Information related to each Receivable is complete and accurate, and the
Receivables described therein will be valid, owing, and enforceable.
7. The chief place of business and chief executive office of the Seller are
located at the address of the Seller referred to in Section 9.2 hereof, and the
offices where the Seller keeps all the Records are located at the addresses
specified in Schedule I hereto. The Seller has no trade names, fictitious names,
assumed names or "doing business as" names that would adversely affect the
Agreement or the interest of the Purchaser in the Purchased Receivables.
8. Each Purchase hereunder will constitute an "exempt transaction" within
the meaning of Section 3(a)(3) Securities Act of 1933, as amended, and a
purchase or other acquisition of notes, drafts, acceptances, open accounts
receivable or other obligations representing part or all of the sales price of
merchandise, insurance or services within the meaning of Section 3(c)(5) of the
Investment Company Act of 1940, as amended.
ARTICLE 5.
General Covenants of the Seller
Section 1. Affirmative Covenants of the Seller. From the date hereof until
the later of the Termination Date or the Collection Date, the Seller will,
unless the Purchaser shall otherwise consent in writing:
1. Compliance with Laws, Etc. Comply in all material respects with all
Applicable Laws that affect in a material way Purchased Receivables.
2. Preservation of Corporate Existence. Preserve and maintain its corporate
existence, good standing and privileges in the jurisdiction of its incorporation
and in each jurisdiction where the failure to so preserve and maintain the same
would materially adversely affect (i) the interests of the Purchaser hereunder
or in the Receivables, (ii) the collectability of any Receivable or (iii) the
ability of the Seller to perform its obligations hereunder.
3. Audits. At any time and from time to time upon reasonable advance notice
to the Seller prior to the occurrence of an Event of Purchase Termination (no
such notice being required after an Event of Purchase Termination has occurred)
and during regular business hours, permit the Purchaser, or its agents or
representatives, to (i) examine and make copies of and abstracts from the
Records relating to Purchased Receivables, and to (ii) visit the offices and
properties of the Seller for the purpose of examining such Records, and to
discuss matters relating to the Receivables or the Seller's performance
hereunder or under any contracts related to Purchased Receivables with any of
the officers or employees of the Seller having knowledge of such matters.
4. Keeping of Records and Books of Account. Keep and maintain such Records
relating to Purchased Receivables as are reasonably necessary for the collection
of all Purchased Receivables (including, without limitation, the Required
Information).
5. Performance and Compliance with Receivables and Contracts. At its
expense timely and fully perform and comply with any contracts related to the
Purchased Receivables, the failure with which to comply would adversely affect
the Purchased Receivables or the Purchaser's ability to realize thereon.
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 7
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6. Location of Records. Keep its chief place of business and chief
executive office, and the office where it keeps the Records, at the addresses
referred to in Section 4. 1(g).
7. Collections. Not submit an ACH Debit or otherwise attempt to collect
from Obligors monies due on Purchased Receivables. If the Seller shall receive
any Collections of Purchased Receivables, the Seller shall hold them in trust
for the Purchaser and remit such Collections within one Business Day following
the Seller's receipt thereof to Purchaser's Account.
Section 2. Reporting Requirements of the Seller. From the date hereof until
the later of the Termination Date or the Collection Date, the Seller will,
unless the Purchaser shall otherwise consent in writing, furnish to the
Purchaser:
1. as soon as possible and in any event within seven Business Days after
any Responsible Officer of the Seller shall have actual knowledge of the
occurrence of an Event of Purchase Termination or Incipient Purchase Termination
continuing on the date of such statement, a statement on behalf of the Seller by
a Responsible Officer setting forth details of such Event of Purchase
Termination or Incipient Purchase Termination and the action which the Seller
proposes to take with respect thereto; and
2. promptly, from time to time, all information required to be provided to
the agent or the lenders under the Syndicated Credit Agreement as it exists from
time to time; but in the event the Syndicated Credit Agreement shall not be in
effect or shall not require delivery of the items specified in Section 8.1 (a),
(b) and (c) of the Syndicated Credit Agreement as it exists on the Effective
Date, the Seller shall nevertheless provide the same to the Purchaser at the
times specified in the Syndicated Credit Agreement as in effect on the Effective
Date.
Section 3. Negative Covenants of the Seller. From the date hereof until the
later of the Termination Date or the Collection Date, the Seller will not,
unless the Purchaser shall otherwise consent in writing:
Sales Encumbrances, Etc. Except as otherwise provided herein sell, assign
(by operation of law or otherwise) or otherwise dispose of, or create or suffer
to exist any Adverse Claim upon or with respect to, any Purchased Receivable.
Extension or Amendment of Purchased Receivables. Attempt to extend, amend,
or otherwise modify any term of any Purchased Receivable.
Change in Payment Instructions to Obligors. Make (or attempt to make) any
change in instructions to Obligors regarding payments to be made on Purchased
Receivables.
Change in Corporate Name. Make any change to its corporate name or use any
trade names, fictitious names, assumed names or "doing business as" names that
would adversely affect the Purchaser's interest in Purchased Receivables, unless
prior to the effective date of any such name change or use, the Seller delivers
to the Purchaser such financing statements (Form UCC-1 and/or UCC-3) executed by
the Seller which the Purchaser may request to reflect such name change or use,
together with such other documents and instruments that the Seller may request
in connection therewith.
Accounting of Purchases. Prepare any financial statements, tax returns or
schedules which shall account for the Purchases in any manner other than as a
sale of the Purchased Receivables by the Seller to the Purchaser, or in any
other respect account for or
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 8
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treat the Purchase (for any purpose including but not limited to accounting
or tax reporting purposes) in any manner other than as a sale of the Purchased
Receivables by the Seller to the Purchaser.
ARTICLE 6.
Administration and Collection
Section 1. Concerning the Purchaser.
The Purchaser may notify at any time the Obligors of Purchased Receivables,
or any of them, of the ownership of Purchased Receivables by the Purchaser.
At any time:
The Purchaser may notify the Obligors of the Purchased Receivables, or any
of them, that payment of all amounts payable under any such Purchased Receivable
is to be made directly to the Purchaser or its designee.
The Seller shall, at the Purchaser's request and at the Seller's expense,
give notice of the Purchaser's ownership of Purchased Receivables to each
Obligor and notify such Obligors that payments under any such Purchased
Receivables be made directly to the Purchaser or its designee.
The Seller shall, at the Purchaser's request, (A) assemble all Records
relating to Purchased Receivables, and shall make the same available to the
Purchaser at the Seller's chief executive office, and (B) segregate all cash,
checks and other instruments received by it from time to time constituting
Collections of Purchased Receivables in a manner acceptable to the Purchaser and
shall, promptly upon receipt, remit all such cash, checks and investments, duly
endorsed or with duly executed instruments of transfer, to the Purchaser or its
designee.
The Purchaser may take any and all steps in the Seller's name or on behalf
of the Seller necessary or desirable, in the determination of the Purchaser, to
collect all amounts due under any and all Purchased Receivables, including,
without limitation, endorsing the Seller's name on checks and other instruments
representing Collections of Purchased Receivables, enforcing such Purchased
Receivables and adjusting, settling or compromising the account or payment
thereof, in the same manner and to the same extent as the Seller might have
done, its being contemplated that the foregoing will only be necessary if ACH
Debits are not honored.
The Purchaser shall not have any obligation or liability with respect to
any Receivables or related contracts, nor shall the Purchaser be obligated to
perform any of the obligations of the Seller thereunder.
Section 2. Notice of Action. The Purchaser agrees to notify the Seller of
legal proceedings or collection actions (other than ACH Debits) against Obligors
of Purchased Receivables before commencing the same unless such delay could have
a material adverse effect on the Purchaser. The Seller agrees to keep any
information received hereunder strictly confidential and shall not notify any
Obligor of such information.
Section 3. Effect of Erroneous ACH Debits. The Purchaser agrees to hold the
Seller harmless from direct actual damages caused by its gross negligence or
willful misconduct in making ACH Debit entries; provided, however, that, if such
damages result from rejection of an ACH Debit of the Seller (which cannot be in
respect of Purchased
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Receivables), the Seller shall first have used its best efforts to collect
such amount from the Obligor thereof. In addition, the Purchaser agrees to use
reasonable good faith efforts to correct mistakes.
ARTICLE 7.
Events of Purchase Termination
Section 1. Events of Purchase Termination. If any of the following events
("Events of Purchase Termination") shall occur and be continuing:
Any representation or warranty made or deemed to be made by the Seller (or
any of its officers) under Article 4 of this Agreement shall prove to have been
false or incorrect in any material respect when made or deemed made or any other
representation or warranty made or deemed made by the Seller (or any of its
officers) under or in connection with this Agreement or any Related Document
shall have been false or incorrect in any material respect when made and the
same shall not have been cured within 15 Business Days after written notice from
the Purchaser to the Seller; or
The Seller shall fail to perform or observe any covenant or agreement, on
its part to be performed, in Section 2.3, 2.7, 4.1(f), 5.1(g), 5.2(a), 5.3, 8.1
or 9.6 and the same shall not have been remedied after seven Business Days
notice from the Purchaser to the Seller; or
The Seller shall fail to perform or observe any other covenant or agreement
contained in this Agreement or any other Related Document, on its part to be
performed or observed and the same shall not have been remedied within 25
Business Days after written notice from the Purchaser to the Seller; or
Amounts owing by the Seller under the Syndicated Credit Agreement shall
become due and payable prior to their stated maturity;
then, and in any such event, the Purchaser shall, by notice to the Seller
in writing or by telephone (confirmed in writing) declare the Termination Date
to have occurred, whereupon the Termination Date shall forthwith occur, without
demand, protest or further notice, or other formalities of any kind, all of
which are hereby expressly waived by the Seller, and the obligation of the
Purchaser to purchase Receivables from the Seller shall terminate.
ARTICLE 8.
Indemnification
Section 1.INDEMNITIES BY THE SELLER. WITHOUT LIMITING ANY OTHER RIGHTS
WHICH THE PURCHASER MAY HAVE HEREUNDER OR UNDER APPLICABLE LAW, THE SELLER
HEREBY AGREES TO HOLD HARMLESS AND INDEMNIFY THE PURCHASER FROM AND AGAINST ANY
AND ALL DIRECT AND INDIRECT DAMAGES, LOSSES, CLAIMS, LIABILITIES AND RELATED
COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES AND DISBURSEMENTS (ALL
OF THE FOREGOING BEING COLLECTIVELY REFERRED TO AS "INDEMNIFIED AMOUNTS")
ARISING OUT OF OR RESULTING FROM THIS AGREEMENT OR ANY RELATED DOCUMENT OR THE
USE OF PROCEEDS OF PURCHASES OR THE OWNERSHIP OF PURCHASED RECEIVABLES OR IN
RESPECT OF ANY CONTRACT, EXCLUDING, HOWEVER, INDEMNIFIED AMOUNTS (A) TO THE
EXTENT RESULTING FROM GROSS NEGLIGENCE OR
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 10
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WILLFUL MISCONDUCT ON THE PART OF THE PURCHASER OR (B) ANY INCOME TAXES
INCURRED BY THE PURCHASER ARISING OUT OF OR AS A RESULT OF THIS AGREEMENT OR THE
OWNERSHIP OF PURCHASED RECEIVABLES OR ANY CONTRACT. WITHOUT LIMITING OR BEING
LIMITED TO THE FOREGOING, THE SELLER SHALL PAY ON DEMAND TO THE PURCHASER ANY
AND ALL AMOUNTS NECESSARY TO INDEMNIFY THE PURCHASER FOR INDEMNIFIED AMOUNTS
RELATING TO OR RESULTING FROM:
RELIANCE ON ANY REPRESENTATION OR WARRANTY MADE OR DEEMED MADE BY THE
SELLER (OR ANY OF ITS OFFICERS) UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY
RELATED DOCUMENT, OR ANY INFORMATION OR REPORT DELIVERED BY THE SELLER PURSUANT
HERETO, WHICH SHALL HAVE BEEN FALSE OR INCORRECT IN ANY MATERIAL RESPECT WHEN
MADE OR DEEMED MADE OR DELIVERED;
THE FAILURE BY THE SELLER TO COMPLY WITH ANY TERM, PROVISION OR COVENANT
CONTAINED IN THIS AGREEMENT OR ANY RELATED DOCUMENT OR WITH ANY APPLICABLE LAW
WITH RESPECT TO ANY PURCHASED RECEIVABLE, THE RELATED CONTRACT OR THE RELATED
SECURITY, OR THE NONCONFORMITY OF ANY PURCHASED RECEIVABLE, THE RELATED CONTRACT
OR THE RELATED SECURITY WITH ANY SUCH APPLICABLE LAW;
THE FAILURE TO VEST IN THE PURCHASER, OR TO MAINTAIN VESTED IN THE
PURCHASER (UNLESS SUCH FAILURE IS SOLELY DUE TO ANY ACT OF, OR ANY FAILURE TO
ACT BY, THE PURCHASER), OR TO TRANSFER TO THE PURCHASER, LEGAL AND EQUITABLE
TITLE TO AND OWNERSHIP OF THE PURCHASED RECEIVABLES WHICH ARE, OR ARE PURPORTED
TO BE, PURCHASED RECEIVABLES, TOGETHER WITH ALL COLLECTIONS OF PURCHASED
RECEIVABLES AND RELATED SECURITY IN RESPECT THEREOF, FREE AND CLEAR OF ANY
ADVERSE CLAIM (EXCEPT AS PERMITTED HEREUNDER) WHETHER EXISTING AT THE TIME OF
THE PURCHASE OF SUCH RECEIVABLES OR AT ANY TIME THEREAFTER;
THE FAILURE OF THE SELLER TO FILE, OR ANY DELAY OF THE SELLER IN FILING,
FINANCING STATEMENTS OR OTHER SIMILAR INSTRUMENTS OR DOCUMENTS UNDER THE CODE OF
ANY APPLICABLE JURISDICTION OR OTHER APPLICABLE LAWS AGAINST THE SELLER WITH
RESPECT TO ANY PURCHASED RECEIVABLES WHICH ARE, OR ARE PURPORTED TO BE,
PURCHASED RECEIVABLES, TOGETHER WITH ALL COLLECTIONS OF PURCHASED RECEIVABLES
AND RELATED SECURITY IN RESPECT THEREOF, WHETHER AT THE TIME OF ANY PURCHASE OR
AT ANY TIME THEREAFTER;
ANY DISPUTE, CLAIM, OFFSET OR DEFENSE (OTHER THAN DISCHARGE IN BANKRUPTCY
OF THE OBLIGOR) OF THE OBLIGOR TO THE PAYMENT OF ANY PURCHASED RECEIVABLE
(INCLUDING, WITHOUT LIMITATION, A DEFENSE BASED ON SUCH RECEIVABLE OR THE
RELATED CONTRACT NOT BEING A LEGAL, VALID AND BINDING OBLIGATION OF SUCH OBLIGOR
ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS), OR ANY OTHER CLAIM
RESULTING FROM THE SALE OF THE GOODS, MERCHANDISE, OR SERVICES RELATED TO SUCH
RECEIVABLE OR THE
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FURNISHING OR FAILURE TO FURNISH SUCH GOODS, MERCHANDISE OR SERVICES;
ANY PRODUCTS LIABILITY CLAIM OR PERSONAL INJURY OR PROPERTY DAMAGE SUIT OR
OTHER SIMILAR OR RELATED CLAIM OR ACTION OF WHATEVER SORT ARISING OUT OF OR IN
CONNECTION WITH GOODS, MERCHANDISE OR SERVICES WHICH ARE THE SUBJECT OF ANY
PURCHASED RECEIVABLE OR CONTRACT;
THE FAILURE TO PAY WHEN DUE ANY TAXES OWED BY THE SELLER OR IMPOSED ON THE
PURCHASE AND SALE OF THE RECEIVABLES PROVIDED FOR HEREIN (EXCLUDING ONLY ANY TAX
ON THE INCOME OF THE PURCHASER), INCLUDING WITHOUT LIMITATION, SALES, EXCISE OR
PERSONAL PROPERTY TAXES, PAYABLE IN CONNECTION WITH THE PURCHASED RECEIVABLES;
ANY INVESTIGATION, LITIGATION OR PROCEEDING RELATED TO THIS AGREEMENT OR
THE USE OF PROCEEDS OF THE PURCHASES OR THE OWNERSHIP OF PURCHASED RECEIVABLES
OR IN RESPECT OF ANY RELATED SECURITY OR ANY CONTRACT;
THE COMMINGLING OF COLLECTIONS OF PURCHASED RECEIVABLES AT ANY TIME WITH
OTHER FUNDS; AND/OR
ANY CONTRAVENTION OF ANY CONTRACTUAL OR LEGAL RESTRICTION CONTAINED IN ANY
CONTRACT BY THE EXECUTION, DELIVERY OR PERFORMANCE BY THE SELLER OF THIS
AGREEMENT OR ANY OTHER RELATED DOCUMENT OR BY ANY PURCHASE HEREUNDER OR BY THE
SELLER'S USE OF THE PROCEEDS OF ANY PURCHASE.
ANY AMOUNTS SUBJECT TO THE INDEMNIFICATION PROVISIONS OF THIS SECTION 8.1
SHALL BE PAID BY THE SELLER TO THE PURCHASER WITHIN FIVE BUSINESS DAYS FOLLOWING
THE PURCHASER'S DEMAND THEREFOR.
Section 2. Notice; Participation. The Purchaser shall endeavor to notify
the Seller promptly of any claim that would give rise to an Indemnified Amount
and shall allow the Seller to consult with it (at the Seller's expense)
regarding the defense. In the event the Seller provides the Purchaser with
satisfactory security the Purchaser deems adequate to protect it from
Indemnified Amounts, the Seller may participate directly in the defense.
ARTICLE 9
Miscellaneous
Section 1. Amendments, Etc. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by any party herefrom, shall in any
event be effective unless the same shall be consented to in writing and signed
by the Seller and the Purchaser (with respect to an amendment) or the Purchaser
(with respect to a waiver or consent by it) or the Seller (with respect to a
waiver or consent by it), as the case may be, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. This Agreement contains a final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 12
<PAGE>
constitute the entire agreement among the parties hereto with respect to
the subject matter hereof, superseding all prior oral or written understandings.
Section 2. Notices, Etc. All notices and other communications provided for
hereunder shall, unless otherwise stated herein be in writing (including
telecopier, telegraphic, telex, cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered, as to each party hereto, at its
address set forth under its name on the signature pages hereof or at such other
address as shall be designated by such party in a written notice to the other
parties hereto. All such notices and communications shall, when mailed,
telecopied, telegraphed, telexed or cabled, be effective when deposited in the
mail, telecopied, delivered to the telegraph company, confirmed by telex answer
back or delivered to the cable company, respectively, in each case addressed as
aforesaid.
Section 3. No Waiver, Remedies. No failure on the part of the Purchaser to
exercise, and no delay in exercising, any right hereunder or under any other
Related Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided herein are
cumulative and not exclusive of any other remedies provided by law. Without
limiting the foregoing, the Purchaser is hereby authorized by the Seller at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (whether general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time due
and owing by the Purchaser to or for the credit or the account of the Seller
against any and all of the obligations of the Seller, now or hereafter existing
under this Agreement or under any agreement executed pursuant hereto, to the
Purchaser or its successors and assigns irrespective of whether or not demand
therefore shall have been made under this Agreement or under any agreement
executed pursuant hereto and although such obligations may be contingent and
unmatured. The Seller acknowledges that the rights of the Purchaser or its
successors and assigns described in this paragraph are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
such parties may have under law.
Section 4. Binding Effect; Assignability. This Agreement shall be binding
upon and inure to the benefit of the Seller and the Purchaser and their
respective successors and assigns; provided, however, that the Seller may not
assign its rights or obligations hereunder or any interest herein without the
prior written consent of the Purchaser. This Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
its terms, and shall remain in full force and effect until such time, after the
Termination Date, as the Collection Date shall have occurred; provided, however,
that rights and remedies with respect to any breach of any representation and
warranty made by the Seller pursuant to Article 4 and the indemnification
provisions of Article 8 and Section 9.6 shall be continuing and shall survive
any termination of this Agreement.
Section 5. Governing Law. This Agreement and the other Related Documents
shall be governed by, and construed in accordance with, the laws of the State of
Texas and the federal laws of the United States.
Section 6. Costs, Expenses and Taxes.
The Seller further agrees to pay all reasonable costs and expenses, if any
(including, without limitation, reasonable counsel fees and expenses), of the
Purchaser in connection with (i) the preparation, negotiation or enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the other Related Documents and the other documents to be delivered
hereunder or of any of the rights of the Purchaser
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<PAGE>
hereunder, (ii) the exercise of any of the rights of the Purchaser
hereunder, (iii) the failure by the Seller to perform or observe any of the
provisions hereof or (iv) making ACH Debits.
In addition, the Seller shall pay on demand all other costs, expenses and
taxes (excluding income taxes) incurred by the Purchaser, including, without
limitation, the cost of auditing the Purchaser's books by certified public
accountants, the taxes (excluding income taxes) resulting from the Purchaser's
operations, and the reasonable fees and out-of-pocket expenses of counsel for
the Purchaser with respect to (i) advising the Purchaser as to its rights and
remedies under this Agreement, (ii) the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Agreement, the other
Related Documents and the other documents to be delivered hereunder or (iii)
advising the Purchaser as to matters relating to the Purchaser's operations.
Section 7. No Proceedings. The Seller hereby agrees that it will not assert
or support any challenge to the ownership interest of Purchaser in the Purchased
Receivables or to the true sale of the Purchased Receivables by the Seller to
the Purchaser, but will at all times defend and support the Purchaser's
ownership of all right, title and interest in and to such Purchased Receivables
and all proceeds thereof.
Section 8. Severability of Provisions. Any provision of this Agreement or
of any other document to be delivered hereunder which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or thereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 9. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
Section 10. Table of Contents and Descriptive Headings. The table of
contents and descriptive headings of the several sections of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
Section 11. Savings Clause.
