<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED EFFECTIVE OCTOBER 7, 1996]
FOR FISCAL YEAR ENDED DECEMBER 29, 1996
COMMISSION FILE NO: 0-12016
INTERFACE, INC.
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1451243
----------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
2859 PACES FERRY ROAD
SUITE 2000
ATLANTA, GEORGIA 30339
- -------------------------------------- ---------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (770) 437-6800
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $0.10 PAR VALUE PER SHARE
-----------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 11, 1997 (assuming conversion of Class B Common Stock
into Class A Common Stock): $521,442,310 (21,670,330 shares valued at the last
sales price of $24.0625). See Item 12.
Number of shares outstanding of each of the registrant's classes of Common
Stock, as of March 11, 1997:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Class A Common Stock,
$0.10 par value per share .....................20,635,229
Class B Common Stock,
$0.10 par value per share ..................... 2,855,482
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
December 29, 1996 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders
are incorporated by reference into Part III.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Interface, Inc. ("Interface" or the "Company") was founded in 1973 to
pioneer the introduction of the carpet tile concept in the United States, and is
a global manufacturer and marketer of products for the commercial and
institutional interiors market. The Company is the worldwide leader in the
modular carpet segment (which includes both carpet tile and six-foot roll goods)
with a 40% market share. Through its strategic acquisitions of Bentley Mills,
Inc. ("Bentley Mills") in 1993 and Prince Street Technologies, Ltd. ("Prince
Street") in 1994, the Company entered the broadloom carpet segment with leading
product lines for the high quality, designer-oriented sector of the broadloom
segment. The Company now provides specialized carpet replacement services
through its Renovisions, Inc. ("Renovisions") subsidiary and installation and
maintenance services through its new domestic dealer network, which operates
under the name Re:Source Americas. The Company, through its Interface Interior
Fabrics, Inc. (formerly Guilford of Maine, Inc.) ("Interface Fabrics")
subsidiary, is the leading U.S. manufacturer of panel fabrics for use in open
plan office furniture systems, with a market share in excess of 50%. The
Company's specialty products operations produce a variety of products, including
chemical compounds and additives for use in various rubber and plastic products,
and a proprietary antimicrobial additive that is used in the Company's carpet
and fabrics products and licensed to others for use in interior finishing
products that do not compete with the Company's products; the specialty products
operations also manufacture raised/access flooring systems. In fiscal 1996, the
Company had total sales of approximately $1 billion, with carpet sales of $804
million, fabric sales of $149 million, and chemicals and specialty products
sales of $48 million, accounting for 80%, 15% and 5% of total sales,
respectively.
The Company markets products in over 100 countries around the world under
such well-known brand names as Interface and Heuga in modular carpet; Bentley
Mills and Prince Street in broadloom carpets; Guilford of Maine, Stevens Linen,
Toltec and Intek in interior fabrics; Intersept in chemicals; and C-Tec,
Intercell and Interstitial Systems in raised/access flooring systems. The
Company's principal geographic markets are North America (68% of 1996 sales),
the United Kingdom and Western Europe (25% of 1996 sales), and Japan and
Australia (4% of 1996 sales). The Company is aggressively developing
opportunities in Greater China and Southeast Asia, South America, and Central
and Eastern Europe, which represent significant growth markets for the Company.
The Company's worldwide marketing efforts are facilitated by having 27
manufacturing facilities at varied locations in North America, Europe, Southeast
Asia and Australia. Worldwide manufacturing locations enable the Company to
compete effectively with local producers in its international markets, while
also providing advantages (such as affording international customers more
favorable delivery times and freight costs) over competitors who must import
their products into such markets. These capabilities are an important
competitive advantage to Interface in serving the needs of multinational
corporate customers who require uniform products and services at their various
locations around the world.
The Company utilizes an internal marketing and sales force of over 700
experienced personnel (the largest in the commercial floorcovering industry),
stationed at over 90 locations in over 35 countries, to market the Company's
carpet products and services in person to its customers. The Company's Fabrics
Group has its own specialized marketing and sales force (approximately 100
persons) for marketing the Company's interior fabrics products. The Company also
utilizes Re:Source Americas network dealers to achieve additional marketing
coverage for all its products. The Company focuses its sales efforts at the
design phase of commercial projects. Interface personnel cultivate relationships
both with the owners and users of the facilities involved in the projects and
with specifiers such as architects, interior designers, engineers and
contracting firms who are directly involved in specifying products and who often
make or significantly influence purchase decisions. The Company emphasizes its
product design and styling capabilities and its ability to provide creative,
high value solutions to its customers' needs. Interface marketing and sales
personnel also serve as a primary technical resource for the Company's
customers, both with respect to product maintenance and service as well as
design matters.