It is the intention of the parties hereto to comply with Applicable Laws
and it is the further intention of the parties that this is an account purchase
transaction and not a transaction for the use, forbearance or detention of
money. If, however, in light of the parties intention to comply with all
Applicable Laws, a court of competent jurisdiction shall not give effect to the
parties intentions and agreements, the following provisions shall apply;
It is agreed that notwithstanding any provisions to the contrary in this
Agreement or in any of the documents executed in connection herewith or
otherwise relating hereto, in no event shall this Agreement or such instruments
or documents require the payment or permit the collection of interest, as
defined under Applicable Laws, in excess of the maximum amount permitted by such
laws. If any such excess of interest is contracted for, charged or received
under this Agreement, or under the terms of any of the documents executed in
connection herewith or otherwise relating hereto, or if the maturity of any
obligation is accelerated in whole or in part, or in the event that amount shall
be prepaid, so that under any of such circumstances the amount of any interest
contracted for, charged or received under this Agreement, or under any of such
documents or instrument, shall exceed the maximum amount of interest permitted
by Applicable Laws, then in any such event (i) the provisions of this Section
shall govern and control, (ii) neither any Seller nor any other Person
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<PAGE>
shall be obligated to pay the amount of such interest to the extent that it
is in excess of the maximum amount of interest permitted to be contracted for
by, charged to or received from the Person obligated thereon under Applicable
Laws, (iii) any such excess which may have been collected either shall be
applied as a credit against the then unpaid principal amount hereof or refunded
to the Person paying the same, at the Purchaser's option, and (iv) any effective
rate of interest shall be automatically reduced to the maximum lawful rate that
may be contracted for, charge or received under Applicable Law as now or
hereafter construed by the courts having jurisdiction thereof. In the unlikely
event that calculations of the rate of interest are necessary, the parties agree
that the most liberal rules permitted by Applicable Law for amortizing,
prorating, allocating and spreading shall be used.
Section 12. DTPA WAIVER. TO THE MAXIMUM EXTENT NOT PROHIBITED BY APPLICABLE
LAW FROM TIME TO TIME IN EFFECT, THE SELLER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY (AND AFTER THE SELLER HAS CONSULTED WITH ITS OWN ATTORNEY)
IRREVOCABLY AND UNCONDITIONALLY WAIVES THE PROVISIONS OF THE TEXAS DECEPTIVE
TRADE PRACTICES - CONSUMER PROTECTION ACT (TEXAS BUSINESS AND COMMERCE CODE,
CHAPTER 17, SECTION 17.41-17.63).
Section 13. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE RELATED
DOCUMENTS AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH AND
THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 14. Arbitration Program. The parties agree to be bound by the terms
and conditions of the current arbitration program of the Purchaser, which is
incorporated here and by reference and acknowledged as received by the parties,
pursuant to which any and all disputes shall be resolved by mandatory binding
arbitration upon the request of any party. Purchaser uses the Arbitration
Program regularly in its contracts and the same provides for any arbitration to
be administered by the American Arbitration Association.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
SELLER: PURCHASER:
COLOR TILE, INC. FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ Bart A. Brown, Jr. By: /s/ Roger Fruendt
Name: Bart A. Brown, Jr. Name: Roger Fruendt
Title: Chief Executive Officer Title: Vice President
and President
Address: 515 Houston Street, Address: Fourth Floor
Fort Worth, Texas 76102 900 Town & Country Lane
Attention: Chief Financial Officer Houston, Texas 77024
RECEIVABLES PURCHASE AND TRANSFER AGREEMENT - Page 15
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APPENDIX A
Definitions
"ACH Authorization" means written authorization from the Seller to the
Purchaser pursuant to which the Seller authorizes the Purchaser to debit
accounts of Obligors in order to collect Purchased Receivables, as permitted in
the Seller's franchise agreements with Obligors.
"ACH Debit" means an automated cleainghouse entry to debit the account of a
Person.
"Adverse Claim" means any claim of ownership or any Encumbrance or other
charge, encumbrance, or other type of preferential arrangement having the effect
of an Encumbrance.
"Affiliate" means as to any Person, any other Person that (i) directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or (ii) is a director or officer of such Person or of any other
Person that, directly or indirectly, is in control of, is controlled by or is
under common control with such Person.
"Affiliated Obligor" means any Obligor which is an Affiliate of another
Obligor.
"Agreement" means the Receivables Purchase and Transfer Agreement dated as
of September 20, 1995 between the Seller and the Purchaser, as it may be amended
or otherwise modified from time to time in accordance with the terms hereof.
"Applicable Law" means all provisions of statutes, rules, regulations and
orders of a Governmental Authority applicable to a Person and decisional
authority, and all orders and decrees of all courts and arbitrators in
proceedings or actions in which the Person in question is a party.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended, as
set forth in Title 11 of the United States Code (or any successor statute).
"Billed Amount" means, with respect to any Receivable, the amount billed to
the related Obligor with respect thereto.
"Billing Date" means the date on which the claim with respect to a
Receivable was mailed to the related Obligor.
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which banks are required or authorized to be closed in the State of Texas or a
day on which the Purchaser is closed for business.
"Code" means the Uniform Commercial Code as from time to time in effect in
the State of Texas.
"Collection Date" means the date following the Termination Date on which
Purchaser has received all amounts payable to the Purchaser under this
Agreement, the Purchased Receivables, and the other Related Documents.
APPENDIX A - Page 1
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"Collections" means, with respect to any Receivable, all cash collections
(whether through ACH Debit or otherwise) and other cash proceeds of such
Receivable.
"Commitment" means the Purchaser's obligation to make Purchases hereunder.
"Commitment Amount" means $2,000,000.
"Defaulted Receivable" means a Purchased Receivable:
(a) as to which any payment, or part thereof, remains unpaid for more than
28 days from the Billing Date;
(b) as to which the Obligor thereof has taken any action, or suffered any
event to occur, of the type described in clause (c) (xi) of the definition of
"Disqualified Receivable"; or
(c) which, consistent with the Seller's customary policies, would be
classified as delinquent by the Seller or would be written off the Seller's
books as uncollectible.
"Deferred Purchase Price" means, on each Purchase Date and the Collection
Date, an amount equal to the Excess Loss Discount Reserve Amount.
"Deficiency Discount Amount" means, on each Settlement Date, an amount
equal to the Outstanding Balance of each Defaulted Receivable less the amount of
any Loss Discount Reserve Charge against the Outstanding Balance thereof times
the Deficiency Discount.
"Deficiency Discount" means 1.27 percent.
"Disqualified Receivable" means any Receivable (a) which is fictitious or
fraudulent, (b) would be a Defaulted Receivable upon Purchase, or (c) that:
1. is more than 30 days from the Billing Date;
2. is not for the completed sale of inventory that has been delivered to
the Obligor and is otherwise sold in the ordinary course of the Seller's
business;
3. with respect to any Receivables of an Obligor, exceeds 10% of all
Purchased Receivables that are not Disqualified Receivables;
4. is from an Obligor or Affiliated Obligor with an Outstanding Balance
that is past due;
5. is not payable in Dollars;
6. is not an "account" under the Code that constitutes rights fully earned
by performance;
7. is from a Person not domiciled in the United States;
8. is an intercompany Receivable;
9. is a Receivable from employees;
APPENDIX A - Page 2
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10. is subject to an Adverse Claim asserted by an Obligor with respect to
any Receivable or otherwise against the Seller (unless such Adverse Claim
results from actions of the Purchaser);
11. is owing by an Obligor who is subject of any bankruptcy, insolvency or
receivership proceedings;.
12. is a contra account;
13. is a foreign Receivable;
14. is a Receivable from a Governmental Authority;
15. represents a retainage, consignment, bill and hold, or prebilling
Receivable;
16. is a Receivable from an Obligor that has had an ACH Debit chargeback
(other than as a result of a good faith mistake or as a result of a chargeback
because of a deficiency of $50 or less) in the preceding six months; and/or
"Dollar" and "$" means lawful currency of the United States of America.
"Effective Date" means the date on which the conditions precedent in
Section 3.1 are met and all Schedules to the Agreement have been attached to the
Agreement and provided to the Purchaser.
"Encumbrance" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment, preference,
priority, or other encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or title retention agreement), whether
arising by contract, operation of law, or otherwise.
"Event of Purchase Termination" has the meaning assigned to that term in
Section 7.1.
"Excess Loss Discount Reserve Amount" means, on each Settlement Date, the
amount, if any, of Loss Discount Reserve Amount in excess of the Required Loss
Reserve Discount Amount.
"Funding Discount" means, with respect to any Purchased Receivable having a
maturity of more than 21 days from Purchase, 769/1000 of one percent; with
respect to any Purchased Receivable having a maturity of between 15 and 21 days
from Purchase, 578/1000 of one percent; with respect to any Purchased Receivable
having a maturity of between eight and 14 days from Purchase, 385/1000 of one
percent; and with respect to any Purchased Receivable having a maturity of
between one and seven days from Purchase, 193/1000 of one percent.
"Governmental Authority" means the United States of America, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions thereof
or pertaining thereto.
"Incipient Purchase Termination" means an event which, with the giving of
notice or lapse of time or both, would constitute an Event of Purchase
Termination.
"Indemnified Amounts" has the meaning specified in Section 8.1.
APPENDIX A - Page 3
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"Insufficiency" means, with respect to any Plan, the amount, if any, of its
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Loss Discount" means 20 percent.
"Loss Discount Reserve Amount" means, on each Settlement Date, the PR;
where PR equals the sum of
(a) the previous Loss Discount Reserve Amount after giving effect to Loss
Discount Reserve Charges to the next preceding Settlement Date (or the Unpaid
Balance times the Loss Discount in the case of the first Settlement Date), less
(b) Loss Discount Reserve Charges made at the present Settlement Date, plus
(c) Collections of Purchased Receivables received since the preceding
Settlement Date on account of Defaulted Receivables that were Loss Discount
Reserve Charges (netting any Deficiency Discount Amounts).
"Loss Discount Reserve Charges" are charges against the Loss Discount
Reserve Amount for Deficiency Discount Amounts and in respect of Defaulted
Receivables.
"Obligor" means a Person obligated to make payments pursuant to a
Receivable.
"Outstanding Balance" of any Receivable at any time means an amount (not
less than zero) equal to (a) its Billed Amount minus (b) all payments received
by the Purchaser from the Obligor with respect thereto; provided, that if the
Purchaser makes a determination that all payments by the Obligor with respect to
such Receivable have been made, the Outstanding Balance shall be zero.
"Permitted Encumbrances" means (a) Encumbrances created by this Agreement
and (b) Encumbrances in favor of the lenders under the Syndicated Credit
Agreement that are, as to the Receivables, automatically released upon their
becoming Purchased Receivables.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any agency or political subdivision
thereof.
"Purchase" means a purchase by the Purchaser of a Receivable from the
Seller pursuant to Section 2.1.
"Purchase Date" means the Effective Date and every second Business Day of
each week until the Termination Date on which the Purchaser purchases
Receivables from the Seller pursuant to this Agreement as evidenced by the
Purchase Report.
"Purchase Discount Percentage" means, as of any Purchase Date, a percentage
equal to the total of (a) the Funding Discount, and (b) the Loss Discount.
"Purchase Price" means, on any Purchase Date for any Receivable to be
purchased by Purchaser hereunder, an amount equal to the difference between (a)
the Outstanding Balance of such Receivable minus (b) the sum of (i) the
Outstanding Balance of
APPENDIX A - Page 4
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such Receivable multiplied by the Loss Discount and (ii) the difference
between (a) and (b)(i) multiplied by the Funding Discount.
"Purchase Report" means a weekly report from Seller to Purchaser evidencing
the Purchased Receivables for such week which (a) identifies the Receivables
being sold to Purchaser by means of information in documentation in the form of
Schedule II, an (b) specifies the aggregate amount by Dollars of Receivables
being purchased by Purchaser for such week and (c) provides the Required
Information.
"Purchased Receivable" means any Receivable that has been sold by the
Seller to the Purchaser pursuant to this Agreement.
"Purchaser's Account" means the deposit account owned by and in the name of
the Purchaser, styled "CT Transferred Receivables Account," into which all
Collections in respect of Purchased Receivables shall be deposited or any
substitute account approved by the Purchaser.
"Receivable" means:
1. an account receivable billed to an Obligor by the Seller, including the
right to payment of any interest or finance charges and other obligations of
such Obligor with respect thereto;
2. all Related Security from Obligors;
3. all Collections with respect to any of the foregoing;
4. all Records with respect to any of the foregoing necessary to protect
the Purchaser's rights or effect Collections of the Purchased Receivables; and
5. all proceeds of any of the foregoing.
"Records" means all contracts and other documents, books, records, general
intangibles, and other information (including without limitation, tapes, disks,
punch cards, and related property and rights to the extent owned by the Seller
and segregated or capable of segregation) maintained with respect to Receivables
(including Purchased Receivables) and related Obligors.
"Related Documents" means this Agreement and all other documents,
instruments, agreements, and certificates executed pursuant to or in connection
with this Agreement.
"Related Security" means with respect to any Receivable:
(a) all of the Seller's interest in services if any, relating to the sale
which gave rise to the amount owed by the Obligor under such Receivable;
(b) all other Encumbrances and property subject thereto or associated
therewith from time to time purporting to secure payment of the amount owed by
the Obligor under such Receivable, whether pursuant to the contract related to
such Receivable or otherwise, together with all financing statements signed by
an Obligor describing any collateral securing such Receivable;
APPENDIX A - Page 5
<PAGE>
(c) the assignment to the Purchaser of all Code financing statements
covering any collateral securing payment of such Receivable;
(d) all guarantees, indemnities, warranties, insurance policies and
proceeds and premium refunds thereof, and other agreements or arrangements of
whatever character from time to time supporting or securing payment of such
Receivable, whether pursuant to a contract related to such Receivable or
otherwise; and
(e) all Records, and all proceeds of the foregoing.
"Required Information" means, with respect to a Receivable, (a) the
Obligor, its address (if not previously provided to the Seller), its account
number and its bank's ABA routing number, and any other ACH Debit information
requested by the Purchaser, (b) any identification code used by the Seller, if
applicable, (c) an ACH Authorization (including the date upon which the ACH
Debit may be made), (d) the Billed Amount, and (e) the Billing Date.
"Required Loss Discount Reserve Amount" means at all times an amount equal
to the Unpaid Balance times the Loss Discount.
"Responsible Officer" means, with respect to any Person, its Chairman,
Chief Executive Officer, the President, the Chief Financial Officer, the Vice
President-Finance; and the Vice President-Controller.
"Settlement Date" means each Purchase Date (before giving effect to any
Purchases on such date) and the Collection Date.
"Syndicated Credit Agreement" means the Credit Agreement, dated November
27, 1991, between the Seller, Chemical Bank, as agent, and the other financial
institutions from time to time party thereto, as the same may be amended,
modified, supplemented, and in effect from time to time.
"Termination Date" means the earliest of (i) the declaration or automatic
occurrence of the Termination Date pursuant to Section 7. 1, (ii) written notice
from the Seller cancelling the Purchaser's obligation to make future Purchases,
(iii) March 31, 1997, (iv) commencement of a proceeding by or against the Seller
under the Bankruptcy Code or (v) the commitments under the Syndicated Credit
Agreement shall not be outstanding or there shall not be any amounts owing
thereunder.
"Unpaid Balance" means an amount (not less than zero) equal to the
Outstanding Balance of all Purchased Receivables.
APPENDIX A - Page 6
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SCHEDULE I
Location of Records
[Schedule available at the Company upon request.]
APPENDIX A - Page 1
<PAGE>
SCHEDULE 2.1(a)
List of Initial Purchased Receivables
[Schedule available at the Company upon request.]
<PAGE>
SCHEDULE II
PURCHASE REPORT
[Schedule available at the Company upon request.]
LETTER OF CREDIT FACILITY AGREEMENT, dated as of September 19, 1995, among
COLOR TILE, INC. a Delaware corporation (the "Borrower") and THE BANK OF TOKYO,
LTD., NEW YORK AGENCY (the "Bank").
1. DEFINITIONS
1.1 Defined Terms
As used in this Agreement, the following terms have the following meanings:
"Agreement": this Letter of Credit Facility Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Application": the Bank's Application for Irrevocable Commercial Letter of
Credit in the form of Exhibit A hereto or a computer-generated substantial
equivalent thereof prepared and transmitted by the Borrower to the Bank in
accordance with the Bank's customary procedures.
"Authorized Signatory": the officer or officers of the Borrower which are
authorized by the Borrower to execute and deliver to the Bank this Agreement and
the other Transaction Documents.
"Bankruptcy Event": (i) the Borrower or any of its subsidiaries shall
commence any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it as bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets, or the
Borrower or any of its subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against the Borrower
or any of its subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against the Borrower or any of its subsidiaries any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks located in New York City are authorized or required by law or
other governmental actions to close.
<PAGE>
"Continuing Letter of Credit Agreement": the Continuing Letter of Credit
Agreement in the form of Exhibit B hereto, dated as of September 19, 1995,
between the Bank and the Borrower, as amended, modified, supplemented or
otherwise modified from time to time.
"Dollars" and "$": lawful currency of the United States of America.
"Event of Default": any of the events specified in paragraph 8 hereof,
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"Facility Amount": $8,366,050, or such lesser amount as may result from a
reduction or reductions thereto pursuant to the terms hereof.
"GAAP": generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statement by such other
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination,
consistently applied.
"Governmental Body": any nation or government, any state or other political
subdivision thereof, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government and any
court or arbitrator.
"Highest Lawful Rate": the maximum rate of interest, if any, that at any
time or from time to time may be contracted for, taken, charged or received on
amounts which may be owing to the Bank pursuant to this Agreement under the laws
applicable to the Bank and this transaction.
"Issuance Date": any date specified in a Letter of Credit Issuance Request
delivered pursuant to paragraph 2.2 hereof as a date on which the Borrower
requests the Bank to issue a Letter of Credit.
"Letter of Credit Exposure": at a particular date, the sum, without
duplication, of (a) the maximum amount then available to be drawn under all
outstanding Letters of Credit at such date, (b) the face amount of all drawings
under Letters of Credit then made on the Bank and as to which the Borrower's
obligation to reimburse the Bank has not yet matured and (c) the aggregate
matured and unpaid reimbursement obligations in respect of the Letters of Credit
at such date; it being understood that, for purposes of the computations to be
made under clauses (b) and (c), any reimbursement obligation which has been
prepaid shall not be deemed to be an "obligation".
"Letter of Credit Issuance Request": as defined in paragraph 2.2 hereof.
"Letters of Credit": sight or deferred payment commercial letters of credit
(which, in the case of deferred payment letters of credit, have payment terms of
up to 90 days from the
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date of shipment of goods covered thereby) heretofore or hereafter issued
by the Bank for the account of the Borrower; such term being specifically
intended to include commercial letters of credit issued by the Bank for the
account of the Borrower prior to the date of this Agreement.
"Person": an individual, a partnership, a corporation, a business trust, a
joint stock company, a trust, an unincorporated association, a joint venture, a
Governmental Body or any other entity of whatever nature.
"Prime Rate": a rate of interest per annum equal to the rate of interest
publicly announced in New York City by The Bank of Tokyo Trust Company from time
to time as its prime commercial lending rate, such rate to be adjusted
automatically (without notice) on the effective date of any change in such
publicly announced rate.
"Security Agreement": a security agreement substantially in the form of
Exhibit C hereto, as the same may be amended, modified or otherwise supplemented
from time to time.
"Syndicated Credit Agreement": the Credit Agreement, dated as of November
27, 1991, among Color Tile, Inc., the several lenders from time to time parties
thereto, and Chemical Bank (f/k/a Manufacturers Hanover Trust Company), as
Agent, as amended, extended, modified or supplemented from time to time.
"Termination Date": March 31, 1997.
"Transaction Documents": collectively, this Agreement, the Applications,
the Continuing Letter of Credit Agreement, the Security Agreement, the UCC-1's
and the Letters of Credit.
1.2 Other Definitional Provisions.
(a) As used herein, in the other Transaction Documents and in any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower shall have the respective meanings
given to them under GAAP.
(b) The words "hereof", "herein", "hereto" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and paragraph and
exhibit references contained herein shall refer to paragraphs hereof or exhibits
hereto unless otherwise expressly provided herein.
(c) The word "or" shall not be exclusive.
1.3 Computation of Time Periods.
In this Agreement, in the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including" and
the words "to" and "until" each means "to but excluding".
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<PAGE>
2. AMOUNT AND TERMS OF LETTER OF CREDIT FACILITY
2.1 Letter of Credit Facility.
The Bank shall, on each proposed Issuance Date and subject to the other
terms and conditions of this Agreement, issue Letters of Credit for the account
of the Borrower. At no time shall the Letter of Credit Exposure exceed the
Facility Amount. Each Letter of Credit issued pursuant to this paragraph 2.1
shall have an expiry date (such date to be the last day on which documents can
be presented under such Letter of Credit) which shall be not later than the
earlier of (i) 90 days after its Issuance Date, (ii) in the case of sight
Letters of Credit, the Termination Date and (iii) in the case of deferred
payment Letters of Credit, the date which is the number of Deferred Payment Days
(as defined below) prior to the Termination Date. Each Letter of Credit shall be
issued pursuant to the provisions of the Application related thereto and the
Continuing Letter of Credit Agreement, in addition to the provisions of this
Agreement. For the purposes hereof, the term "Deferred Payment Days" shall mean,
with respect to any deferred payment Letter of Credit, the number of days
stipulated in the Letter of Credit for payment to be made to the beneficiary
after the presentation of documents, or after the date of shipment or after some
other stipulated date.
2.2 Issuance of Letters of Credit.
Each Letter of Credit shall be issued in support of a commercial payment
obligation of the Borrower in favor of a beneficiary who has required the
issuance of such Letter of Credit as a condition to a transaction entered into
in the ordinary course of the Borrower's business. The Borrower may request the
issuance of a Letter of Credit by giving the Bank a written notice (each a
"Letter of Credit Issuance Request") by 2:00 P.M., New York City time, one
Business Day prior to the requested Issuance Date. Such Letter of Credit
Issuance Request shall be accompanied by an Application and shall be executed by
an Authorized Signatory of the Borrower (including by electronically generated
or communicated equivalent) and shall specify (i) the beneficiary of such Letter
of Credit, (ii) the conditions under which a drawing may be made under such
Letter of Credit and the documentation to be required in respect thereof, which
provisions shall include a condition that goods shipped under such Letter of
Credit shall be evidenced by a negotiable bill of lading made to the order of
the Bank, (iii) the maximum amount to be available under such Letter of Credit,
and (iv) the requested Issuance Date and expiry date of such Letter of Credit.
Each Letter of Credit shall be in form and substance reasonably satisfactory to
the Bank, consistent with the Bank's and the Borrower's recent past practice
with each other, with respect to the conditions under which a drawing may be
made thereunder and the documentation required in respect of such drawing, or as
otherwise agreed upon by the Borrower and the Bank.
2.3 Reimbursement of Drawings.
Each payment by the Bank of a drawing under a Letter of Credit shall give
rise to an obligation on the part of the Borrower to reimburse the Bank for the
amount thereof
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<PAGE>
in accordance with the terms of the Continuing Letter of Credit Agreement
(a "Letter of Credit Reimbursement Obligation" and sometimes, a "matured Letter
of Credit Reimbursement Obligation.")
2.4 Letter of Credit Fees; Facility Fees.
The Borrower agrees to pay the Bank's fees with respect to each Letter of
Credit in accordance with the Commercial Letter of Credit Terms & Fee Schedule,
dated September 19, 1995 and attached hereto as Exhibit D hereto; provided,
however, that in lieu of an opening fee (charges for which have been waived),
the Borrower shall pay to the Bank, a facility fee for each day from the date
hereof to the Termination Date. Such facility fee shall be payable monthly in
advance commencing on the date hereof and shall be computed for each day during
such period at a rate per annum equal to 1% of Facility Amount in effect on such
day, calculated on the basis of a 360 day year, for the actual number of days
elapsed.
2.5 Absolute Obligation with respect to Letter of Credit Payments.
The Borrower's obligation to reimburse the Bank in respect of a Letter of
Credit for each payment under or in respect of such Letter of Credit shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the beneficiary of such Letter of Credit or any other Person
other than the Bank, as issuer of the Letters of Credit. In the event of any
conflict between this paragraph, on the one hand, and any Application or the
Continuing Letter of Credit Agreement, on the other hand, such Application and
the Continuing Letter of Credit Agreement shall govern.
2.6 Increased Costs Based on Letters of Credit.
If, after the date of this Agreement, any law, governmental rule,
regulation, guideline or order (or in the interpretation or application thereof
by any Governmental Body charged with the administration thereof and including
the introduction of any new law or governmental rule, regulation, guideline or
order) or GAAP shall either (a) impose, modify or make applicable any reserve,
special deposit, assessment or similar requirement against letters of credit
issued by the Bank, or (b) impose on the Bank any other condition regarding the
Letters of Credit (except for imposition of, or changes in the rate of, tax on
the overall net income of the Bank, and the result of any event referred to in
clause (a) or (b) above shall be to increase the cost or affect the
profitability (on an after-tax basis) to the Bank (or any successor thereto as
issuer of Letters of Credit) of issuing or maintaining any Letter of Credit, the
Borrower shall pay to the Bank, not later that five (5) days after written
demand therefor, from time to time as specified by the Bank, additional amounts
which shall be sufficient to compensate the Bank for such increased cost. A
statement as to such increased cost incurred by the Bank as a result of any
event mentioned in clause (a) or (b) above, submitted by the Bank to the
Borrower shall be conclusive, absent manifest error, as to the amount thereof.
If the Bank shall become entitled to payment of any such amounts, it shall
promptly notify the Borrower of such fact.
5
<PAGE>
2.7 Interest on Overdue Letter of Credit Reimbursement Obligations.
(a) If all or any portion of the Letter of Credit Reimbursement Obligations
or any other amount payable under the Transaction Documents shall not be paid
when due (whether at the stated maturity thereof, by acceleration or otherwise),
such overdue amount shall bear interest at a floating rate of interest per annum
equal to 3 1/2% above the Prime Rate from time to time in effect from the date
of nonpayment until paid in full (whether before or after the entry of any
judgment thereon). Interest payable under this paragraph 2.7(a) shall be payable
on demand.
(b) Interest shall be calculated on the basis of a 360 day year, for the
actual number of days elapsed. Any change in the interest rate resulting from a
change in the Prime Rate shall become effective as of the opening of business on
the day on which such change in the Prime Rate shall become effective. Each
determination of the Prime Rate by the Bank pursuant to this Agreement shall be
conclusive and binding absent manifest error. At no time shall the interest rate
payable hereunder exceed the Highest Lawful Rate. If interest payable to the
Bank on any date would exceed the maximum amount permitted by the Highest Lawful
Rate, such interest payment shall automatically be reduced to such maximum
permitted amount. The Borrower acknowledges that the Prime Rate is only one of
the bases used by The Bank of Tokyo Trust Company for computing interest on
loans made by said Trust Company, and by basing interest payable hereunder on
such Prime Rate, the Bank has not committed to charge, and the Borrower has not
in any way bargained for, interest based on a lower or the lowest rate at which
said Trust Company makes loans.
2.8 Taxes.
The Borrower agrees to pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or under the other Transaction Document or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement and the other Transaction Documents.
2.9 Capital Adequacy.
(a) If, after the date of this Agreement, the Bank shall determine that the
adoption or effectiveness after the date hereof of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Body, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Body, central bank or comparable agency, has or would have the
effect of materially reducing the rate of return on the Bank's capital or assets
as a consequence of its commitments or obligations hereunder to a level below
that which the Bank could have achieved but for such adoption, effectiveness,
change or compliance (taking into consideration the Bank's then current policies
with respect to capital adequacy), then from time to time, not later that five
(5) days after demand therefor by the Bank, the Borrower shall pay to the Bank
such additional amount or amounts as will compensate the
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<PAGE>
Bank for such reduction. A statement submitted by the Bank as to the amount
that will compensate the Bank shall be conclusive, absent manifest error, as to
the amount thereof. If the Bank shall become entitled to payment of any such
amounts, it shall promptly notify the Borrower of such fact.
3. PAYMENTS
All payments by the Borrower provided for in the Continuing Letter of
Credit Agreement shall be made by the Borrower in accordance with the Terms and
Conditions thereof, without set-off or counterclaim. All other payments by the
Borrower under this Agreement or the other Transaction Documents shall be made
prior to the Bank's close of business in New York City on the date such payment
is due, to the Bank at the Bank's office specified in paragraph 9.2 hereof, in
each case in Dollars and in immediately available funds.
4. MANDATORY PREPAYMENTS; ESCROW
4.1 Mandatory Prepayments: Escrow.
Upon and simultaneously with the making of any prepayment required by
subsection 5.3 or subsection 5.4 of the Syndicated Credit Agreement (including
any Asset Sale permitted under the Syndicated Credit Agreement or with the
consent of the Required Banks, but not any payment under subsection 5.4(c) of
the Syndicated Credit Agreement) to be applied in accordance with subsection
5.4(e) of the Syndicated Credit Agreement to the prepayment of the Term Loans
and the reduction of the Revolving Credit Commitments, (i) the Facility Amount
shall be reduced by the Bank Tokyo Amount, and (ii) the Borrower shall repay or
prepay, as the case may be, its then matured but unreimbursed Letter of Credit
Reimbursement Obligations and its unmatured obligations under deferred payment
Letters of Credit under which drawings have been made but for which
reimbursements are not yet due to the Bank from the Borrower ("unmatured Letter
of Credit Reimbursement Obligations") in an amount equal to the Bank Tokyo
Amount, provided, however, that if such Bank Tokyo Amount exceeds the aggregate
amount of such unreimbursed and unmatured Letter of Credit Reimbursement
Obligations, the Borrower shall place such excess amount in escrow, which
escrowed funds shall be utilized for the payment or prepayment of its future
matured and unmatured Letter of Credit Reimbursement Obligations under then
outstanding Letters of Credit. The Bank shall apply any such prepayment or the
proceeds of any such escrowed funds first to matured Letter of Credit
Reimbursement Obligations and then to unmatured Letter of Credit Reimbursement
Obligations.
For the purposes of this paragraph 4.1, the following terms shall have the
meanings ascribed to them in the Syndicated Credit Agreement: "Asset Sale,"
"Required Banks," "Term Loans," "Revolving Credit Commitments," "Bank Tokyo
Amount."
4.2 Escrow Arrangement.
On or prior to the date on which the first prepayment referenced in
paragraph 4.1 hereof is made, the Borrower and the Bank shall have established
an account (the "Escrow
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Account") in the name of a financial institution satisfactory to the Bank
and the Borrower as escrow agent (the "Escrow Agent") for the Borrower and the
Bank. The amount of any funds referenced in paragraph 4.1 hereof which are to be
placed in escrow shall be deposited by the Borrower to the Escrow Account. Upon
receipt of a written statement from the Bank specifying that a matured or
unmatured Letter of Credit Reimbursement Obligation is outstanding or any other
amount is due to the Bank under this Agreement which has not been paid, the
Escrow Agent shall release funds on deposit in the Escrow Account to the Bank in
an amount equal to the amount specified in such written statement for the
purpose of paying or prepaying such Letter of Credit Reimbursement Obligations
or other amounts due. Upon receipt of a written statement from the Bank and the
Borrower specifying that all amounts due to the Bank under this Agreement have
been paid in full and that the Termination Date has occurred, the Escrow Agent
shall release the balance of all funds on deposit in the Escrow Account to the
Borrower. The Bank acknowledged that it has not been granted and has no security
interest in or lien upon the Escrow Account or any amounts at any time on
deposit therein or any of the Borrower's rights in respect thereof.
5. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to issue
Letters of Credit, the Borrower hereby makes the following representations and
warranties to the Bank:
5.1 Corporate Authority.
It has full corporate power and authority to enter into, execute, deliver
and carry out the terms of this Agreement and the other Transaction Documents,
all of which have been duly authorized by all proper and necessary corporate
action and are not in violation of its Certificate of Incorporation and By-Laws.
5.2 Governmental Body and Other Approvals.
Except for consents, authorizations or approvals which (a) have been
obtained, made or given or (b) which the Bank may be required to obtain or (c)
if not obtained, would not have a material adverse effect upon the business,
assets, condition (financial or otherwise) or results of operations of the
Borrower and its subsidiaries or on the ability of the Borrower to perform its
obligations under the Transaction Documents, no consent, authorization or
approval of, or exemption by, stockholders, any Governmental Body or any other
Person is required to authorize, or is required in connection with the
execution, delivery and performance of this Agreement or any other Transaction
Document.
5.3 Binding Agreement
This Agreement constitutes, and the other Transaction Documents when
executed and delivered will constitute, the valid and legally binding
obligations of the Borrower, each enforceable in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally or by general principles of equity.
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5.4 No Conflicting Agreements.
Except for defaults or conflicts which would not have a material adverse
effect upon the business, assets, condition (financial or otherwise) or results
of operations of the Borrower and its subsidiaries or on the ability of the
Borrower to perform its obligations under the Transaction Documents, the
execution, delivery or carrying out of the terms of this Agreement and the other
Transaction Documents will not constitute a default under or conflict with, or
result in the creation or imposition of, or obligation to create, any lien upon,
the Collateral (as defined in the Security Agreement) pursuant to the terms of
any material mortgage, indenture, contract, agreement, judgment, decree or order
binding upon the Borrower or any of its subsidiaries, except liens in favor of
the Agent and the banks under the Syndicated Credit Agreement.
6. CONDITIONS TO ISSUANCE
6.1 Conditions to Initial Issuance. The obligation of the Bank to issue the
initial Letter of Credit after the date hereof shall be subject to the
fulfillment of the following conditions precedent:
(a) Evidence of Corporate Action.
The Bank shall have received a certificate of the Secretary or Assistant
Secretary of the Borrower dated on or about the date hereof (i) attaching a true
and complete copy of the resolutions of its Board of Directors and of all
documents evidencing other necessary corporate action (in form and substance
satisfactory to the Bank) taken by it to authorize this Agreement and the other
Transaction Documents, and (ii) setting forth the incumbency of its officer or
officers who may sign this Agreement and the documents contemplated hereby,
including therein a signature specimen of such officer or officers; the Bank
being entitled to rely upon such certificate until furnished with any substitute
or supplemental certificate by the Borrower.
(b) Continuing Letter of Credit Agreement; Security Agreement.
The Bank shall have received the Continuing Letter of Credit Agreement and
the Security Agreement, each duly executed by an Authorized Signatory of the
Borrower.
(c) Approvals.
The Bank shall have received evidence reasonably satisfactory to it that
all approvals and consents of all Persons required to be obtained in connection
with the consummation of the transactions contemplated by this Agreement have
been obtained and that all required notices have been given and all required
waiting periods have expired.
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(d) Fifth Amendment to Syndicated Credit Agreement.
The Conditions to Effectiveness described in the Fifth Amendment to the
Syndicated Credit Agreement shall have been satisfied and such Amendment shall
have become effective.
(e) Fees of Counsel.
The fees and expenses of counsel to the Bank as shall have been presented
to the Borrower for payment or reimbursement shall have been paid or reimbursed,
as the case may be, by the Borrower in accordance with paragraph 9.5 hereof.
6.2 Condition to Issuance of Each Letter of Credit. The obligation of the
Bank to issue each Letter of Credit (including the initial Letter of Credit)
hereunder shall be subject only to the further conditions precedent that (a) no
Event of Default shall have occurred and be continuing, (b) the Commitments (as
defined in the Syndicated Credit Agreement) shall not have been terminated and
(c) no material default shall have occurred and be continuing in the due
performance and observance by the Borrower of any covenant or agreement
contained herein or in any other Transaction Document (other than those
covenants or agreements referred to in paragraph 8.1(a), (b) and (c) hereof) and
shall continue unremedied for a period of 20 Business Days after written notice
thereof in reasonable detail from the Bank.
7. COVENANTS
7.1 Financial Statements.
The Borrower agrees that, so long as this Agreement is in effect, any
Letter of Credit or any Letter of Credit Reimbursement Obligation remains
outstanding or unpaid, or any other amount is owing to the Bank hereunder or
under any Application, the Borrower shall furnish to the Bank a copy of all
financial statements, certificates and other information provided to Chemical
Bank, as Agent under the Syndicated Credit Agreement, simultaneously with such
delivery to Chemical Bank.
7.2 UCC-1's.
Promptly, but in no event more than seven Business Days, after the Bank or
its counsel shall have delivered to the Borrower UCC-1 Financing Statements with
respect to the Collateral (as defined in the Security Agreement) for execution
by the Borrower, the Borrower shall return to the Bank or its counsel such
Financing Statements duly executed by an Authorized Signatory of the Borrower,
which Financing Statements are to be filed in each jurisdiction in which such
Collateral is located.
8. EVENTS OF DEFAULT; REMEDIES
8.1 Events of Default.
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Each of the following events or occurrences described in this paragraph 8.1
shall constitute an "Event of Default":
(a) the Borrower shall default in the payment when due of any matured
Letter of Credit Reimbursement Obligation and such default shall continue
unremedied for the lesser of (i) three Business Days from the date when due and
(ii) one Business Day after written notice thereof from the Bank; or
(b) the Borrower shall default in (i) the required prepayment when due of
any unmatured Letter of Credit Reimbursement Obligation, (ii) making any deposit
into the Escrow Account required to be made pursuant to paragraph 4.2 hereof or
(iii) the payment or reimbursement to the Bank of any amounts due to the Bank
under this Agreement (including paragraph 9.5 hereof) or under any other
Transaction Document, and any such default shall continue unremedied for a
period of three Business Days after written notice thereof from the Bank; or
(c) the Borrower shall default in the due performance and observance of any
of its obligations under paragraph 7.2 hereof or Section 3.1 (e) of the Security
Agreement, and such default shall continue unremedied for a period of (i) with
respect to paragraph 7.2 hereof, three Business Days after written notice
thereof, in reasonable detail, from the Bank, and (ii) with respect to Section
3.1 (e) of the Security Agreement, twenty Business Days after written notice
thereof, in reasonable detail, from the Bank; or
(d) a Bankruptcy Event shall have occurred; or
(e) the maturity of the Loans (as defined in the Syndicated Credit
Agreement) shall have been accelerated; or
(f) the Security Agreement shall for any reason (other than pursuant to the
terms thereof or as a result of the action or inaction of the Bank) cease to be
in full force and effect and the Borrower shall not have remedied the cause of
such cessation within five Business Days after written notice thereof from the
Bank.
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8.2 Action if Bankruptcy Event.
If any Bankruptcy Event shall have occurred, the Bank's obligations to
issue Letters of Credit hereunder shall automatically terminate and all matured
or unmatured Letter of Credit Reimbursement Obligations and all other
obligations of the Borrower in respect of Letters of Credit, although contingent
and unmatured, shall automatically be and become immediately due and payable,
without notice or demand.
8.3 Action if Other Event of Default. If any Event of Default (other than a
Bankruptcy Event) shall occur and be continuing, the Bank may, by notice to the
Borrower, terminate its obligations to issue Letters of Credit hereunder and may
declare all or any portion of unmatured Letter of Credit Reimbursement
Obligations and any other obligations of the Borrower in respect of Letters of
Credit, although contingent and unmatured, to be due and payable, whereupon the
full unpaid amount of such unmatured Letter of Credit Reimbursement Obligations
and any other obligations of the Borrower in respect of Letters of Credit,
although contingent and unmatured, shall be and become immediately due and
payable, without further notice, demand or presentment, and/or, as the case may
be, the Bank's obligations to issue Letters of Credit hereunder shall terminate.
9. OTHER PROVISIONS.
9.1 Amendments and Waivers.
No Amendment or waiver of any provision of this Agreement or any other
Transaction Document nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Bank, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
9.2 Notices.
All notices, requests and demands to or upon the respective parties hereto
to be effective shall be in writing and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered by hand,
or when deposited in the mail, first-class postage prepaid, or, in the case of
telecopier notice, when sent, addressed as follows:
The Borrower:
Color Tile, Inc.
515 Houston Street
Fort Worth, Texas 76102
Attention: Vice President and Chief Financial Officer
Telephone: (817) 870-9634
Telecopier: (817) 870-9672
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with a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Charles K. Marquis
Telephone: (212) 351-4000
Telecopier: (212) 351-4035
The Bank:
The Bank of Tokyo, Ltd.
New York Agency
1251 Avenue of the Americas
New York, New York 10116-3138
Attention: Mr. Victor Bulzacchelli
Telephone: (212) 782-4325
Telecopier: (212) 782-6440 ,
except that any Letter of Credit Issuance Request shall not be effective
until received by the Bank.
9.3 No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the Bank,
any right, remedy, power or privilege under this Agreement or any other
Transaction Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege under this Agreement
or any other Transaction Document preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges under this Agreement or any other Transaction
Document are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
9.4 Survival of Representations and Warranties.
All representations and warranties made hereunder and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the other
Transaction Documents.
9.5 Payment of Expenses and Taxes; Indemnity.
The Borrower agrees, whether or not any Letter of Credit is issued, (a)
other than the fees for the items set forth in Exhibit D hereto which shall be
as set forth in such Exhibit, to pay or reimburse the Bank for all reasonable
out-of-pocket costs and expenses incurred in
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connection with the development, preparation and execution of, and any
requested amendment, supplement or modification to, or waiver or consent to,
this Agreement and the other Transaction Documents, any documents prepared in
connection therewith and the consummation of the transactions contemplated
thereby, including, without limitation, the reasonable fees and disbursements of
counsel, (b) to pay or reimburse the Bank for all of its costs and expenses
incurred in connection with the enforcement of any rights under this Agreement
or any other Transaction Document, including, without limitation, reasonable
fees and disbursements of counsel, (c) to pay, indemnify, and hold the Bank
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement or any other Transaction
Document, and (d) to pay, indemnify and hold the Bank and its officers,
directors and employees harmless from and against any and all other liabilities,
obligations, claims, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including,
without limitation, reasonable counsel fees and disbursements) with respect to
the execution, delivery, enforcement and performance of this Agreement or any
other Transaction Document or the use of the Letters of Credit or with respect
to the transactions contemplated thereby; provided, however, that the Borrower
shall not be obligated to indemnify the Bank for any such liabilities arising
from the Bank's gross negligence or willful misconduct. The agreements in this
paragraph shall survive the payment of the Borrower's obligations hereunder and
any other amounts payable under the Transaction Documents.
9.6 Successors and Assigns.
This Agreement and the other Transaction Documents shall be binding upon
and inure to the benefit of the Borrower and the Bank, and their respective
successors and assigns. Other than transfers by the Bank to its affiliates,
neither the Borrower nor the Bank may assign or transfer all or any portion of
its rights or obligations under this Agreement or the other Transaction
Documents without the prior written consent of the other party.
9.7 Set-off.
Upon the occurrence and during the continuance of an Event of Default, the
Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held by the Bank and
other indebtedness at any time owing by the Bank to or for the credit or account
of the Borrower against any obligations, whether matured or unmatured, now or
hereafter existing under this Agreement or any other Transaction Document, of
the Borrower to the Bank. The Bank agrees promptly to notify the Borrower after
any such set-off and application made by the Bank, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Bank under this paragraph are in addition to other rights and
remedies (including, without limitation, other rights of set off) which the Bank
may have.
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9.8 GOVERNING LAW.
THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
9.9 Headings; Plurals.
Paragraph headings have been inserted in this Agreement and the other
Transaction Documents for convenience only and shall not be construed to be a
part hereof or thereof. Unless the context otherwise requires, words in the
singular number include the plural, and words in the plural include the
singular.
9.10 Severability.
Every provision of this Agreement and the other Transaction Document are
intended to be severable, and if any term or provision hereof or thereof shall
be invalid, illegal or unenforceable for any reason, the validity, legality and
enforceability of the remaining provisions hereof or thereof shall not be
affected or impaired thereby, and any invalidity, illegality or unenforceability
in any jurisdiction shall not affect the validity, legality or enforceability of
any such term or provision in any other jurisdiction.
9.11 Integration.
This Agreement and the other Transaction Documents embody the entire
agreement and understanding between the Borrower and the Bank with respect to
the subject matter thereof and supersede all prior agreements and understandings
between the Borrower and the Bank with respect to the subject matter thereof.
9.12 Counterparts.
This Agreement may be executed by one or more of the parties thereto on any
number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
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9.13 CONSENT TO JURISDICTION.
THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK OVER ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT. THE
BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE BORROWER HEREBY AGREES THAT A FINAL JUDGMENT IN ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT, AFTER ALL APPROPRIATE
APPEALS, SHALL BE CONCLUSIVE AND BINDING UPON THE BORROWER.
9.14 WAIVER OF TRIAL BY JURY.
THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREIN. FURTHER, THE BORROWER HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE BANK, OR COUNSEL TO THE BANK,
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT
OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL
PROVISION. THE BORROWER ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS OF THIS PARAGRAPH.
9.15 SERVICE OF PROCESS.
PROCESS MAY BE SERVED IN ANY SUIT, ACTION, COUNTERCLAIM OR PROCEEDING OF
THE NATURE REFERRED TO IN PARAGRAPH 9.13 HEREOF BY MAILING COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE
ADDRESS OF THE BORROWER SET FORTH IN OR REFERRED TO IN PARAGRAPH 9.2 HEREOF, TO
THE ATTENTION OF THE PERSON THEREIN DESIGNATED OR IN THE APPLICABLE TRANSACTION
DOCUMENT OR TO ANY OTHER ADDRESS OF WHICH THE BORROWER SHALL HAVE GIVEN WRITTEN
NOTICE. THE BORROWER HEREBY AGREES THAT SUCH SERVICE (i) SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION,
COUNTERCLAIM OR PROCEEDING, AND (II) SHALL TO THE
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FULLEST EXTENT ENFORCEABLE BY LAW, BE TAKEN AND HELD TO BE VALID PERSONAL
SERVICE UPON AND PERSONAL DELIVERY TO IT.
9.16 NO LIMITATION ON SERVICE OR SUIT.
NOTHING IN THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, OR ANY
MODIFICATION, WAIVER, OR AMENDMENT HERETO OR THERETO, SHALL AFFECT THE RIGHT OF
THE BANK TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR LIMIT THE RIGHT OF
THE BANK TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY
JURISDICTION OR JURISDICTIONS.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Letter of Credit
Facility Agreement to be duly executed and delivered in New York, New York by
their proper and duly authorized officers as of the day and year first above
written.
COLOR TILE, INC.
By: /s/ Bart A. Brown, Jr.
----------------------------
Title: Chief Executive Officer and President
By: /s/ Alan J. Bethscheider
-------------------------------
Title: Executive Vice President, General
Counsel and Secretary
THE BANK OF TOKYO, LTD.
NEW YORK AGENCY
By: Victor Bulzacchelli
------------------------
Title: Attorney-in-Fact
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EXHIBIT A
LETTER OF CREDIT APPLICATION
[Exhibit available at the Company upon request.]
1
<PAGE>
EXHIBIT B
CONTINUING LETTER OF CREDIT AGREEMENT
Dated as of: September 19, 1995
To: THE BANK OF TOKYO, LTD.
NEW YORK AGENCY
1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10116-3138
Gentlemen:
In consideration of your issuance of letters of credit from time to time
substantially in accordance with our applications therefor, as the same may be
amended with our agreement or consent, we hereby agree that, except as you and
we shall otherwise specifically agree in writing in each instance, the Terms and
Conditions hereinafter set forth shall apply to each such application and to
each letter of credit issued by you pursuant to such application.
COLOR TILE, INC.
515 Houston Street
Fort Worth, TX 76102
By:_______________________________
Printed Name:______________________
Title: _____________________________
By:_______________________________
Printed Name:______________________
Title: _____________________________
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TERMS AND CONDITIONS
In these provisions:
(1) The "Bank" means The Bank of Tokyo, Ltd.
(2) The "Applicant" means Color Tile, Inc.
(3) An "instrument" means any draft, receipt, acceptance or cable or
written demand for payment.
(4) "Uniform Customs and Practice" means the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce
Brochure No. 500, and any subsequent revisions thereof approved by a Congress of
the International Chamber of Commerce and adhered to by the Bank.
(5) "Application" means each application by the Applicant for a letter of
credit as such application may be amended or modified from time to time with the
written or oral agreement or consent of the Applicant.
1. As to instruments drawn under or purporting to be drawn under any Letter
of Credit, which are payable in United States dollars ("Dollars"): (a) in the
case of each sight draft, demand or receipt, to reimburse the Bank, at its
office, within one Business Day after demand by the Bank, in Dollars, the amount
actually paid by the Bank thereon, or, if so demanded by the Bank, to pay to the
Bank, at its office, in advance (but not earlier than two business days prior to
the day on which the Bank anticipates that it will pay the same) in such
currency, the amount that the Bank anticipates will be required to pay the same,
provided, however, that if such amount is not actually paid by the Bank, the
Bank will promptly refund to the Applicant the amount so paid by the Applicant
less the amount actually paid by the Bank on such sight draft, demand or
receipt; and (b) in the case of each deferred payment obligation of the Bank
under a deferred payment Letter of Credit, to pay the Bank, at its office, in
Dollars, the amount of such deferred payment obligation, not later than two
business day prior to the maturity of such deferred payment obligation.
2. As to instruments drawn under or purporting to be drawn under any Letter
of Credit, which are payable in currency other than Dollars: (a) in the case of
each sight draft, demand or receipt, to reimburse the Bank, at its office,
within one Business Day after demand by the Bank, in Dollars, the equivalent of
the amount actually paid by the Bank thereon at the Bank's then current selling
rate of exchange in New York for cable transfers to the place of payment in the
currency in which such draft, demand or receipt is payable, with interest (at
the then current
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<PAGE>
federal funds rate) from the date of payment of the instrument to the date
of such demand, provided, however, that if such amount is not actually paid by
the Bank, the Bank will promptly refund to the Applicant the amount so paid by
the Applicant less the amount actually paid by the Bank on such sight draft,
demand or receipt; and (b) in the case of each deferred payment obligation of
the Bank under a deferred payment Letter of Credit, to pay to the Bank, at its
office, not later than two business day prior to the maturity of such deferred
payment obligation, the equivalent of such deferred payment obligation in
Dollars at the Bank's then current selling rate of exchange in New York for
cable transfers to the place of payment in the currency of the deferred payment
obligation. If for any cause whatsoever there exists at the time in question no
rate of exchange generally current in New York for effecting cable transfers of
the sort above mentioned, the Applicant agrees to pay the Bank at the time
required an amount in Dollars equivalent to the actual cost to the Bank of
settlement of the Bank's obligation to the holder of the instrument or other
person, however and whenever such settlement shall be made by the Bank,
including the amount of any interest actually paid by the Bank on such
obligation to such holder or other person. The Applicant will comply with any
and all governmental exchange regulations now or hereafter applicable to the
Letter of Credit or instrument or payments relative thereto, and will pay the
Bank, within two business days of written demand, in Dollars, such amount as the
Bank may be required to expend on account of such regulations.
3. If the Letter of Credit provides for preparation of documents without
any instrument, references herein to instruments, drafts, demands, receipts,
acceptances, documents relative thereto or payments or acceptances thereof shall
refer to documents presented for payment without instruments, documents relative
thereto or payments or acceptance of the same, and all rights and obligations
hereunder shall be the same as though an instrument had accompanied such
documents.
4. Upon any transfer, sale, delivery, surrender or endorsement of any bill
of lading, warehouse receipt or other document at any time(s) held by the Bank,
or held for its account by any of its correspondents, relative to the Letter of
Credit, the Applicant will indemnify and hold the Bank, any such
correspondent(s), harmless from and against each and every claim, demand, action
or suit which may arise against the Bank, or any such correspondent, by reason
thereof, unless such claim, demand, action or suit shall arise from the gross
negligence and wilful misconduct of the Bank or any such correspondent.
5. These Terms and Provisions and the Letter of Credit shall be subject to
the Uniform Customs and Practice. In addition to other rights of the Bank
hereunder or under the Application, any action, inaction or omission taken or
suffered by the Bank, or by any of its correspondents, under or in connection
with the Letter of Credit or the relative instruments, documents, or property,
if in good faith and in conformity with such foreign or domestic laws,
regulations, or customs as the Bank or any of its correspondents may deem to be
applicable thereto, shall be binding upon the Applicant and shall not place the
Bank or any of its correspondents under any liability to the Applicant. The
Applicant agrees to hold the Bank and its correspondents indemnified and
harmless against any and all loss, liability or damage, including reasonable
counsel fees, howsoever arising from or in connection with the Letter of Credit,
unless
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such loss, liability or damage shall arise from the gross negligence and
wilful misconduct of the Bank or any such correspondents.
6. That the Bank may accept or pay any draft presented to it, regardless of
when drawn and whether or not negotiated, if such draft, the other required
documents and any transmittal advice are dated on or before the expiration date
of the Letter of Credit, and that except in so far as instructions may be given
by the Applicant in writing expressly to the contrary with regard to, and prior
to, the Bank's issuance of the Letter of Credit: (a) although shipment(s) in
excess of the quantity called for under the Letter of Credit are made, the Bank
may honor the relative instrument(s) in an amount or amounts not exceeding the
amount of the Letter of Credit; and (b) the Bank may honor, as complying with
the terms of the Letter of Credit and of the Application, any instruments or
other documents otherwise in order signed or issued by an administrator,
executor, trustee in bankruptcy, debtor in possession, assignee for benefit of
Letter of Creditors, liquidator, receiver or other legal representative of the
party authorized under the Letter of Credit to draw or issue such instruments or
other documents.
7. That in the event of any change or modification, with the consent of the
Applicant, relative to the Letter of Credit or any instruments or documents
called for thereunder, including waiver of noncompliance of any such instruments
or documents with the terms of the Letter of Credit, these Terms and Provisions
shall be binding upon the Applicant with regard to the Letter of Credit as so
changed or modified, and to any action taken by the Bank or any of its
correspondents relative thereto.
8. Neither the Bank nor its correspondents shall be responsible for: (a)
the use which may be made of the Letter of Credit or for any acts or omissions
of the use(s) of the Letter of Credit; (b) the existence, character, quality,
quantity, condition, packing or value of the property purporting to be
represented by the documents; (c) the time, place, manner or order in which
shipment is made; (d) the validity, sufficiency, or genuineness of documents, or
of any endorsements thereon, even if such documents should in fact prove to be
in any or all respects invalid, insufficient, fraudulent or forged; (e) partial
or incomplete shipment, or failure or omission to ship any or all of the
property referred to in the Letter of Credit; (f) the character, adequacy,
validity or genuineness of any insurance or the solvency or responsibility of
any insurer or any other risk connected with the insurance; (g) any deviation
from instructions, delay, default or fraud by the shipper or anyone else in
connection with the property or the shipping thereof; (h) the solvency,
responsibility or relationship to the property of any party issuing any
documents in connection with the property; (i) delay in arrival or failure to
arrive of either the property or any of the documents relating thereto; (j)
delay in giving or failure to give notice or any other notice; (k) any breach of
contract between the shipper(s) or vendor(s) and the consignee(s) or buyer(s);
(l) failure of any instrument to bear any reference or adequate reference to the
Letter of Credit, or failure of documents to accompany any instrument at
negotiation or presentation, or failure of any person to note the amount of any
instrument on the reverse of the Letter of Credit, or to surrender or to take up
the Letter of Credit or to send forward documents apart from instruments as
required by the terms of the Letter of Credit, each of which provisions, if
contained in the Letter of Credit itself, it is agreed may be waived by the
Bank; or (m) errors, omissions, interruptions or delays in transmission, or
delivery of any messages, by mail, cable, telegraph,
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<PAGE>
wireless or otherwise, whether or not they may be in cipher; that the Bank
shall not be responsible for any act, error, neglect or default, omission,
insolvency or failure in business of any of its correspondents; that the
occurrence of any one or more of the contingencies referred to in the preceding
clauses of this paragraph shall not affect, impair or prevent the vesting of any
of the Bank's rights or powers hereunder or the Applicant's obligation to make
reimbursement; and that the Applicant will promptly examine (i) the copy of the
Letter of Credit (and of any amendments thereof) sent to it by the Bank and (ii)
all documents and instruments delivered to it from time to time by the Bank,
and, in the event of any claim of noncompliance with Applicant's instructions or
other irregularity, will immediately notify the Bank thereof in writing, the
Applicant being conclusively deemed to have waived any such claim against the
Bank and its correspondents unless such notice is given as aforesaid.
9. To procure promptly any necessary import, export or other licenses for
the import, export or shipping of the property shipped under or pursuant to or
in connection with the Letter of Credit, and to comply with all foreign and
domestic governmental regulations in regard to the shipment of such property or
the financing thereof, and to furnish such certificates in that respect as the
Bank may at any time(s) require, and to maintain insurance on such property of
such types, coverages, form and amount as is usually carried on similar property
by similar enterprises and consistent with the practices of the Applicant.
10. No delay, extension of time, renewal, compromise or other indulgence
which may occur or be granted by the Bank, shall impair the Bank's rights or
powers hereunder. The Bank shall not be deemed to have waived any of its rights
hereunder, unless the Bank or its authorized agent shall have signed such waiver
in writing. No such waiver, unless expressly as stated therein, shall be
effective as to any transaction which occurs subsequent to the date of such
waiver, nor as to any continuance of a breach after such waiver.
11. That the obligations hereof shall bind the heirs, executors,
administrators, successors and assigns of the Applicant, and all rights,
benefits and privileges hereby conferred on the bank shall be and hereby are
extended to and conferred upon and may be enforced by its successors and
assigns.
12. THAT THIS CONTINUING LETTER OF CREDIT AGREEMENT AND ALL RIGHTS,
OBLIGATIONS AND LIABILITIES ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
13. Unless an event which, with the giving of notice or the passage of
time, or both, would constitute an Event of Default under the Letter of Credit
Facility Agreement, dated as of September 19, 1995, between the Applicant and
the Bank, shall have occurred and be continuing, the Bank will deliver to the
Applicant each document (including negotiable bills of lading) presented to the
Bank in connection with a Letter of Credit which is necessary for the Applicant
to obtain possession of the goods covered by such Letter of Credit. The Bank
shall deliver such documents to the Applicant within a commercially reasonable
period of time after the Bank's receipt thereof in accordance with the Bank's
customary practices; provided, that the Bank shall
5
<PAGE>
be under no obligation to deliver such documents to the Applicant until the
Bank has determined (in accordance with the Uniform Customs and Practice) that
the drawing under which such documents were presented to the Bank conforms to
the Letter of Credit under which such drawing was made (unless any discrepencies
in connection therewith were duly waived by all necessary parties). It is
specifically understood that the Bank shall not be entitled to retain possession
of such documents solely due to the fact that such documents were delivered in
connection with a drawing under a deferred payment Letter of Credit with respect
to which the reimbursement obligation has not matured. Notwithstanding anything
to the contrary herein, the Bank shall not be obligated to deliver to the
Applicant any documents which were presented to the Bank pursuant to a sight
Letter of Credit until the Applicant shall have reimbursed the Bank in full for
payments made by the Bank under such sight Letter of Credit.
6
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EXHIBIT C
SECURITY AGREEMENT
as of September 19, 1995
In consideration of extensions of credit heretofore or hereafter made to or
for the account or benefit of COLOR TILE, INC., a Delaware corporation (the
"Borrower") by THE BANK OF TOKYO, LTD., New York Agency (the "Bank") and the
granting to or for the account of the Borrower of extensions, forbearances,
modifications or renewals thereof as the Bank, in its sole discretion, may deem
advisable, and for other good and valuable consideration, the receipt of which
is hereby acknowledged, the Borrower does hereby agree with the Bank as follows:
ARTICLE I - DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set forth
in the caption of this Agreement, in the following Sections and, unless
otherwise defined herein, in the Letter of Credit Agreement.
SECTION 1.1 "Agreement" shall mean this Security Agreement as the same may
be amended, modified or supplemented from time to time, and all other documents
and instruments now or hereafter executed and delivered in conjunction herewith.
SECTION 1.2 "Collateral" shall mean and include all documents and goods,
including inventory (as such terms are defined in the New York Uniform
Commercial Code), financed under or in connection with the Letters of Credit,
together with all proceeds of the foregoing.
SECTION 1.3 "Distribution Center" shall mean each distribution center of
the Borrower at which any inventory constituting Collateral is located,
consisting of each location set forth on Schedule I hereto.
SECTION 1.4 "Letter of Credit Agreement" shall mean the Letter of Credit
Facility Agreement, dated as of September 19, 1995, between the Borrower and the
Bank, as amended, modified or supplemented from time to time.
SECTION 1.5 "Letters of Credit": commercial letters of credit heretofore or
hereafter issued by the Bank for the account of the Borrower; such term being
specifically intended to include commercial letters of credit issued by the Bank
for the account of the Borrower prior to the date of this Agreement.
1
<PAGE>
SECTION 1.6 "Obligations" shall mean any and all liabilities and
obligations of the Borrower to the Bank of every kind arising under the
Continuing Letter of Credit Agreement, the Letter of Credit Agreement, this
Agreement, and any Letters of Credit (including all applications, reimbursement
agreements and other agreements relating thereto), however evidenced and whether
now existing or hereafter incurred, secured or not secured, direct or indirect,
matured or not matured, absolute or contingent, now due or hereafter to become
due (including without limitation, any and all costs and attorney's fees
incurred by the Bank in the collection, whether by suit or by any other means of
any of the Obligations hereunder) and any extension or renewals of any of the
foregoing.
ARTICLE II - SECURITY INTEREST
As collateral security for the prompt and unconditional payment of the
Obligations, the Borrower does hereby assign, pledge and grant to the Bank a
purchase money security interest in and to the Collateral and agrees that such
security interest shall continue until there shall be no Obligations outstanding
and the commitment of the Bank to issue Letters of Credit under the Letter of
Credit Agreement shall have been terminated.
ARTICLE III - COVENANTS OF THE BORROWER
SECTION 3.1 Maintenance of Collateral. The Borrower shall use its best
efforts to take the following steps to protect the security interest of the Bank
in the Collateral:
(a) Keep and maintain all inventory constituting Collateral at the
Distribution Centers, or at such other places listed in Schedule II hereto or
such other places as may be notified to the Bank pursuant to clause (k) of this
Section 3.1; and not remove the same without the prior written consent of the
Bank, except, in the ordinary course of the Borrower's business;
(b) Keep and maintain books and records relating to the Collateral in form
and substance reasonably satisfactory to the Bank and consistent with its past
practices and allow the Bank or its representatives access to such books and
records and to the Collateral, at all reasonable times for the purpose of
examination, verification, copying, extracting and other reasonable purposes as
the Bank may require;
(c) Deliver to the Bank promptly at its reasonable request, true copies of
all schedules, lists, invoices, bills of lading, documents of title, purchase
orders, receipts, chattel paper, instruments and other items relating to the
Collateral;
(d) Make, stamp or record such entries or legends on any of the Borrower's
books and records relating to the Collateral as the Bank shall reasonably
request from time to time;
2
<PAGE>
(e) Execute and deliver to the Bank such other and further documents,
instruments or writings which the Bank may deem reasonably necessary and/or
advisable in order to evidence, effectuate, perfect or maintain the Bank's
security interest in the Collateral. It is the Bank's present intention not to
request delivery to it of warehouse receipts issued by public warehouses at
which the Collateral or any portion thereof may be stored, if (i) the invoice
value of the Collateral represented thereby is less than 4% of the total invoice
value of the Collateral released to the Borrower under deferred payment Letters
of Credit on which there are outstanding unmatured Letter of Credit
Reimbursement Obligations and (ii) said Collateral does not remain in such
public warehouses for more than four consecutive Business Days; provided, that,
the Bank retains its right to request such delivery of such warehouse receipts
at any time in the exercise of its sole and absolute discretion.
(f) Defend the Collateral against all claims, liens, security interests,
demands and other encumbrances of third parties at any time claiming an interest
in the Collateral which is adverse to any security interest granted to the Bank,
other than such claims of buyers in the ordinary course of the Borrower's
business and the security interests in favor of the Agent and the banks under
the Syndicated Credit Agreement;
(g) Keep the Collateral free of all liens and encumbrances, except security
interests in favor of the Agent and the banks under the Syndicated Credit
Agreement, and not sell, transfer or otherwise dispose of the Collateral or any
interest therein, in bulk or otherwise, except in the ordinary course of
business;
(h) Notify the Bank in the event of material loss or damage in the
Collateral, or of any other occurrences which could materially and adversely
affect the security interest of the Bank therein promptly after the Borrower
becomes aware thereof;
(i) Pay all expenses incurred in the manufacture, delivery, storage or
other handling of the Collateral and all taxes which are or may become a lien on
the Collateral, promptly when due; and reimburse the Bank, within five days of
written demand therefor, for any expenses incurred, in its sole discretion, to
satisfy any such liens, expenses or taxes in order to protect the Collateral;
(j) Maintain insurance on the Collateral of such types, coverages, form and
amount as is usually carried on similar goods by similar enterprises and
consistent with the practices of the Borrower;
(k) Give the Bank at least 30 days prior written notice of any change in
the Borrower's principal place of business or chief executive office and, in the
event that any inventory constituting Collateral is to be located at any place
other than the locations set forth in Schedule I and II hereto, give the Bank at
least 30 days prior written notice of each such intended location; and
3
<PAGE>
(l) For so long as any inventory constituting Collateral is located in any
Distribution Center, use its best efforts to segregate and keep separate and
apart and readily identifiable all such inventory from all other inventory of
the Borrower in such Distribution Center.
SECTION 3.2 Expenses of the Bank. The Borrower shall reimburse the Bank for
all reasonable expenses incurred in the preparation, execution and
implementation of this Agreement, including, without limitation, reasonable
attorneys' fees and disbursements, any other costs and fees incurred by the Bank
in connection with the Collateral.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower represents and warrants to the Bank, and shall be deemed to
continually do so, as long as this Agreement shall remain in force:
SECTION 4.1 Ownership of Collateral. That it is the owner of the Collateral
free and clear of all encumbrances, except those in favor of the Bank and the
Agent and the banks under the Syndicated Credit Agreement and that it shall not
sell or transfer, except in the ordinary course of business, or further encumber
any of the Collateral without the prior written consent of the Bank.
SECTION 4.2 Corporate Power. That it has the corporate power to subject the
Collateral to the security interest herein provided.
SECTION 4.3 Corporate Authorization. That it is authorized by all necessary
corporate action to enter into this Agreement and to implement and carry out the
provisions hereof, and has taken all necessary actions, corporate or otherwise,
in respect thereto.
SECTION 4.4 Principal Place of Business. That its principal place of
business as of the date hereof is located at 515 Houston Street, Fort Worth,
Texas 76102.
ARTICLE V - RIGHTS OF THE BANK
SECTION 5.1 General Rights. The rights of the Bank shall at all times be
those of a secured party under the New York Uniform Commercial Code and without
limiting the generality of the foregoing, the Bank shall have the additional
rights set forth in this Article.
SECTION 5.2 Rights upon an Event of Default. Upon the occurrence and during
the continuance of any Event of Default, the Bank may, without notice to the
Borrower, enter upon and into the premises of the Borrower without liability for
trespass and remove all of the Collateral and all books, records, invoices and
other documentation relative thereto. The Bank may require the Borrower to
assemble or package the Collateral and make it available to the Bank
4
<PAGE>
at a place to be designated by the Bank, reasonably convenient to the
parties where it will remain at the Borrower's expense pending sale or other
disposition by the Bank.
SECTION 5.3 Realization Upon the Collateral. In the event the Bank
determines that the Collateral should be sold to satisfy all or any part of the
Obligations, the Bank may dispose of the Collateral in whole or in part at
public or private sale, and any notice required to be given shall be given in
accordance with Section 6.4 at least five (5) days before the proposed sale,
which such notice the parties hereto agree shall be reasonable; provided,
however, that the Bank need not give such notice with respect to Collateral
which is perishable or threatens to decline speedily in value or is a type
customarily sold on a recognized market. The Borrower shall remain liable for
any deficiency.
SECTION 5.4 Expense of Collection and Sale. The Borrower agrees to pay all
costs and expenses incurred by the Bank in enforcing, collecting or realizing
upon the Obligations or the Collateral, including but without limitation,
reasonable attorneys' fees and expenses.
SECTION 5.5 Financing Statements. Where permitted by applicable law, the
Bank is authorized to file financing statements relating to the Collateral
without the Borrower's signature thereon and at the expense of the Borrower. The
Borrower will, however, at the request of the Bank, sign any amendments,
releases or assignments of any financing statements with respect to the
Collateral. Upon the Borrower's failure to do so, any officer of the Bank is
authorized as the Borrower's agent to execute any such modifications to any
financing statements.
ARTICLE VI - MISCELLANEOUS
SECTION 6.1 Waivers. Except as set forth herein or in any other Transaction
Document, the Borrower expressly waives notice of non-payment or protest,
demand, or presentment, in relation to the Obligations or the Collateral. No
delay or omission of the Bank in exercising or enforcing any of its rights,
powers, privileges, options or remedies under this Agreement or any other
agreement or promissory note between the Bank and the Borrower shall constitute
a waiver thereof, and no wavier by the Bank of any Event of Default by the
Borrower shall operate as a waiver of any other Event of Default. Except for the
terms and provisions of any other Transaction Document (including, without
limitation, the Continuing Letter of Credit Agreement) now existing or hereafter
executed and delivered to the Bank by the Borrower (which terms and provisions
are specifically deemed to be in addition to and not in derogation of the terms
and provisions hereof), this Agreement constitutes the entire understanding
between the Borrower and the Bank with respect to the subject matter hereof and
supersedes all prior written or oral communications or understanding. No term or
provision of this Agreement shall be waived, altered or modified except in
writing signed by the parties hereto. All rights and remedies of the Bank under
this Agreement shall be cumulative and not alternative or exclusive and may be
exercised by the Bank at such time or times and in such order as the Bank, in
its sole discretion, may determine and are for the sole benefit of the Bank.
5
<PAGE>
SECTION 6.2 Successors and Survival. This Agreement shall be binding upon
and shall inure to the benefit of the respective parties hereto, their
successors and assigns, and shall remain in force and effect until terminated by
the Bank in writing. The rights and obligations of the parties hereto may only
be transferred in connection with a permitted transfer of the Letter of Credit
Agreement. The covenants contained herein shall survive the execution hereof and
the granting of the credit facilities under the Letter of Credit Agreement.
SECTION 6.3 LITIGATION AND GOVERNING LAW. IN ANY LITIGATION WHETHER
PURSUANT HERETO OR OTHERWISE IN WHICH THE BORROWER AND THE BANK ARE ADVERSE
PARTIES, THE BORROWER AND THE BANK WAIVE TRIAL BY JURY AND THE BORROWER WAIVES
THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION
AGAINST THE BANK ARISING FROM TRANSACTIONS NOT CONTEMPLATED BY THIS AGREEMENT,
AND THE BORROWER FURTHER AGREES THAT THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6.4 Notices. Any notice to the Bank shall be deemed effective only
if sent to and received at the branch, division or department of the Bank
conducting the transactions hereunder. Any notice to the Borrower shall be
deemed sufficient if sent to the Borrower at its last known address appearing on
the records of the Bank.
SECTION 6.5 Headings. The headings of Articles and Sections in this
Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.
SECTION 6.6 Severability. If any provision of this Agreement shall be or
become illegal or unenforceable in whole or in part for any reason whatsoever,
the remaining provisions shall nevertheless be deemed valid, binding and
subsisting.
IN WITNESS WHEREOF, the Borrower has caused this Security Agreement to be
duly executed by its duly authorized officers as of the date first above
written.
COLOR TILE, INC.
By:
Printed Name:___________________
Title: _________________________
By:
Printed Name:___________________
Title: _________________________
6
<PAGE>
State of )
) SS.:
County of )
On this ______ day of September, 1995, before me personally came , to me
known who, being duly sworn, did depose and say that he resides at __________
that he is the of COLOR TILE, INC., the corporation described in and which
executed the above instrument; and that he signed his name thereto by order of
the Board of Directors of said corporation.
Notary Public
State of )
) SS.:
County of )
On this ______ day of September, 1995, before me personally came , to me
known who, being duly sworn, did depose and say that he resides at __________
that he is the of COLOR TILE, INC., the corporation described in and which
executed the above instrument; and that he signed his name thereto by order of
the Board of Directors of said corporation.
Notary Public
7
<PAGE>
SCHEDULE I
DISTRIBUTION CENTERS
6201 Rankin Road
Humble, Texas 77396
2552 Shennandoah Way, No.11
San Bernardino, California 92407
8275 Patuxent Range Road
Jessup, Maryland 20794
750 Central Avenue
University Park, Illinois 60466
1
<PAGE>
SCHEDULE II
LOCATIONS, OTHER THAN DISTRIBUTION CENTERS, OF
INVENTORY CONSTITUTING COLLATERAL
1
<PAGE>
EXHIBIT D
THE BANK OF TOKYO LTD., NEW YORK AGENCY
Commercial Letter of Credit Terms & Fee Schedule
Color Tile, Inc.
September 19, 1995
Opening Fee: Waived
Term: For L/C's with payment terms not to
exceed 90 days after shipment
Amendment: $15
Cable: $15 flat
Payments: Waived
Inquiry: Waived
Variance: Waived
Cancellation: Waived
Postage/Fax: Waived
Air/Cargo Release: Waived
Excessive Documents: Waived
Steamship Guaranty: Waived
First Counter Negotiating Bank: The Bank of Tokyo, Ltd.
1
AGREEMENT RE RESIGNATION AND CONSULTING
This Agreement re Resignation and Consulting is made as of this 21st day of
August, 1995 (this "Agreement"), by and among Eddie M. Lesok, Color Tile, Inc.,
a Delaware corporation ("Color Tile"), and Color Tile Holdings, Inc., a Delaware
corporation and the holder of 100% of the outstanding common stock of Color Tile
("Holdings").
WHEREAS, EML currently serves as the Chairman and Chief Executive Officer
of Color Tile pursuant to that certain Employment Agreement dated as of December
28, 1989, as amended as of January 3, 1994 (the "Employment Agreement"), and EML
also serves as a director and/or officer of Holdings and subsidiaries of Color
Tile and Holdings;
WHEREAS, EML owns 38,198 shares of Class C Stock of Holdings (the "Shares")
and holds options to purchase additional shares of Class C stock of Holdings
(the "Options") and;
WHEREAS, EML is desirous of resigning from the employment of Color Tile and
selling the Shares to Holdings on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. EML hereby resigns all positions as director, officer and/or employee of
Color Tile, Holdings and all subsidiaries of Color Tile and Holdings, such
resignations to be effective as of the date hereof (the "Resignation Date").
2. EML hereby agrees to provide consulting services to Color Tile, at such
times and places as Color Tile and EML may reasonably agree, either (a) for the
period from the Resignation Date through December 31, 1995 (the "Short Period"),
or (b) if Color Tile notified EML prior to January 1, 1996, that it desires that
EML provide consulting services through August 31, 1996 (the "Long Period"), for
the Long Period. Color Tile shall advance or promptly reimburse EML for all
expenses reasonably incurred by EML in performing consulting services hereunder,
provided that EML shall provide appropriate evidence substantiating such
expenses and shall not incur any travel or other non-routine expenses without
prior approval by Color Tile.
3. EML will deliver 12,732 of the Shares to Holdings on October 1, 1995,
and the remaining 25,466 Shares on January 1, 1996, provided that if Color Tile
elects the Long Period, EML will deliver no Shares on January 1, 1996, but
rather will deliver to Holdings 12,733 of the Shares on each of August 31, 1996
and August 31, 1997, in each case assuming Color Tile and Holdings have made all
payments required hereunder through such Share delivery dates. The Shares
deliverable by EML hereunder shall include all shares or other securities or
rights thereto issued in respect of the Shares between the date hereof and the
delivery of Shares to Holdings hereunder. On the
<PAGE>
Resignation Date, EML shall return to Holdings the agreements evidencing
the Options and such Options shall thereupon be canceled and of no further force
or effect.
4. Holdings shall pay to EML $300,000 on October 1, 1995, and the following
payments will be made on the dated listed:
<TABLE>
<CAPTION>
Color Tile Holdings Total
<S> <C> <C> <C>
September 1, 1995 $2,500 $22,500 $25,000
October 1, 1995 $2,500 $22,500 $25,000
November 1, 1995 $2,500 $22,500 $25,000
December 1, 1995 $2,500 $22,500 $25,000
</TABLE>
In addition, if Color Tile elects the Short Period, on January 1, 1996,
Color Tile shall pay to EML $36,750 and Holdings shall pay to EML $330,750.
Alternatively, if Color Tile elects the Long Period, on January 1, 1996, and on
the first day of each of the next succeeding 19 months, Color Tile will pay to
EML $2,500 and Holdings will pay to EML $22,500. The parties agree that all
payments to EML made pursuant to this paragraph 4 by Color Tile shall be deemed
in consideration for the consulting services to be provided by EML to Color Tile
and by Holdings shall be deemed purchase price for the Shares. EML acknowledged
that no bonus shall be payable to him with respect to Color Tile's current
fiscal year and that no amounts shall be payable to him pursuant to Section 7 of
the Employment Agreement (other than as specified in 5(b) below) upon his
resignation from the employment of Color Tile.
5. Upon the Resignation Date, the obligations of Color Tile and EML under
the Employment Agreement shall terminate and be of no further force and effect,
except as follows:
(a) Color Tile shall promptly pay to EML all Accrued Obligations as defined
in Section 7.1 of the Employment Agreement plus three weeks of accrued vacation;
(b) Color Tile shall continue to pay EML's health insurance premiums and
car allowance during the period from the Resignation Date through August 31,
1997, provided that Color Tile's obligation to make such payments shall
terminate immediately upon the commencement by EML of full-time employment
(other than self-employment), it being understood that, except as aforesaid,
after the Resignation Date Color Tile shall no longer pay to or for the benefit
of EML any country club dues, life insurance premiums or other benefits or
perquisites payable to or for the benefit of directors, officers or employees of
Color Tile of Holdings;
(c) EML shall be obligated pursuant to the covenant not to compete and
related provisions set forth in Sections 8.4(a), 8.4(b) and 8.6 of the
Employment Agreement provided that (i) such covenants shall terminate and be of
no further force or
<PAGE>
effect on August 31, 1996, and (ii) from and after the Resignation Date EML
shall be free to become an employee of or consultant to any business not engaged
in the retail distribution of carpet, tile or other products presently sold by
Color Tile or Holdings or their subsidiaries; and
(d) EML acknowledges and agrees that he shall remain bound following the
Resignation Date by Sections 8.1, 8.2 and 8.3 of the Employment Agreement.
6. EML agrees that he will not disparage Color Tile, Holdings or any of
their respective subsidiaries, affiliates, directors, officers, employees,
agents or representatives, and Color Tile and Holdings agree that they will not,
and will endeavor to cause such other persons and entities no to, disparage EML.
The parties agree that all press releases and other written communications to
employees, vendors and the like shall reflect a mutually amicable attitude with
respect to the subject matter of this Agreement, and Color Tile and Holdings
agree to provide EML a reasonable opportunity to review and comment upon any
said releases or other communications before the issuance thereof.
7. EML, on his behalf and on behalf of his heirs, successors and assigns,
hereby releases, relinquishes and forever discharges Color Tile, Holdings,
Investcorp S.A. and their respective subsidiaries, affiliates, directors,
officers, employees, shareholders, agents and representatives from any and all
claims, damages, losses, costs, expenses, liabilities or obligations, whether
known or unknown (other than any such claims, damages, losses, costs, expenses,
liabilities or obligations (i) covered by any indemnification arrangement or
bylaw of Color Tile or Holdings with respect to EML, (ii) arising under any
written employee benefit plan or arrangement (whether or not tax-qualified)
covering EML, or (iii) arising under this Agreement), which EML has incurred or
suffered or may incur or suffer as a result of his employment by Color Tile or
the termination of such employment or his ownership of the Shares or the
repurchase of the Shares by Holdings, or the surrender and cancellation of the
Options, and specifically including any such claims, damages, losses, costs,
expenses, liabilities or obligations under the Employment Agreement (except as
otherwise provided in this Agreement) or under the Stock Subscription and
Stockholders Agreement dated as of December 28, 1989, by and among Holdings, EML
and certain other stockholders of Holdings. Color Tile and Holdings, on their
own behalf and on behalf of their subsidiaries and affiliates, hereby release,
relinquish and forever discharge EML, and his heirs, successors and assigns,
from any and all claims, damages, losses, costs, expenses, liabilities or
obligations, whether known or unknown (other than any such claims, damages,
losses, costs, expenses, liabilities or obligations arising under this
Agreement), which any of them has incurred or suffered or may incur or suffer as
a result of EML's employment by Color Tile or the termination of such
employment.
8. Color Tile and Holdings agree to continue EML as a named insured under
any directors and officers liability insurance policies that they now maintain
until the
<PAGE>
earlier of the termination of such insurance coverage (whether under the
existing or replacement policies) or the fifth anniversary of the date above.
9. All disputes arising in connection with this Agreement shall by finally
settled by arbitration in accordance with the rules of the American Arbitration
Association and any such arbitration proceeding shall take place in Fort Worth,
Texas.
10. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND ALL QUESTIONS RELATING TO
THE VALIDITY AND PERFORMANCE HEREOF AND REMEDIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH SUCH LAW.
In Witness Whereof, the parties have executed this Agreement as of the date
first above written.
/s/ Eddie M. Lesok
----------------------
Eddie M. Lesok
COLOR TILE, INC.
By /s/ Alan J. Bethscheider
----------------------------
COLOR TILE HOLDINGS, INC.
By /s/ Alan J. Bethscheider
----------------------------
AGREEMENT RE RESIGNATION AND CONSULTING
This Agreement re Resignation and Consulting is made as of this 25th day of
July, 1995 (this "Agreement"), by and among N. Laurence Nagle ("NLN"), Color
Tile, Inc., a Delaware corporation ("Color Tile"), and Color Tile Holdings,
Inc., a Delaware corporation and the holder of 100% of the outstanding common
stock of Color Tile ("Holdings").
WHEREAS, NLN currently serves as the President and Chief Operating Officer
of Color Tile pursuant to that certain Employment Agreement dated as of December
28, 1989, as amended as of January 3, 1994 (the "Employment Agreement"), and NLN
also serves as a director and/or officer of Holdings and subsidiaries of Color
Tile and Holdings;
WHEREAS, NLN owns 18,279 shares of Class C Stock of Holdings (the "Shares")
and holds options to purchase an additional 18,264 shares of Class C Stock of
Holdings (the "Options");
WHEREAS, NLN is desirous of resigning from the employment of Color Tile and
selling the Shares to Holdings on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. NLN hereby resigns all positions as a director, officer and/or employee
of Color Tile, Holdings and all subsidiaries of Color Tile and Holdings, such
resignations to be effective September 30. 1995 (the "Resignation Date").
2. NLN hereby agrees to provide consulting services to Color Tile, at such
times and places as Color Tile may reasonably request, either (a) for the period
from October 1, 1995 through December 31, 1995 (the "Short Period"), or (b) if
Color Tile notifies NLN prior to January 1, 1996, that it desires that NLN
provide consulting services through September 30, 1996 (the "Long Period"), for
the Long Period. Color Tile shall advance or promptly reimburse NLN for all
expense reasonably incurred by NLN in performing consulting services hereunder,
provided that NLN shall provide appropriate evidence substantiating such
expenses and shall not incur any travel or other non-routine expenses without
prior approval by Color Tile.
3. NLN will deliver 6,243 of the Shares to Holding on the Resignation Date
and the remaining 12,486 shares on January 1, 1996, provided that if Color Tile
elects the long period, NLN will deliver no Shares on January 1, 1996, but
rather will deliver to Holdings 6,243 of the Shares on each of September 30,
1996 and September 30, 1997, in each case assuming Color Tile and Holdings have
made all payments required hereunder through such Share delivery dates. The
Shares deliverable by NLN hereunder shall include all shares or other securities
or rights thereto issued in respect of the Shares between the date hereof and
the delivery of Shares to Holdings hereunder. On the
<PAGE>
Resignation Date, NLN shall return to Holdings the agreements evidencing
the Options and such Options shall thereupon be canceled and of no further force
or effect.
4. Holdings shall pay to NLN $250,000 on October 1, 1995, and the following
payments will be made on the dates listed:
Color Tile Holdings Total
October 1, 1995 $8,475 $12,358 $20,833
November 1, 1995 $8,475 $12,358 $20,833
December 1, 1995 $8,475 $12,358 $20,833
In addition, if Color Tile elects the Short Period, on January 1, 1996,
Color Tile shall pay to NLN $124,629 and Holdings shall pay to NLN $181,622.
Alternatively, if Color Tile elects the Long Period, on January 1, 1996, and on
the first day of each of the next succeeding 20 months, Color Tile will pay to
NLN $5,932.14 and Holdings will pay to NLN $14,901.23. The parties agree that
all payments to NLN made pursuant to this paragraph 4 by Color Tile shall be
deemed in consideration for the consulting services to be provided by NLN to
Color Tile and by Holdings shall be deemed purchase price for the Shares. NLN
acknowledges that no bonus shall be payable to him with respect to Color Tile's
current fiscal year and that no amounts shall be payable to him pursuant to
Section 7 of the Employment Agreement (other than as specified in 5(b) below)
upon his resignation from the employment of Color Tile.
5. Upon Resignation Date, the obligations of Color Tile and NLN under the
Employment Agreement shall terminate and be of no further force and effect,
except as follows:
a) Color Tile shall remain obligated pursuant to Section 5 of the
Employment Agreement (but clause (ii) thereof shall no longer be operative or
effective) with respect to a sale of NLN's Fort Worth residence on or before
September 30, 1997;
b) Color Tile shall promptly pay to NLN all Accrued Obligations as defined
in Section 7.1 of the Employment Agreement;
c) Color Tile shall continue to pay NLN's health insurance premiums and car
allowance during the two-year period from the Resignation Date through September
30, 1997, provided that Color Tile's obligation to make such payments shall
terminate immediately upon the commencement by NLN of full-time employment
(other than self-employment), it being understood that, except as aforesaid,
after the Resignation Date Color Tile shall no longer pay to or for the benefit
of NLN any country club dues, life insurance premiums or other benefits or
perquisites payable to or for the benefit of directors, officers or employees of
Color Tile or Holdings;
<PAGE>
d) NLN shall be obligated pursuant to the covenant not to compete and
related provisions set forth in Sections 8.4(a), 8.4(b) and 8.6 of the
Employment Agreement provided that (i) such covenants shall terminate and be of
no further force or effect on September 30, 1996, and (ii) from and after the
Resignation Date NLN shall be free to become an employee of or consultant to any
business not engaged in the retail distribution of carpet, tile or other
products presently sold by Color Tile or Holdings or their subsidiaries; and
e) NLN acknowledges and agrees that he shall remain bound following the
Resignation Date by Sections 8.1, 8.2 and 8.3 of the Employment Agreement.
6. NLN agrees that he will not disparage Color Tile, Holdings or any of
their respective subsidiaries, affiliates, directors, officers, employees,
agents or representatives, and Color Tile and Holdings agree that they will not,
and will endeavor to cause such other persons and entities not to, disparage
NLN. The parties agree that all press releases and other written communications
to employees, vendors and the like shall reflect a mutually amicable attitude
with respect to the subject matter of this Agreement, and Color Tile and
Holdings agree to provide NLN a reasonable opportunity to review and comment
upon any said releases or other communications before the issuance thereof. From
the date hereof through the Resignation Data, NLN agrees to cooperate fully with
and as requested by Color Tile in connection with a search for his successor and
with such person or persons to whom Color Tile may assign responsibilities,
whether on an interim or longer term basis, in areas within NLN's scope of
authority.
7. NLN, on his behalf and on behalf of his heirs, successors and assigns,
hereby releases, relinquishes and forever discharges Color Tile, Holdings,
Investcorp S.A. and their respective subsidiaries, affiliates, directors,
officers, employees, shareholders, agents and representatives from any and all
claims, damages, losses, costs, expenses, liabilities or obligations, whether
known or unknown (other than any such claims, damages, losses, costs, expenses,
liabilities or obligations (i) covered by any indemnification arrangement or
bylaw of Color Tile or Holdings with respect to NLN, (ii) arising under any
written employee benefit plan or arrangement (whether or not tax-qualified)
covering NLN, or (iii) arising under this Agreement), which NLN has incurred or
suffered or may incur or suffer as a result of his employment by Color Tile or
the termination of such employment or his ownership of the Shares or the
repurchase of the Shares by Holdings, or the surrender and cancellation of the
Options, and specifically including any such claims, damages, losses, costs,
expenses, liabilities or obligations under the Employment Agreement (except as
otherwise provided in this Agreement) or under the Stock Subscription and
Stockholders Agreement dated as of December 28, 1989, by and among Holdings,
NLN, and certain other stockholders of Holdings. Color Tile and Holdings, on
their own behalf and on
<PAGE>
behalf of their subsidiaries and affiliates, hereby release, relinquish and
forever discharge NLN, and his heirs, successors and assigns, from any and all
claims, damages, losses, costs, expenses, liabilities or obligations, whether
known or unknown (other than such claims, damages, losses, costs, expenses,
liabilities or obligations arising under this Agreement), which any of them has
incurred or suffered or may incur or suffer as a result of NLN's employment by
Color Tile or the termination of such employment.
8. Color Tile and Holdings agree to continue NLN as a named insured under
any directors and officers liability insurance policies that they now maintain
until the earlier of the termination of such insurance coverage (whether under
the existing or replacement policies) or the fifth anniversary of the date
hereof.
9. All disputes arising in connection with this Agreement shall be finally
settled by arbitration in accordance with the rules of the American Arbitration
Association and any such arbitration proceedings shall take place in Fort Worth,
Texas.
10. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND ALL QUESTIONS RELATING TO
THE VALIDITY AND PERFORMANCE HEREOF AND REMEDIES HEREUNDER SHALL B0E DETERMINED
IN ACCORDANCE WITH SUCH LAW.
In Witness Whereof, the parties have executed this Agreement as of the date
first above written.
/s/ N. Laurence Nagle
N. Laurence Nagle
COLOR TILE, INC.
By /s/ Eddie M. Lesok
COLOR TILE HOLDINGS, INC.
By /s/ Eddie M. Lesok
AMENDMENT
This is an Amendment to the Agreement re Resignation and Consulting dated
as of July 25, 1995 by and among NLN, Color Tile and Holdings (the "Agreement"),
with defined terms having the same meanings herein as therein. The purpose of
this Amendment is to cause the Resignation Date to be changed from September 30,
1995 to the date hereof, without changing the financial understandings among the
parties. TO that end, this Amendment affects the numbered paragraphs of the
Agreement as follows:
A. Paragraphs 1, 2 and 5 through 10 are unchanged except for (where
applicable) the change in the Resignation Date from September 30, 1995 to the
date hereof and the change in the consulting commencement date from October 1,
1995 to the date hereof;
B. Paragraph 3 is unchanged except that the initial delivery of Shares
shall take place on October 1, 1995, subject to all payments required to have
been made to NLN on or prior to said date having been made; and
C. Paragraph 4 is unchanged except that (a) Color Tile shall pay the $3,000
life insurance premium due in September with respect to NLN's life insurance
policy, and (b) on September 1, 1995 Holdings shall pay to NLN an additional
$31,250 as a portion of the purchase price for the Shares.
Except for the aforesaid changes, the parties confirm that the Agreement
remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the 21st
day of August, 1995.
/s/ N. Laurence Nagle
N. Laurence Nagle
COLOR TILE, INC.
By: /s/ Alan J. Bethscheider
COLOR TILE HOLDINGS, INC.
By: /s/ Alan J. Bethscheider
PROMISSORY NOTE
$15,000,000 New York, New York
September 28, 1995
FOR VALUE RECEIVED, the undersigned, COLOR TILE, INC., a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
order of CHEMICAL BANK (the "Lender") at the office of Chemical Bank, located at
270 Park Avenue, New York, New York 10017, in lawful money of the United States
of America and in immediately available funds, (i) the principal amount of
FIFTEEN MILLION DOLLARS ($15,000,000), and (ii) any interest (as provided
herein) accrued and unpaid owing by the Borrower to the Lender on March 31, 1997
or such earlier date upon acceleration of the Borrower's obligations hereunder
(the "Maturity Date"). Capitalized terms used but not defined herein are used as
defined in the Indenture, dated as of December 15, 1993, between the Borrower
and U.S. Trust Company of Texas, N.A. pursuant to which the Borrower issued its
10.75% Senior Notes due 2001 (as amended, supplemented or otherwise modified,
the "Indenture").
1. Interest. The Borrower promises to pay interest on the unpaid principal
amount of the loan documented by this Note (the "Loan") (i) from and after the
date hereof until the Maturity Date, at the rate of 10.75% per annum and (ii)
from and after the Maturity Date (whether by acceleration or otherwise) until
all of the Borrower's obligations hereunder shall have been paid in cash in
full, at 12.75% per annum. Until the Maturity Date, interest shall be payable on
the last day of each March, June, September and December calculated on the basis
of a 365 (or 366 as the case may be) day year for the actual days elapsed. From
and after the Maturity Date, interest shall be payable on demand.
2. Payments and Computations. The Borrower shall make each payment of
principal and interest hereunder without set-off or counterclaim not later than
1:00 p.m. (New York City time) on the day when due in United States dollars to
the Lender at Chemical Bank, 270 Park Avenue, New York, NY 10017 in same day
funds. Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest.
<PAGE>
3. Prepayments. The obligations evidenced by this Note shall not be prepaid
in whole or in part prior to the Maturity Date, except as provided in Section 6
and 7 hereof.
4. Representations and Warranties. The Borrower represents and warrants as
follows, provided that no representation or warranty contained in this Note or
any document delivered in connection herewith shall be deemed to be untrue or
incorrect in any material respect and no Default or Event of Default shall be
deemed to occur or have occurred or be continuing as a result of the existence
or continued existence of the matters set forth on Schedule I hereto:
(a) Financial Condition Financial Condition. The consolidated balance
sheets of the Borrower and its consolidated subsidiaries (as listed on Schedule
I hereto, the "Subsidiaries") as at December 30, 1994 and the related
consolidated statements of income and of cash flows for the fiscal year ended on
such date, reported on by Coopers & Lybrand, copies of which have heretofore
been furnished to the Lender, present fairly the consolidated financial
condition of the Borrower and its consolidated Subsidiaries as at such dates,
and the consolidated results of their operations and their consolidated cash
flows for the fiscal year then ended. The unaudited consolidated balance sheet
of the Borrower and its consolidated Subsidiaries as at June 30, 1995 and the
related unaudited consolidated statements of income and of cash flows for the
periods ended on such date, certified by the chief financial officer or
controller of the Borrower, copies of which have heretofore been furnished to
the Lender, present fairly the consolidated financial condition of the Borrower
and its consolidated Subsidiaries as at such date, and the consolidated results
of their operations and their consolidated cash flows for the periods then ended
(subject to normal year-end audit adjustments). All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by such accountants or such officer, as the case may be, and
as disclosed therein). Neither the Borrower nor any of its consolidated
Subsidiaries had, at the date of the most recent balance sheet referred to
above, any material contingent obligation, contingent liability or liability for
taxes, or any long-term lease or unusual forward or long-term commitment,
including, without limitation, any material interest rate or foreign currency
swap or exchange transaction, which is not reflected in the foregoing statements
or in the notes thereto. During the period from December 30, 1994 to and
including the date hereof there has been no sale, transfer or other disposition
by the Borrower or any of its consolidated Subsidiaries of any material part of
its business or property and no purchase or other acquisition
2
<PAGE>
of any business or property (including any capital stock of any other
Person) material in relation to the consolidated financial condition of the
Borrower and its consolidated Subsidiaries at December 30, 1994.
(b) Corporate Existence; Compliance with Law Corporate Existence;
Compliance with Law. The Borrower and each of its Subsidiaries (a) is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation, (b) has full corporate power and authority
and possesses all governmental franchises, licenses, permits, authorizations and
approvals necessary to enable it to use its corporate name and to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Borrower and
its Subsidiaries, taken as a whole, (c) is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except such jurisdictions where the failure so to qualify would not
have a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries, taken
as a whole, and (d) is in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any governmental authority or
instrumentality, domestic or foreign, except where noncompliance would not have
a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries, taken
as a whole. The Borrower has not received any written communication from a
governmental authority that alleges that the Borrower or any of its Subsidiaries
is not in compliance, in all material respects, with all material federal,
state, local or foreign laws, ordinances, rules and regulations.
(c) Corporate Power; Authorization Corporate Power; Authorization. The
Borrower has corporate power and authority to make, deliver and perform this
Note. The Borrower has taken all necessary corporate action to authorize the
execution, delivery and performance of this Note and the Borrower has taken all
necessary corporate action to authorize the borrowings hereunder. No consent or
authorization of, or filing with, any Person (including, without limitation, any
governmental authority) is required in connection with the execution, delivery
or performance by the Borrower, or for the validity or enforceability against
the Borrower, of this Note except for consents, authorizations and filings which
have been obtained or made and are in full force and effect and except such
consents, authorizations and
3
<PAGE>
filings, the failure to obtain or perform (x) which would not have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Borrower and (y) which would not
adversely affect the validity or enforceability of this Note or the rights or
remedies of the Lender hereunder.
(d) Enforceable Obligations Enforceable Obligations. This Note has been
duly executed and delivered on behalf of the Borrower and constitutes the legal,
valid and binding obligation of the Borrower, and is enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
(e) No Legal Bar No Legal Bar. The execution, delivery and performance of
this Note, the use of the proceeds of this Note and the transactions
contemplated by or in respect of such use of proceeds will not violate any
requirement of law or any contractual obligation applicable to or binding upon
the Borrower or any Subsidiary of the Borrower or any of their respective
properties or assets, in any manner which, individually or in the aggregate, (i)
would have a material adverse effect on the ability of the Borrower to perform
its obligations under this Note, (ii) would give rise to any liability on the
part of the Lender, or (iii) would have a material adverse effect on the
business, assets, condition (financial or otherwise) or results of operations of
the Borrower and its Subsidiaries taken as a whole, and will not result in the
creation or imposition of any Lien on any of its properties or assets pursuant
to any requirement of law applicable to it, as the case may be, or any of its
contractual obligations.
(f) No Material Litigation No Material Litigation. No litigation by,
investigation known to the Borrower by, or proceeding of, any governmental
authority is pending against the Borrower or any of its Subsidiaries with
respect to the validity, binding effect or enforceability of this Note or the
use of proceeds thereof. No lawsuits, claims, proceedings or investigations
pending or, to the best knowledge of the Borrower, threatened against or
affecting the Borrower or any of its properties, assets, operations or
businesses, in which there is a probability of an adverse determination, is
reasonably likely, if adversely decided, to have a material adverse effect on
the business, assets, condition (financial or otherwise) or results of
operations of the Borrower and its Subsidiaries, taken as a whole.
4
<PAGE>
(g) Investment Company Act Investment Company Act. Neither the Borrower nor
any Subsidiary of the Borrower is an "investment company" or a company
"controlled" by an "investment company" (as each of the quoted terms is defined
or used in the Investment Company Act of 1940, as amended).
(h) Federal Regulation Federal Regulation. No part of the proceeds of this
Note will be used for any purpose which violates the provisions of Regulation G,
T, U or X of the Board of Governors of the Federal Reserve System. Neither the
Borrower nor any of its Subsidiaries is engaged or will engage, principally or
as one of its important activities, in the business of extending credit for the
purpose of "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under said Regulation U.
(i) No Default No Default. Except as disclosed in writing to the Lender on
or before the date hereof, the Borrower and each of its Subsidiaries have
performed all material obligations required to be performed by them under their
respective contractual obligations and they are not (with or without the lapse
of time or the giving of notice, or both) in breach or default in any respect
thereunder, except to the extent that such breach or default would not have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries taken
as a whole. Neither the Borrower nor any Subsidiary is in default under any
material judgment, order or decree of any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, applicable to it or any of its respective properties, assets,
operations or business, except to the extent that any such defaults would not,
in the aggregate, have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Borrower and
its Subsidiaries, taken as a whole.
(j) Taxes Taxes. Each of the Borrower and its Subsidiaries has filed or
caused to be filed all material tax returns which, to the knowledge of the
Borrower, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any governmental authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); except for
Permitted Liens, no tax Lien has been filed, and, to the knowledge of the
Borrower, no written claim is being asserted, with respect to any such tax, fee
or other charge.
5
<PAGE>
5. Conditions Precedent. The obligation of the Lender to make the Loan is
subject to the satisfaction or waiver by the Lender of the following conditions:
(a) Note. The Lender shall have received an original copy of this Note duly
executed and delivered by a duly authorized officer of the Borrower.
(b) Legal Opinion. The Lender shall have received, dated the date hereof
and addressed to the Lender, an opinion of Gibson, Dunn & Crutcher, counsel to
the Borrower, in form and substance reasonably satisfactory to the Lender.
(c) Closing Certificate. The Lender shall have received a Closing
Certificate of the Borrower dated the date hereof, with appropriate insertions
and attachments, in form and substance reasonably satisfactory to the Lender and
its counsel, executed by the President or any Vice President and the Secretary
or any Assistant Secretary of the Borrower.
(d) Amendment. The Lender shall have received evidence satisfactory to it
that all conditions precedent to the effectiveness of the Fifth Amendment, dated
as of September 19, 1995, to the Senior Credit Agreement shall have occurred.
(e) Invifin Loans. The $15,000,000 aggregate principal amount of (plus all
accrued and unpaid interest on) the loans made by Invifin S.A. to the Borrower
pursuant to the Credit Agreement dated as of June 12, 1995 and the Credit
Agreement dated as of May 19, 1995, shall have been extinguished for no
additional consideration (other than the recording of an additional capital
contribution).
(f) Contribution. There shall have been contributed to the capital of the
Borrower at least $14,250,000 in cash from the issuance of equity of Color Tile
Holdings, Inc. (in addition to the transaction referred to in clause (e) of this
Section 5).
6. Incorporated Provisions. (a) Covenants. Sections 3.5, 3.7, 3.11(b) (the
first sentence thereof only), 3.16, 8.1, 8.2 and 8.3 of the Indenture in their
entirety are incorporated herein by reference as if fully set forth herein,
subject to the following modifications:
(i) References to the "Issuer" shall be deemed to be references to the
Borrower hereunder.
(ii)References to the "Securities" shall be deemed to be references to this
Note.
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<PAGE>
(iii) References to the "Trustee" or "Holders of Securities" shall be
deemed references to the Lender hereunder.
(iv) References to the "Indenture" shall be deemed to be references to this
Note.
(v) The words "April 1 in each year (beginning with April 1, 1994)"
appearing in Section 3.5 shall be deleted and replaced with the words "within 45
days after the end of each fiscal quarter of the Issuer."
(vi) Section 3.11(b) shall be deemed to be amended by (A) deleting the
words "180 days" and "may apply" in the first sentence thereof and by
substituting therefor the words "five Business Days" and "shall apply",
respectively, (B) inserting the phrase "(other than Asset Sales the Net Proceeds
of which are not otherwise required to be applied to prepay obligations
outstanding under the Senior Credit Agreement)" after the words "Asset Sale" in
the first sentence thereof (C) inserting the word "first," after the "(i)", (D)
inserting the words "under the Senior Credit Agreement" after the words "Senior
Indebtedness" in clause (i), and (E) deleting all of clause (ii) thereof and the
word "or" immediately preceding said clause (ii) and substituting therefor the
following:
"and (ii) second, offer to repay in full (or repay such lesser amount to
the extent such Net Cash Proceeds are insufficient for payment in full) Senior
Indebtedness under this Note, provided that the offer shall remain open for at
least five Business Days after written notice to the Lender, and provided
further, that the Lender may decline such offer of prepayment in its sole
discretion."
(b) Events of Default. If (i) any of the events set forth in clauses (a)
through (h) of Section 4.1 of the Indenture shall occur and be continuing
(without giving effect to any waiver thereof under the Indenture), (ii) so long
as Chemical Bank or any of its Affiliates is the holder of this Note, if any
"Event of Default" (as defined in the Senior Credit Agreement) shall be
continuing or (iii) (A) the Borrower shall fail to (x) pay any principal of this
Note when due in accordance with the terms hereof or (y) pay any interest on
this Note or any other amount payable hereunder within five days after any such
interest or other amount becomes due in accordance with the terms hereof or (B)
any representation or warranty made in this Note shall prove to have been
incorrect in any material respect on or as of the
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<PAGE>
date made, then, and in any such event (any such event under clauses (i),
(ii) or (iii), an "Event of Default"), the Lender may, by notice to the
Borrower, declare this Note, all interest thereon and all other amounts payable
under this Note to be forthwith due and payable, whereupon this Note, all such
interest and all amounts shall become and be forthwith due and payable without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; provided, however, upon the occurrence
of an Event of Default under subsection (g) or (h) of Section 4.1 of the
Indenture, this Note, all such interest and all other amounts payable under this
Note shall automatically become due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
(c) References in this Note to the Indenture (and the terms and provisions
thereof) shall mean (i) so long as Chemical Bank shall remain the holder of this
Note, the Indenture (and such terms and provisions) as in effect on the date
hereof and (ii) thereafter, as the Indenture (and such terms and provisions) may
be amended, supplemented or otherwise modified in accordance with the terms
thereof.
7. DISCHARGE OR REDEMPTION UNDER INDENTURE
Prior to the exercise of any right to discharge its obligations under the
Indenture, or redeem the Securities outstanding thereunder, in accordance with
Article IX or XI thereof, as the case may be, the Borrower shall provide written
notice to the Lender of the Borrower's offer (which offer shall remain open for
at least five Business Days) to repay in full its obligations under this Note,
which offer the Lender may decline to accept in its sole discretion.
8. MISCELLANEOUS MISCELLANEOUS
(a) Amendments and Waivers Amendments and Waivers. The Borrower and the
Lender may, from time to time, enter into written amendments, supplements or
modifications hereto for the purpose of adding or waiving any provisions hereto,
provided that, unless the Required Banks (as defined in the Senior Credit
Agreement) otherwise agree, no such amendment, supplement or waiver shall (i)
increase the interest rate under this Note, (ii) provide for any covenant or
event of default which is more restrictive than those contained in the Senior
Credit Agreement or (iii) shorten the stated maturity of this Note to a date
earlier than the date of the next scheduled amortization payment under the
Senior Credit Agreement (currently March 31, 1997). The agreement contained in
the proviso to the immediately preceding sentence is expressly made for the
benefit of, and
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<PAGE>
may be enforced by, the Banks (as defined in the Senior Credit Agreement).
(b) Notices Notices. All notices, requests and demands to or upon the
Borrower or the Lender to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three Business Days
after being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when sent, confirmation of receipt received, addressed as follows or to
such other address as may be hereafter notified by the parties hereto and any
future holder of this Note:
The Borrower: Color Tile, Inc.
515 Houston Street
Fort Worth, Texas 76102-3933
Attention: President
Telecopy: (817) 870-9672
With a copy to: Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Charles K. Marquis, Esq.
Telecopy: (212) 351-4035
The Lender: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Mary Ellen Egbert
Telecopy: (212) 661-8396
With a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Steven Fuhrman, Esq.
Telecopy: (212) 455-2502
(c) No Waiver; Cumulative Remedies No Waiver; Cumulative Remedies. No
failure to exercise and no delay in exercising, on the part of the Lender, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
(d) Survival of Representations and Warranties Survival of Representations
and Warranties. All representations and warranties made hereunder or in
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<PAGE>
connection herewith shall survive the execution and delivery of this Note.
(e) Payment of Expenses and Taxes Payment of Expenses and Taxes. The
Borrower agrees (a) to pay or reimburse the Lender for all its reasonable
out-of-pocket costs and expenses incurred in connection with the development,
preparation, administration and execution of, and any amendment, supplement or
modification to, this Note and any other documents prepared in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Lender, (b) to pay or reimburse the Lender for all its costs and
expenses incurred in connection with, and to pay, indemnify, and hold the Lender
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever arising out of or in connection with, the
consummation of the transactions contemplated hereby and the enforcement or
preservation of any rights under this Note and any other documents prepared in
connection herewith, including, without limitation, reasonable fees and
disbursements of counsel to the Lender incurred in connection with the foregoing
and in connection with advising the Lender with respect to its rights and
responsibilities under this Note and any documentation relating hereto, and (c)
to pay, indemnify, and hold the Lender and their respective officers and
directors harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable fees and disbursements of counsel) which may be incurred by or
asserted against the Lender (x) arising out of or in connection with any
investigation, litigation or proceeding related to this Note and the
transactions contemplated hereby, whether or not the Lender is a party thereto,
or (y) without limiting the generality of the foregoing by reason of or in
connection with the execution and delivery or transfer of, or payment or failure
to make payments under, this Note (all the foregoing, collectively, the
"indemnified liabilities"), provided that the Borrower shall have no obligation
hereunder with respect to indemnified liabilities of the Lender or any of its
officers and directors arising from (i) the gross negligence or willful
misconduct of the Lender or its directors or officers, (ii) legal proceedings
commenced against the Lender by any security holder or creditor of the Lender
arising out of or based upon rights afforded any such security holder or
creditor in its capacity as such or (iii) legal proceedings commenced against
the Lender by any transferee of all or a portion of this Note relating to such
transfer.
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(f) Successors and Assigns. Successors and Assigns. (i) This Note shall be
binding upon and inure to the benefit of the Borrower, the Lender, all future
holders of this Note, and their respective successors, except that the Borrower
may not transfer any of its rights or obligations under this Note without the
prior written consent of the Lender.
(ii) The Lender may, in its sole discretion, sell all or any portion of
this Note to any other Person, provided that any sale of a portion of this Note
shall be in an aggregate amount equal to at least $5,000,000 (or an integral
multiple of $100,000 in excess thereof). On or prior to such sale, the Borrower,
at its own expense, shall execute and deliver to the Lender in exchange for the
surrendered Note a new Note to the order of such purchasing Lender in an amount
equal to the portion of this Note assumed by it and, if the Lender has retained
any portion of this Note, a new Note to the order of the Lender in an amount
equal to the portion of this Note retained by it. Such new Note shall be dated
the date hereof and shall otherwise be in the form of the Note replaced thereby.
The Note surrendered by the Lender shall be returned by the Lender to the
Borrower marked "cancelled".
(g) Severability. Any provision of this Note which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(h) Set-off. Upon the occurrence and during the continuance of any Event of
Default, the Lender is hereby authorized at any time and from time to time, to
the fullest extent permitted by law to set-off and apply any indebtedness at any
time owing by the Lender (other than in its capacity as Agent (as defined in the
Senior Credit Agreement)) to or for the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Note, whether or not the Lender shall have made any demand under this Note and
although such obligation may be unmatured. The Lender agrees promptly to notify
the Borrower after any such set-off, provided, that failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Lender may
have.
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(i) Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably
and unconditionally:
(i) submits for itself and its property in any legal action or proceeding
relating to this Note, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general jurisdiction of the Courts of the
State of New York, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(iii) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Borrower or at such
other address of which the Lender shall have been notified pursuant hereto;
(iv) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and
(v) waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
subsection any special, exemplary, punitive or consequential damages.
(j) WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS NOTE AND FOR ANY COUNTERCLAIM THEREIN.
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(k) THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
COLOR TILE, INC.
By: /s/ Bart A. Brown, Jr.
Name: Bart A. Brown, Jr.
Title: Chief Executive Officer
and President
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SCHEDULE I
Terms used herein and not otherwise defined are used herein as defined in
the Credit Agreement dated as of November 27, 1991 between the Borrower, the
lenders party thereto and Chemical Bank, as agent (as amended, supplemented or
otherwise modified to date, the "Credit Agreement").
1. The Borrower and its Subsidiaries receive from time to time notices of
investigations and related proceedings by governmental agencies relating to
product advertisements by the Borrower or a Subsidiary, their respective
consumer sales and franchise arrangements. The Borrower is currently the subject
of two such investigations brought in late 1993 and early 1994 by district
attorneys in California with respect to alleged false comparative advertising
and perpetual sales. The complaints requested injunctive and monetary relief of
approximately $500,000 in the aggregate. The Borrower is currently in the
process of negotiating a settlement of both proceedings.
2. The Borrower is currently a defendant in Cassandra Stevenson v. Color
Tile, Inc., filed in 1991, in which it is alleged that the Borrower illegally
discriminated against a female, minority employee with respect to promotions. No
amount of damages was claimed in the complaint other than that necessary for the
jurisdiction of the applicable court. The matter has not reached the discovery
stage, which has been delayed pending resolution of the plaintiff's request to
certify as a class all current and former employees and applicants for
employment at the Borrower. The certification request alleges that the Borrower
illegally discriminated against female and minority employees in hiring, firing
and promotions. The court held hearings with respect to certification in
January, 1995 but has not ruled on the issue. The Borrower intends to
immediately appeal any class certification.
3. The Borrower and Color Tile Franchising, Inc. are currently defendants
in a civil case of Gregory J. Zinkel, Spectrum International, Inc., Estus R.
Alexander, Bruce Alden, Terratex Corporation, Roger M. Clark, Kathleen P. Clark,
Paris D. Colorado, Texas Roan, Inc., Lyle P. Hale, Cheryl Hale, Bruce E. Pesola,
Walter S. Rutherford, Yavapai Remodeling, LLC, Avery A. Shaw, Connie M. Shaw,
Daniel J. Turner, Lucille K. Turner, Two Guys From Duluth, Inc., Delta Carpet &
Tile, Inc., and W. Peter von Hohenberg v. Color Tile, Inc. and Color Tile
Franchising, Inc. (Case No. 95-CV-72124), filed in the United States District
Court for the Eastern District of Michigan, Southern Division, on May 25, 1995.
In this action fifteen former franchisees and other parties
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alleged, among other things, RICO, fraud and misrepresentation, use of a
contract that is void and unenforceable due to its being an adhesion and/or
unconscionable contract and entered into by fraudulent inducement, breach of
covenant of good faith and fair dealing, breach of contract, breach of fiduciary
duty and conversion, tortious interference with a business relationship and/or
contract and violation of Michigan franchise law, and requested rescission of
their respective franchise agreement, the return of all payments and repayment
for all equipment or property purchased. The Borrower believes that the
complaint is without merit and was filed in retaliation for the Borrower's suits
against certain of the franchisees for breach of the franchise agreements,
trademark infringement and non-payment of rents and royalties.
4. Individual store locations or portions thereof are the subject of
governmental takings actions from time to time. Currently Store No. 9138 in El
Cajon, California is the subject of a governmental condemnation proceeding that
will prevent the Borrower from utilizing such real property.
5. During a 1994 conversion from a main-frame type computer system to
another system, certain financial and operational information relating to the
Borrower and its Subsidiaries was incorrectly captured or recorded. This
conversion failure affected information relating to the period from June 1994 to
December 1994. The Borrower has reconstructed and reconciled its accounts, and
an unqualified opinion letter was delivered to the Borrower by its auditors with
respect to the Borrower's financial statements for the fiscal year ended January
1, 1995. However, the Borrower continues to dedicate significant resources to
resolve systems deficiencies, to review account status and to enhance controls
and reporting procedures that were negatively impacted by the 1994 systems
conversion.
6. The filing by the Borrower and its Subsidiaries of consolidated tax
returns with Color Tile Holdings, Inc. may contravene indentures pursuant to
which certain industrial revenue bonds were issued on behalf of the Borrower.
7. The failure by the Borrower to timely deliver to the Agent certain
Collateral, which failure has been cured by the Borrower.
8. The failure by the Borrower to timely notify the Agent of the filing of
certain intellectual property with the United States Patent and Trademark
Office, which failure has been cured by the Borrower.
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9. The execution, delivery and performance of the receivables purchase
agreements between the Borrower and First Interstate Bank of Texas, N.A., to the
extent the agreements could have been construed to be inconsistent with the
requirements of the Credit Agreement.
10. The adverse change in the financial condition of the Borrower and its
Subsidiaries insofar as such change may relate to covenants under Contractual
Obligations of the Borrower and the Subsidiaries.
11. The Borrower and its Subsidiaries have delayed payment on certain
Contractual Obligations and Indebtedness and trade payables of the Borrower.
12. The failure by the Borrower to timely deliver certain information,
certificates and notices (including financial statements, certificates and
notices required to be delivered prior to the date hereof pursuant to
Subsections 8.1, 8.2 and 8.7 of the Credit Agreement), which failure has been
cured by the Borrower.
13. The provision of consulting services by Perry Odak, to the extent he
might be construed to be an affiliate.
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Schedule II
Consolidated Subsidiaries
1. American Blind and Wallpaper Factory, Inc.
2. Color Tile Franchising, Inc.
3. Color Tile Manufacturing, Inc.
4. C. Tile Transportation, Inc.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as of
August 21, 1995 (the "Effective Date"), by and between Color Tile, Inc. (the
"Company") and Bart A. Brown, Jr. ("Executive").
The Company hereby agrees to employ Executive, and Executive hereby accepts
such employment, on the terms and conditions hereinafter set forth.
1. Position; Period of Employment.
The period of Executive's employment hereunder (the "Period of Employment")
shall commence on the date hereof and shall expire on August 31, 1998, subject
to any earlier termination as provided in Section 6 hereof. Executive shall
serve as Chairman and Chief Executive Officer of the Company, and shall have the
normal duties and responsibilities of a chief executive officer. Executive shall
be subject to the customary oversight and direction of, and shall report solely
to, the Board of Directors of the Company (the "Board"). Executive shall become
both a member of the Board and a member of the Board of Directors (the "Parent
Board") of Color Tile Holdings, Inc., the corporate parent of the Company (the
"Parent"), as of the Effective Date, and thereafter during the Period of
Employment shall remain a member of the Board and the Parent Board. Executive
acknowledges that one of his principal objectives is to develop, either
externally or from within, and present to the Board, a suitable candidate to
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become Chief Operating Officer of Color Tile who would be expected to succeed
Executive as Chief Executive Officer. During the Period of Employment, Executive
will (a) during normal business hours, devote his full time and exclusive
attention to, and use his best efforts to advance, the business and welfare of
the Company, and (b) not engage in any other employment activities for any
direct or indirect remuneration without the concurrence of the Board, provided,
however, that Executive may continue to serve as a director of The Circle K
Corporation and Spreckles, Inc. and may also serve on other corporate,
charitable and community boards so long as such activities do not unreasonably
interfere with the performance of his duties under this Agreement and provided
that any such activities are approved in advance by the Board, which approval
will not be unreasonably withheld.
2. Place of Employment.
Executive's office shall be at the Company's principal executive offices in
Forth Worth, Texas.
3. Compensation.
3.1 Base Salary. During the Period of Employment, the Company shall pay
Executive a Base Salary at the rate of $600,000 per annum payable at least as
frequently as monthly and subject to payroll deductions as may be necessary or
customary in respect of the Company's salaried employees in general. The amount
of Executive's Base Salary shall not be changed through the Company's fiscal
year ending on or
2
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about December 31, 1996, and thereafter Executive's Base Salary hereunder shall
be subject to annual review by the Board, provided that the level of such Base
Salary shall not be subject to reduction.
3.2 Incentive Compensation. In addition to the Base Salary provided for in
Section 3.1 hereof, Executive shall be entitled to earn a cash bonus with
respect to the Company's fiscal years ended on or about December 31, 1996, 1997
and 1998, pursuant to a bonus plan (the "Bonus Plan") to be established by the
Board during 1996 (it being understood that no bonus will be payable with
respect to the fiscal year ended on or about December 31, 1995, and that if
Executive's employment terminates on August 31, 1998, as contemplated herein,
the cash bonus payable to Executive under the Bonus Plan with respect to the
fiscal year ended on or about December 31, 1998, shall be 2/3rds of the amount
that would have been payable to Executive with respect to such fiscal year had
Executive been employed by the Company throughout such fiscal year). The Bonus
Plan shall be developed with reference to a business plan for the Company to be
developed by Executive and submitted for Board consideration during the first
half of 1996. The Bonus Plan shall be based primarily upon the achievement of
specified operating profit targets and shall provide for bonus opportunities as
described on Exhibit A hereto. The Company agrees that upon the termination of
Executive's employment hereunder, the Board will assess in
3
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good faith whether Executive should be paid consideration for his services
hereunder in addition to that expressly provided for herein and in the Bonus
Plan, which consideration could be in the form of immediate or deferred cash
payments and/or the sale or issuance of direct or indirect equity interests in
the Company or options with respect thereto. The Company acknowledges that it
currently is in difficult financial and business condition and that Executive
was induced to accept employment hereunder in part in reliance upon the
Company's assurance that if Executive's performance hereunder materially
positively impacts the Company, the Board will seriously consider paying
additional compensation to Executive as contemplated by the preceding sentence.
4. Benefits. During the Period of Employment, Executive shall be entitled
to participate in all benefit plans and programs maintained by the Company which
are available to its executive officers, including any and all perquisites,
provided that Executive's right to participate in such plans and programs shall
not affect the Company's right to amend or terminate the general applicability
of such plans and programs, and Executive acknowledges that he shall have no
vested rights under or to participate in any such plan or program (other than
the "Bonus Plan") except as expressly provided under the terms thereof.
Executive will be entitled to four (4) weeks of vacation annually (or such
greater amount as is provided to senior executives of the Company generally)
4
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with carryovers in accordance with Company policy. The Company shall
provide Executive with office space, stenographic assistance and such other
facilities and services as shall be suitable to Executive's position and
adequate for the performance of his duties hereunder.
5. Expenses; Taxes. Upon presentation of acceptable substantiation
therefor, the Company will pay or reimburse Executive for such reasonable
travel, entertainment and other expenses as he may incur during the Period of
Employment in connection with the performance of his duties hereunder. Federal,
state and local income taxes shall be withheld on all cash and in-kind payments
made by the Company to Executive in accordance with applicable tax laws and
regulations.
6. Termination of Employment.
The provisions of this Section 6 shall apply upon termination of
Executive's employment hereunder. In connection with any termination of
Executive's employment hereunder, Executive or his beneficiaries shall be
entitled to receive, pro rated as appropriate, earned but unpaid salary,
unreimbursed business expenses pursuant to Section 5 hereof, and unpaid and
unreimbursed payments and benefits under, and in accordance with the terms of,
applicable benefit plans and programs (other than the Bonus Plan unless
specifically provided herein or therein), said payments being collectively
referred to as "Standard Termination Payments".
5
<PAGE>
6.1 For Cause or Not for Good Reason. If the Company terminates Executive's
employment for Cause (as hereafter defined) or if Executive terminates his
employment other than for Good Reason (as defined in Section 6.3), the Company's
obligations to compensate Executive shall in all respects cease as of the date
of such termination, except for Standard Termination Payments. Termination of
Executive's employment for "Cause" shall mean termination by the Company because
Executive:
(i) has been convicted of a felony or a crime involving moral turpitude, or
(ii) has used alcohol or drugs on an ongoing basis to an extent that
materially interferes with the performance by Executive of his duties under this
Agreement, or
(iii) has embezzled or misappropriated Company funds or property, or
(iv) has willfully and knowingly violated Section 7.1, Section 7.2 or
Section 7.3 hereof, or
(v) has willfully and continually failed to substantially perform his
duties hereunder (other than any such failure resulting from mental or physical
illness) after written demand for substantial performance is delivered by the
Board which specifically identifies the manner in which the Board
6
<PAGE>
believes Executive has not substantially performed his duties and Executive
fails to cure his nonperformance within fifteen (15) business days of receiving
such notice.
Notwithstanding the occurrence of any event listed in clauses (i) through
(v) above, Executive shall not be deemed to have been terminated for Cause
without (a) reasonable notice to Executive setting forth the reasons for the
Company's intention to terminate for Cause, (b) an opportunity for Executive,
together with his counsel, to be heard before the Board, and (c) delivery to
Executive of a notice of termination from the Board finding that in the good
faith opinion of a majority of the Board (exclusive of Executive), Executive was
guilty of the conduct referred to in such notice.
6.2 Upon Death or Permanent Disability. If Executive's employment is
terminated as a result of death or Permanent Disability (as hereinafter
defined), the Company's obligation to compensate Executive shall in all respects
cease as of the date of such termination, except for Standard Termination
Payments and except that if such death or Permanent Disability occurred during
the second half of a fiscal year of the Company, the Company shall pay to
Executive or other appropriate person following completion of said fiscal year,
the amount (if any) of incentive compensation that would have been payable to
Executive under the Bonus Plan
7
<PAGE>
with respect to said fiscal year. The Company may terminate Executive's
employment hereunder attributable to the "Permanent Disability" of Executive if
Executive becomes physically or mentally incapacitated or disabled so that he is
unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability (the Company, at its
option and expense, is entitled to retain a physician reasonably acceptable to
Executive to confirm the existence of such incapacity or disability, and the
determination of such physician shall be binding upon the Company and
Executive), and such incapacity or disability exists for an aggregate of six (6)
calendar months in any twelve (12) calendar month period.
6.3 Not for Cause of for Good Reason. If Executive's employment is
terminated by the Company for a reason other than Cause or Executive's death or
Permanent Disability, or if Executive terminates his employment for Good Reason
(as hereinafter defined), the Company's obligation to compensate Executive shall
in all respects cease as of the date of such termination, except (a) for
Standard Termination Payments, (b) that the Company will, for a period equal to
the lesser of eighteen (18) months following said date of termination or the
balance of the Period of Employment (the "Severance Period"), pay to Executive
each month an amount equal to Executive's Base Salary in effect at the time of
such termination (or the Base Salary in effect prior to any Base
8
<PAGE>
Salary reduction, if such reduction constituted Good Reason) divided by
twelve (12), (c) that if such termination occurs after December 31, 1995, the
Company shall pay to Executive following completion of the fiscal year in which
such termination occurred an amount equal to the amount (if any) of incentive
compensation that would have been payable to Executive under the Bonus Plan with
respect to such fiscal year had he remained employed by the Company throughout
said fiscal year multiplied by a fraction the numerator being the number of
weeks in such fiscal year preceding the date of termination and the denominator
being 52, and (d) that during the Severance Period the Company will provide
Executive with welfare benefits, including any life insurance, hospitalization,
medical and disability benefits, substantially similar to those provided to
Executive as of the date of termination (or the benefits in effect prior to any
reduction in benefits, if such reduction constituted Good Reason), provided that
such benefits shall be discontinued to the extent Executive receives similar
benefits from subsequent employment. For purposes of this Agreement, "Good
Reason" shall exist if (a) the Company shall have changed Executive's title or
effected a significant adverse change to the responsibilities or authority of
Executive or effected any reduction in the level of Executive's Base Salary or
shall have failed to institute a Bonus Plan as contemplated by Section 3.2
hereof, (b) without the prior written consent of
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Executive, the Company shall relocate its executive offices more than fifty
miles from its executive offices immediately prior to such relocation or
relocate Executive's place of employment more than fifty miles from his place of
employment immediately prior to such relocation, (c) the Company shall fail to
pay to Executive any portion of his compensation when due, (d) the Company shall
breach a material term of this Agreement, (e) Executive shall cease to be a
member of the Board or the Parent Board (other than due to (i) Executive's death
or Permanent Disability, (ii) termination of Executive's employment by the
Company for Cause, (iii) termination of Executive's employment by Executive
other than for Good Reason, (iv) Executive's voluntary resignation from the
Board or Parent Board, or (v) the elimination of either of such Boards) or (f)
an entity described in Section 9.7 hereof shall fail to provide Executive with
written confirmation that it will abide by the terms of this Agreement, provided
that Good Reason shall not exist unless Executive shall have first provided the
Company and the Board with written notice of the event identified in any of the
preceding clauses (a) through (f) and the Company shall have failed to remedy or
cure such event within fifteen (15) days following receipt of such notice.
6.4 Release and Satisfaction. At the time of termination of Executive's
employment, Executive and the Company agree to execute mutual releases whereby
(a) Executive
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will release, relinquish and forever discharge the Company and any director,
officer, employee, shareholder, controlling person or agent of the Company from
any and all claims, damages, losses, costs, expenses, liabilities or
obligations, whether known or unknown (other than any such claims, damages,
losses, costs, expenses, liabilities or obligations arising under (i) any
indemnification arrangement of the Company with respect to Executive, (ii) any
employee benefit plan or program (whether or not tax-qualified) covering
Executive, (iii) any stock purchase or stock option plan or agreement to which
the Company and Executive may be parties (or any document executed in connection
therewith) or (iv) this Agreement, to the extent the Company or any such person
has continuing obligations pursuant to the express provisions hereof following
such termination), which Executive has incurred or suffered or may incur or
suffer as a result of Executive's employment by the Company or the termination
of such employment, and (b) the Company will release, relinquish and forever
discharge Executive and his heirs, successors and assigns from any and all
claims, damages, losses, costs, expenses, liabilities or obligations, whether
known or unknown (except as set forth in Section 6.5 hereof and other than any
such claims, damages, losses, costs, expenses, liabilities or obligations
arising under any of the arrangements or agreements referred to in clauses (i)
through (iii) in the preceding clause (a) of this Section 6.4 or under this
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Agreement to the extent Executive or any person has continuing obligations
pursuant to the express provisions hereof following such termination), which the
Company has incurred or suffered or may incur or suffer as a result of the
Company's employment of Executive or the termination of such employment.
6.5 Effect on This Agreement. The termination of Executive's employment
shall not affect the continuing operation and effect of Sections 6.4 and 7
hereof, nor affect any obligation of the Company to make payments pursuant to
Section 6 hereof, which shall continue in full force and effect upon the Company
and Executive, and its and his heirs, successors and assigns. Nothing in Section
6.1 or 6.4 hereof shall be deemed to operate or shall operate as a release,
settlement or discharge of any liability of Executive to the Company (a) from
any act or omission by Executive enumerated in Section 6.1 which constituted a
reason for termination of Executive's employment for Cause or (b) in connection
with any amount Executive owes to the Company pursuant to a loan or other
advance.
6.6 Mitigation. Executive shall not be required to mitigate the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise nor will any payments provided for herein be subject to offset in
respect of any claims which the Company may have against Executive and, except
as specifically provided herein, the amount of any payment or benefit provided
for in this
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Agreement shall not be reduced by any compensation earned or benefits
received by Executive as the result of employment by another employer, by offset
against any amount claimed to be owed by him to the Company, or otherwise.
7. Non-disclosure of Proprietary Information, Surrender of Records;
Inventions and Patents.
7.1 Proprietary Information. Executive agrees that he shall not use for his
own purpose or for the benefit of any person or entity other than the Company or
its shareholders or affiliates, nor otherwise disclose to any individual or
entity at any time while he is employed by the Company or thereafter any
proprietary information of the Company unless such disclosure (a) has been
authorized by the Board, (b) is in the good faith judgment of Executive required
in the course of Executive's employment hereunder, (c) is in the course of such
individual's or entity's employment or retention by the Company, or (d) is
required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, the term "proprietary
information" shall mean: (a) the name or address of any customer, supplier or
affiliate of the Company or any information concerning the transactions or
relations of any customer, supplier or affiliate of the Company with the Company
or any of its shareholders; (b) any information concerning any product,
technology or procedure employed by the Company but not generally known to its
customers, suppliers or competitors, or
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under development by or being tested by the Company but not at the time
offered generally to customers or suppliers; (c) any information relating to the
marketing methods, sales margins, discounts or the like, the capital structure,
or results of any business plan of the Company; (d) any information contained in
the Company's policies and procedures or employees' manual; (e) any inventions,
innovations, trade secrets or other items covered by Section 7.3 below; and (f)
any other information which the Board of Directors has determined by resolution
and communicated to Executive to be confidential or proprietary. However,
proprietary information shall not include any information that is or becomes
generally known to the industries in which the Company competes other than
through actions of Executive in violation of Section 7.1 or 7.2 hereof.
7.2 Confidentiality and Surrender of Records. Executive agrees that, while
he is employed by the Company or at any time thereafter, he shall not except as
required by law give any "confidential records" (as hereinafter defined) to, or
permit any inspection or copying of confidential records by, any individual or
entity other than in the course of such individual's or entity's employment or
retention by the Company or as required by law, a court of competent
jurisdiction, or a governmental or regulatory agency, nor shall he retain any of
the same following termination of his employment, without prior approval of the
Board. For purposes
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hereof, "confidential records" means all correspondence, memoranda, files,
manuals, financial, operating or marketing records, magnetic tape, or electronic
or other media of any kind which may be in Executive's possession or under his
control or accessible to him which contain any proprietary information as
defined in Section 7.1 above.
7.3 Inventions and Patents. Executive agrees that all inventions,
innovations, trade secrets, patents and processes developed by him alone or in
conjunction with others at any time during his employment by the Company shall
belong to the Company. Executive will use his best efforts to perform all
actions reasonably requested by the Board to establish and confirm such
ownership by the Company.
7.4 Definition of Company. For purposes of this Section 7, the term
"Company" shall include the Company and any and all of its subsidiaries,
ventures or affiliates, whether currently existing or hereafter formed.
7.5 Enforcement. Executive agrees that damages are an inadequate remedy for
any breach of the covenants in this Section 7 and that the Company will, whether
or not it is pursuing any potential remedies at law, be entitled to equitable
relief in the form of preliminary and permanent injunctions without bond or
other security upon any actual or threatened breach of this Agreement.
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8. Miscellaneous.
8.1 Notice. Any notice required or permitted to be given hereunder shall be
deemed sufficiently given if sent by registered or certified mail, postage
prepaid, addressed to the addressee at his or its address last provided the
sender in writing by the addressee for purposes of receiving notices hereunder
or, unless or until such address shall be so furnished, to the address indicated
opposite his or its signature to this Agreement. Each party may also provide
notice by sending the other party a facsimile at a number provided by such other
party.
8.2 Modification and No Waiver of Breach. No waiver or modification of this
Agreement shall be binding unless it is in writing signed by the parties hereto.
No waiver by a party of a breach hereof by the other party shall be deemed to
constitute a waiver of a future breach, whether of a similar or dissimilar
nature, except to the extent specifically provided in any written waiver under
this Section 8.2.
8.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND ALL
QUESTIONS RELATING TO THE VALIDITY AND PERFORMANCE HEREOF AND REMEDIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an
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original, but all of which taken together shall constitute one and the same
Agreement.
8.5 Captions. The captions used herein are for ease of reference only and
shall not define or limit the provisions hereof.
8.6 Entire Agreement. This Agreement together with any agreement, plans or
other documents implementing the terms of this Agreement constitute the entire
agreement between the parties hereto relating to the matters encompassed hereby
and supersede any prior oral or written agreements.
8.7 Assignment. The rights of the Company under this Agreement may, without
the consent of Executive, be assigned by the Company, in its sole and unfettered
discretion, to any person, firm, corporation or other business entity which at
any time, whether by purchase, merger, or otherwise, directly or indirectly,
acquires all or substantially all of the stock, assets or business of the
Company.
8.8 Non-Transferability of Interest. None of the rights of Executive to
receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Executive. Any attempted
assignment, transfer, conveyance, or other disposition (other than as aforesaid)
of any interest in the rights of Executive to receive any form of compensation
to
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be made by the Company pursuant to this Agreement shall be void.
8.9 Arbitration. Any dispute arising under this Agreement shall be resolved
by binding arbitration conducted under the auspices and pursuant to the rules of
the American Arbitration Association and held in Fort Worth, Texas or such other
place as the parties may mutually agree. Each party shall bear its or his own
costs and expenses in any such arbitration and one-half of the arbitrator's fees
and expenses.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
Address for notices: COLOR TILE, INC.
515 Houston Street
Forth Worth, Texas 76102 By: /s/ Richard A. Andrews
With a copy to:
Color Tile Holdings, Inc.
c/o Investcorp International, Inc.
230 Park Avenue, 37th Floor
New York, New York 10017
Attention: Jon P. Hedley
__________________________ EXECUTIVE
- --------------------------
/s/ Bart A. Brown, Jr.
Bart A. Brown, Jr.
18
<PAGE>
Exhibit A
The Board will establish operating profit or similar targets for the fiscal
years ended approximately December 31, 1996, 1997 and 1998, and Executive shall
be entitled to cash bonuses pursuant to the following schedule:
% of Target Achieved Cash Bonus as a % of Base Salary
less than 90% -0-
90% - 94% 25%
95% - 99% 35%
100%* 50%*
120%* 75%*
150%* or more 100%*
* If the % of Target achieved is between 100% and 120% or 120% and 150% the
cash bonus shall be pro rated accordingly between 50% and 75% or 75% and 100% of
Base Salary, respectively.
[FORM OF]
AGREEMENT
This Agreement is made as of the 21st day of August, 1995, by and between
Bart A. Brown, Jr. ("Brown") and Investcorp Bank E.C. ("Investcorp").
WHEREAS, affiliates and clients of Investcorp own substantially all of the
outstanding common stock of Color Tile Holdings, Inc. which in turn owns 100% of
the outstanding common stock of Color Tile, Inc. ("Color Tile");
WHEREAS, Color Tile has experienced significant financial and operating
reversals such that senior management of Color Tile is being replaced;
WHEREAS, Investcorp is desirous that Brown agree to become the Chairman and
Chief Executive Officer of Color Tile; and
WHEREAS, Brown is willing to become the Chairman and Chief Executive
Officer of Color Tile pursuant to that certain Employment Agreement between
Brown and Color Tile of even date herewith (the "Employment Agreement"), a copy
of which has been delivered to Investcorp, provided that Investcorp enter into
the within Agreement in favor of Brown;
NOW, THEREFORE, the parties agree as follows:
1. In order to induce Brown to accept employment as the Chairman and Chief
Executive Officer of Color Tile pursuant to the Employment Agreement, Investcorp
agrees that if Color Tile fails to pay the base salary to Brown during the
Period of Employment or the equivalent thereof during the Severance Period (as
said terms are defined in the Employment Agreement), whether such failure to pay
is due to a rejection of the Employment Agreement in a bankruptcy or similar
proceeding or otherwise, Investcorp will either (a) pay said amounts to Brown at
the same times as said amounts were payable to him by Color Tile, or (b) arrange
for the payment of all or a portion of said amounts by affiliates of Investcorp
or companies controlled by Investcorp, and in the event of partial payment
Investcorp shall pay the balance.
2. Brown agrees that if Investcorp shall become obligated to make payments
to him hereunder, Brown shall be available on a full-time basis to provide
consulting services to Investcorp or its affiliates or controlled companies or
to accept full-time employment by any of said entities, provided that any such
employment is at a senior executive level consistent with Brown's experience and
stature and provided
<PAGE>
that Brown shall not be required to relocate to a geographical area to
which he objects.
3. The parties acknowledge that this Agreement is not intended to detract
from Brown's obligation to Color Tile under the Employment Agreement or to
create in Brown rights to compensation that would not be payable to him under
the Employment Agreement assuming Color Tile were performing all of its
obligations thereunder. Rather, this Agreement is being entered into in
recognition of the serious financial difficulties confronting Color Tile and the
desire of Investcorp to assure Brown that whether because of a bankruptcy filing
or otherwise, the financial difficulties of Color Tile shall not result in Brown
failing to receive the base compensation provided for in the Employment
Agreement. The obligations of Investcorp herein shall not excuse Brown from
pursuing by litigation or otherwise his right to payment from Color Tile under
the Employment Agreement where such action is reasonably likely to result in
such payment being made by Color Tile.
4. This Agreement shall be governed by the laws of the State of New York
and Investcorp hereby consents to jurisdiction in the State of New York and
hereby appoints Investcorp International, Inc., 280 Park Avenue, New York, New
York, as its agent for service of process in connection with any dispute arising
under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
-------------------------
Bart A. Brown, Jr.
INVESTCORP BANK E.C.
By________________________
2
FIRST AMENDMENT
FIRST AMENDMENT ( this "Amendment"), dated as of November 9, 1995, to the
Letter of Credit Facility Agreement dated as of September 19, 1995 (the
"Facility Agreement"; capitalized terms used but not defined herein shall have
the respective meanings set forth in the Facility Agreement), between Color
Title, Inc., a Delaware corporation (the "Borrower"), and The Bank of Tokyo,
Ltd., New York Agency (the "Bank").
W I T N E S S E T H :
WHEREAS, the Bank and the Borrower desire to amend the Facility Agreement
in certain respects on the terms and subject to the conditions hereinafter set
forth.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Amendments to Paragraph 1.1
1.1 The definition of "Facility Amount" set forth in Paragraph 1.1 of the
Facility Agreement shall be amended in its entirety to read as follows:
"Facility Amount": $8,000,000, or such lesser amount as may result from a
reduction or reductions thereto pursuant to the terms hereof.
1.2 A new definition of the term "Syndicated Credit Agreement Default"
shall be added to Paragraph 1.1 of the Facility Agreement in appropriate
alphabetical order and shall read as follows:
"Syndicated Credit Agreement Default": any "Event of Default" (as defined
in the Syndicated Credit Agreement, as amended).
2. Amendments to Paragraph 7.
2.1 A new Paragraph 7.3 shall be added to the Facility Agreement
immediately after the end of Paragraph 7.2 f the Facility Agreement and shall
read as follows:
7.3 Handling of Collateral. The Borrower agrees that, so long as this
Agreement is in effect, any Letter of Credit or any Letter of Credit
Reimbursement Obligation remains outstanding or unpaid, or any other amount is
owing to the Bank hereunder or under any other Transaction Document, and in
addition to the covenants of the Borrower set forth in Article III of the
Security Agreement, the Borrower shall continue to handle the Collateral (as
defined in the
-1-
<PAGE>
Security Agreement) pursuant to and in a manner consistent with the
procedures and methods which it had been using to handle Collateral prior to
November 9, 1995, and shall not change or alter such procedures or methods in
any material respect.
3. Amendments to Paragraph 8.1.
3.1 Subparagraph (e) of Paragraph 8.1 of the Facility Agreement shall be
amended in its entirety to read as follows:
(e) Any Syndicated Credit Agreement Default shall have occurred and be
continuing; or the maturity of the Loans (as defined in the Syndicated Credit
Agreement) shall have been accelerated; or
3.2 The period at the end of Subparagraph (f) of Paragraph 8.1 of the
Facility Agreement shall be deleted, the words "; or" shall be inserted in lieu
thereof, and a new Subparagraph (g) shall be added to Paragraph 8.1 of the
Facility Agreement and shall read as follows:
(g) Since November 7, 1995, other than any non-cash charges or reserves
taken by the Borrower on or before December 31, 1995, there shall have been any
change, or any development or event involving a prospective change, which shall
have had or could reasonably be expected to have a material adverse effect on
the business, assets, condition (financial or otherwise) or results of
operations of the Borrower and its subsidiaries taken as a whole.
4. Limited Effect; No Default. The amendments contained herein shall be
limited precisely as drafted and shall not constitute a waiver or amendment of
any other terms of the Facility Agreement or the other terms of the Facility
Agreement or the other Transaction Documents are and shall remain in full force
and effect in accordance with their respective terms. The Borrower hereby
represents and warrants to the Bank that, after giving effect to this Amendment,
(a) each of the representations and warranties made by the Borrower set forth in
the Facility Agreement and the other Transaction Documents shall be true and
correct in all material respects on and as of the date hereof as if made on and
as of such date (unless stated to relate to a specific earlier date, in which
case such representations and warranties shall be true and correct in all
material respects as of such earlier date), but for the giving of notice or the
passage of time, or both, would constitute an Event of Default) shall have
occurred and be continuing.
5. Costs and Expenses. The Borrower hereby agrees to pay on demand all
costs and expenses incurred in connection with the preparation, execution and
delivery of this Amendment, including without limitation, the attorneys' fees
and expenses incurred with respect thereto by the Bank's counsel.
6. Counterparts. This Amendment may be executed by the parties hereto in
any number of separate counterparts and all of said counterparts taken together
shall be deemed to
-2-
<PAGE>
constitute one and the same instrument. This Amendment may be delivered by
facsimile transmission of the relevant signature pages hereof.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF the undersigned have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
above written.
COLOR TILE, INC.
By:/s/ Bart A. Brown, Jr.
Title: Chief Executive Officer
and President
By: /s/ Alan J. Bethcheider
Title: Executive Vice
President, General
Counsel and Secretary
THE BANK OF TOKYO, LTD.,
NEW YORK AGENCY
By:/s/ Victor Bulzacchelli
Title: Attorney-in-Fact
-3-
INDEMNIFICATION AGREEMENT
In consideration for the agreement of the undersigned consultant
(hereinafter referred to as the "Consultant") to continue to provide services to
Investcorp International Inc. ("III"), or one of its subsidiary or affiliated
companies (hereinafter collectively referred to as an "INVESTCORP Group
Company"), INVESTCORP BANK E.C. (a corporate parent of the INVESTCORP Group
Companies, hereinafter referred to as "INVESTCORP") hereby agrees with the
Consultant as follows:
1. Indemnification.
(a) Subject to the terms of this Agreement, INVESTCORP shall hold harmless
and indemnify the Consultant, his or her executors, administrators, successors,
heirs, distributees, devisees, or legatees against any and all expenses,
liabilities, and losses (including, without limitation, investigation expenses
and expert witnesses' and attorneys' fees and expenses, judgments, penalties,
fines, and amounts paid or to be paid in settlement) incurred by the Consultant
(net of any related insurance proceeds or other amounts received by the
Consultant or paid by or on behalf of an INVESTCORP Group Company, or by or on
behalf of a "Designated Entity", as defined below, on the Consultant's behalf in
compensation of such expenses, liabilities or losses), in connection with any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which the Consultant is a party or is
threatened to be made a party (hereinafter collectively referred to as a
"Proceeding"), as a plaintiff, defendant, respondent or otherwise, based upon,
arising from, relating to or by reason of the fact that the Consultant is, was,
shall be or shall have been a consultant to an INVESTCORP Group Company or is or
was serving, shall serve or shall have served at the request of such
Consultant's INVESTCORP Group Company as a director, officer, partner, trustee,
fiduciary, employee, agent or consultant (hereinafter collectively referred to
as a "Designated Entity Consultant") of another INVESTCORP Group Company or of a
foreign or domestic corporation or non-profit corporation, cooperative,
partnership, joint venture, trust, employee benefit plan, or other incorporated
or unincorporated enterprise other than an INVESTCORP Group Company (hereinafter
any such other INVESTCORP Group Company and any such other entity are
collectively referred to as a "Designated Entity"); provided however, that,
except for actions brought by the Consultant pursuant to Section 6(b) hereof,
INVESTCORP shall indemnify the Consultant in connection with any Proceeding (or
part thereof) initiated by the Consultant only if such Proceeding (or part
thereof) was authorized by a two-thirds vote of the Board of Directors of
INVESTCORP (hereinafter referred to as the "Board of Directors").
1
<PAGE>
(b) Subject to the conditions set forth in Section 2 of this Agreement, the
Consultant shall be presumed to be entitled to indemnification under this
Agreement upon submission of a written claim pursuant to Section 2 of this
Agreement. Thereafter, INVESTCORP shall have the burden of proof to overcome the
presumption that the Consultant was so entitled. Such presumption shall only be
overcome by a judgment or other final adjudication after all appeals and all
time for appeals has expired (hereinafter referred to as a "Final
Determination") adverse to the Consultant establishing that his acts were
committed in bad faith, or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that the Consultant
personally gained in fact a financial profit or other advantage to which he was
not legally entitled; in any of which events the Consultant shall not be
entitled to indemnification hereunder and shall be obligated hereunder to
promptly repay to INVESTCORP any amounts previously advanced to or for the
benefit of the Consultant pursuant to Section 2 below.
(c) Neither the failure of INVESTCORP (including its Board of Directors,
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such Proceeding that indemnification of the Consultant was
proper in the circumstances, nor, except with respect to a claim for Advanced
Amounts, as defined in Section 2 below, an actual determination by INVESTCORP
(including by its Board of Directors, by legal counsel, or by its stockholders)
that the Consultant has not met an applicable standard of conduct, shall be a
defense to the action or create a presumption that the Consultant has not met
such applicable standard of conduct.
(d) The purchase, establishment, or maintenance of any insurance or similar
protection or the indemnification of the Consultant by any other person, or the
making of any other arrangements on behalf of the Consultant against any
liability asserted against him (hereinafter collectively referred to as
"Indemnification Arrangements") shall not in any way diminish, restrict, limit
or affect the rights and obligations of INVESTCORP or of the Consultant under
this Agreement except as expressly provided herein, and the rights provided in
this Agreement shall not in any way diminish, restrict, limit or affect the
Consultant's right to indemnification from INVESTCORP or from any other party or
parties under any other Indemnification Arrangement, a resolution of the Board
of Directors or applicable law.
2. Claims Including for Payment of Advanced Amounts.
(a) In order to make any claim for payment by INVESTCORP of any amount,
including any Advanced Amount, pursuant to this Agreement (hereinafter referred
to as a "Claim"), the Consultant shall deliver to INVESTCORP a written
2
<PAGE>
request for payment in the manner provided in Section 7. Such Claim shall
include a schedule setting forth in reasonable detail the dollar amount expended
(or incurred or expected to be expended or incurred). Each item on such schedule
shall be supported by the bill, agreement, or other documentation relating
thereto, a copy of which shall be appended to the schedule as an exhibit. Where
the Consultant is making a Claim for Advanced Amounts, the Consultant must
include as part of such an undertaking to repay all such Advanced Amounts if a
Final Determination is made as provided in paragraph 1(b) above.
(b) Subject to paragraph 2(c) below, the Consultant shall have the right to
receive from INVESTCORP on demand, or at his option to have INVESTCORP pay
promptly on his behalf, in advance of a Final Determination of a Proceeding, all
amounts payable by INVESTCORP in accordance with its indemnification pursuant to
the terms of this Agreement as corresponding amounts are expended or incurred by
the Consultant (such amounts so expended or incurred are collectively referred
to hereinafter as "Advanced Amounts").
(c) Notwithstanding paragraph 2(b), or any other provision of this
Agreement, no Advanced Amounts shall be payable by INVESTCORP if promptly
following receipt of a Claim hereunder, the Board of Directors determines,
beyond a reasonable doubt, that based upon the facts known to the Board of
Directors at the time such determination is made (i) the Consultant acted in bad
faith or in a manner that he did not believe to be in or not opposed to the best
interest of the Company, or (ii) with respect to any criminal proceeding, the
Consultant believed or had reasonable cause to believe his conduct was unlawful,
or (iii) the Consultant deliberately breached his duty to an INVESTCORP Group
Company or to its stockholders.
3. Continuation of Indemnity.
All agreements and obligations of INVESTCORP contained herein shall
continue during the period that the Consultant is retained by an INVESTCORP
Group Company (or is serving at the request of an INVESTCORP Group Company as an
employee of a Designated Entity) and shall continue thereafter so long as the
Consultant shall be subject to any possible Proceeding by reason of the fact
that the Consultant was a consultant to an INVESTCORP Group Company or was
serving in any other capacity referred to herein.
4. Successors: Binding Agreement.
(a) This Agreement shall be binding on and shall inure to the benefit of
and be enforceable by INVESTCORP's successors and assigns and by the
Consultant's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees.
3
<PAGE>
(b) Subject to the following sentence, INVESTC0RP shall, when entering into
an agreement for the Transfer of INVESTCORP or of substantially all of the
business and/or assets of INVESTCORP, require any acquiror, successor or
assignee (whether direct or indirect, by purchase, merger, consolidation, or
otherwise) of INVESTCORP or to all or substantially all of the business and/or
assets of INVESTCORP, by written agreement in form and substance reasonably
satisfactory to INVESTCORP, expressly to assume and agree to perform the
provisions of this Agreement in the same manner and to the same extent that
INVESTCORP would be required to perform them if no such Transfer succession or
assignment had taken place. The foregoing notwithstanding if the acquiror,
successor or assignee would be prohibited by law from assuming and agreeing to
perform the provisions of this Agreement as aforesaid, then INVESTC0RP shall
require such acquiror, successor or assignee to provide protection to the
Consultant consistent with this Agreement to the fullest enforceable extent.
5. Notification and Defense of Claim.
Promptly after the Consultant's receipt of notice of the commencement of
any Proceeding, if a claim in respect thereof is to be made against INVESTCORP
under this Agreement, the Consultant shall notify INVESTCORP of the commencement
thereof in the manner provided in Section 7 of this Agreement. However, the
omission so to notify INVESTCORP will not relieve INVESTCORP from, or reduce the
extent of, any liability that INVESTCORP may have to Consultant with respect to
any such Proceeding, unless a court of competent jurisdiction shall determine
that the Consultant acted intentionally or was negligent in failing to give such
notice and that the delay or failure to give such notice materially prejudiced
INVESTCORP's rights under this Agreement. In connection with any such Proceeding
- -
(a) INVESTCORP and any affected INVESTCORP Group Company shall be entitled
to participate therein at its own expense;
(b) Except with prior written consent of the Consultant, neither INVESTCORP
nor any such INVESTCORP Group Company shall be entitled to assume the defense of
such Proceeding; and
(c) INVESTCORP shall not settle such Proceeding in any manner that would
impose any penalty or limitation on the Consultant without the Consultant's
written consent, and the Consultant shall not settle any Proceeding with respect
to which the Consultant has received or intends to seek indemnification
hereunder without INVESTCORP's written consent. Neither INVESTCORP nor the
Consultant will unreasonably withhold consent to any proposed settlement.
4
<PAGE>
6. Enforcement.
(a) INVESTCORP has entered into this Agreement and has assumed the
obligations imposed on it thereby, in order to induce the Consultant to act as a
consultant to an INVESTCORP Group Company, and acknowledges that the Consultant
is relying upon the provisions of this Agreement in continuing in such capacity.
(b) In the event the Consultant has submitted a Claim for payment of any
amount under this Agreement and within thirty (30) days of such Claim, either
(i) the Consultant has not received payment thereof, or (ii) in the case of a
Claim for Advanced Amounts, the Consultant has received written notice from
INVESTCORP that the Board of Directors has denied the obligation to pay such
Advanced Payments as provided in Section 2, then the Consultant may bring an
action to enforce the Consultant's rights or to collect moneys due to the
Consultant under this Agreement and if the Consultant is successful in such
action, INVESTCORP shall reimburse the Consultant for all of the Consultant's
fees and expenses in bringing and pursuing such action, plus interest on the
amount at issue in such action accruing at the rate of ten percent (10%) per
annum from the date that such request was made until such indemnification is
paid. In connection with such action, the Consultant shall be entitled to the
advancement of expenses to the full extent contemplated by Section 2 hereof.
(c) INVESTCORP hereby consents that any such action against it may be
brought in any court of the jurisdiction in which the Consultant resides or in a
state or federal court (or both) in the State of New York. With regard to any
such action INVESTCORP will accept, generally and unconditionally, the
jurisdiction of the aforesaid courts. INVESTCORP further consents to the service
of process out of any of the aforementioned courts in any such Proceeding by any
of the means specified in Section 7 below, such service of process to become
effective upon receipt thereof by INVESTC0RP. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against any other party in any
other jurisdiction.
(d) Neither the Board of Directors nor any member thereof making a
determination in good faith adverse to the Consultant's right to Advanced
Amounts under this Agreement, as permitted by paragraph 2(c) above, shall have
any personal liability to the Consultant on account of such determination,
whether or not the Consultant's right to indemnification under this Agreement,
and therefore to have received Advanced Amounts pursuant hereto, is subsequently
confirmed or enforced pursuant to this Section 6.
5
<PAGE>
7. Claims and Other Notices.
(a) Any claim for indemnification under this Agreement or other notice to
INVESTCORP pursuant to this Agreement shall be made in writing, and may be given
(i) by facsimile and air courier (DHL, Federal Express or other express),
delivery of the original thereof to INVESTCORP, c/o III to the attention of E.
Garrett Bewkes, or (ii) by hand delivery to E. Garrett Bewkes, at III, in New
York, New York.
(b) Any notice to the Consultant may be given by INVESTCORP (i) by
facsimile transmission to the Consultant at his place of work, if the Consultant
is then retained by an INVESTCORP Group Company, and mailing such notice,
postage prepaid, to the Consultant at such Consultant's address specified in any
Claim to which such notice relates, and in the absence thereof, at the
Consultant's address in the records of the INVESTCORP Group Company by which the
Consultant is retained, (ii) by air courier addressed as provided in (i) above,
or (iii) by personal delivery of the notice to the Consultant.
(c) Any claim or notice under this Agreement shall be effective under this
Agreement only when actually received by the person to whom it is addressed.
8. Severability.
If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable for any reason whatsoever,
(a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including without limitation, all portions of any Sections or
paragraphs of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any Sections or paragraphs of
this Agreement containing any such provision held to be invalid, illegal, or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent of the parties that INVESTCORP
provide protection to the Consultant consistent with the terms of this Agreement
to the fullest enforceable extent.
9. Choice of Law.
The provisions of this Agreement shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of Delaware.
6
<PAGE>
IN WITNESS WHEREOF, INVESTCORP and the Consultant have executed and
delivered this Indemnification Agreement, intending it to be effective as of the
commencement date of the Consultant's retention by an INVESTCORP Group Company,
including as to any facts and circumstances arising prior to the date of
execution of this Agreement.
INVESTCORP BANK E.C.
By: /s/ Elias N. Hallak
CONSULTANT
/s/ Perry Odak
Perry Odak
7
Chemical Bank
270 Park Avenue
New York, NY 10017-2070
November 8, 1995
Bart A. Brown
President and Chief Executive Officer
Color Tile, Inc.
515 Houston Street
Fort Worth, Texas 76102-3933
Re: Amendment of Chemical Bank $15,000,000 Note
Dear Bart:
Reference is made to the $15,000,000 Promissory Note, dated September 28,
1995 (the "Note"), made by Color Tile, Inc. (the "Company") in favor of Chemical
Bank (the "Bank").
Subsection 6(b) of the Note (Events of Default) is hereby amended by adding
the following phrase immediately after the words "other amount becomes due" in
clause (iii)(A)(y) of said subsection: "(or on or before January 14, 1996 in the
case of the interest payment due on December 31, 1995)".
Except to the extent amended pursuant to this Amendment, the provisions of
the Note are and shall remain in full force and effect in accordance with their
terms. This Amendment may be executed by the Company and the Bank in separate
counterparts and both of said counterparts taken together shall be deemed to
constitute one and the same instrument. This Amendment shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York.
<PAGE>
Bart Brown -2- November 8, 1995
This Amendment shall become effective as of November 8, 1995 upon receipt
by the Bank of an executed copy of this Amendment duly executed and delivered by
a duly authorized officer of the Company and the Bank.
COLOR TILE, INC.
By: /s/ Bart A. Brown, Jr.
Title: Chairman
CHEMICAL BANK
By: /s/ Mary Ellen Egbert
Title: Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COLOR TILE
TILE, INC.'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY
PERIOD ENDED OCTOBER 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO
</LEGEND>
<CIK> 0000276780
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-1-1995
<CASH> 26558
<SECURITIES> 0
<RECEIVABLES> 13043
<ALLOWANCES> 3141
<INVENTORY> 58895
<CURRENT-ASSETS> 101460
<PP&E> 124138
<DEPRECIATION> 0
<TOTAL-ASSETS> 538898
<CURRENT-LIABILITIES> 328355
<BONDS> 198195
<COMMON> 0
99860
0
<OTHER-SE> (93880)
<TOTAL-LIABILITY-AND-EQUITY> 538898
<SALES> 491487
<TOTAL-REVENUES> 491487
<CGS> 305435
<TOTAL-COSTS> 305435
<OTHER-EXPENSES> 34934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33942
<INCOME-PRETAX> (75255)
<INCOME-TAX> 518
<INCOME-CONTINUING> (75773)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75773)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