In 1996, the Company implemented a nationwide initiative to form a new
distribution channel for its commercial carpet products through the formation of
the Re:Source Americas network. Under this program, in 1996, the Company
acquired or invested in 20 strategically located commercial floorcovering
contractors, and formed preferred distributorship alliances with 59 select
dealers throughout the United States. The Company has employed the former
management team of StarNet (the largest consortium of floorcovering contractors
in the U.S.) to help the Company integrate and manage the Re:Source Americas
network. The Company believes that the program has resulted in (i) increased
sales of Company products as dealers in the network have begun to supply Company
products on a preferred basis, (ii) enhanced customer satisfaction by providing
hassle-free service throughout the process of selecting, purchasing, installing
and maintaining carpet products, and (iii) the opportunity to improve operating
margins for owned dealers, as well as for the Company, by consolidating
administrative functions of dealers and coordinating and streamlining sales
efforts by Company and dealer sales personnel.
INDUSTRY TRENDS AND COMPANY STRENGTHS
In recent years, the Company's revenue has been derived primarily from the
renovation market. The Company believes that the commercial and institutional
market for floorcovering products, which experienced a significant decline in
demand during the early 1990's, has rebounded significantly in the United States
primarily due to renovation projects and, to a lesser extent, new construction.
Excess office space from the 1980's is being absorbed, businesses are beginning
to experience growth, and carpeting installed during the 1980's construction
boom is beginning to be updated or replaced as part of remodeling projects. In
international markets, overall demand for commercial floorcovering products is
also beginning to increase, especially in certain countries in the Asia-Pacific
region where new construction projects are increasing, and also in more
developed markets where products are being used for an increasing number of
remodeling or refurbishing projects. The Company also believes that, within the
overall floorcovering market, the demand for modular carpet is increasing
worldwide as more customers recognize its advantages in terms of greater design
options and flexibility, longer average life, and ease of access to sub-floor
wiring.
<PAGE> 3
Management believes that the Company benefits from several significant
competitive advantages, which will assist it in sustaining and enhancing its
position as a market leader. The Company's principal strengths include: (i) an
excellent reputation for quality, service and reliability; (ii) strong,
well-known brand names; (iii) efficient and low-cost manufacturing operations in
several locations around the world; (iv) strong customer and architectural and
design community relationships; (v) award-winning and innovative product design
and development capabilities; and (vi) state-of-the-art production equipment and
technologically advanced systems. These strengths coupled with the Company's
broad and diversified mix of product lines enable Interface to take a "total
interior solution" approach to serving the needs of its customers around the
world and position the Company to benefit from the recent industry developments.
BUSINESS STRATEGY AND PRINCIPAL INITIATIVES
Interface's long-standing corporate strategy has been to diversify and
integrate worldwide. The Company seeks to diversify by developing internally or
acquiring related product lines and businesses in the commercial interiors
field; and to integrate by identifying and developing synergies and operating
efficiencies among the Company's diverse products and global businesses. In
continuing that strategy, the Company is pursuing the following principal
strategic initiatives:
Enhancement of Design Capabilities. In January 1994, the Company engaged
the leading design firm Roman Oakey, Inc. (under an exclusive consulting
contract) to augment the Company's internal research, development and design
staff. The Company introduced 57 new carpet designs in the U.S. in 1994 (the
largest number in one year in the Company's history), and received eight (out of
a possible 12) U.S. carpet industry design awards bestowed by the International
Interior Design Association (IIDA), including all five awards in the carpet tile
division. In 1995, the Company introduced over 35 new carpet designs and
garnered three IIDA awards and, in 1996, the Company introduced over 30 new
carpet designs. In 1996, Roman Oakey's design services were extended to the
Company's international carpet operations and an affiliate of that firm was
engaged to provide similar design services to the Company's interior fabrics
business (which already has significant capabilities in this area).
Globalization of the "Mass Customization" Production Strategy. The goal of
mass customization is to be able to respond to customers' requirements for
custom or highly styled products by quickly and efficiently producing both
custom samples and the ultimate products, and to determine proven "winners" that
can be manufactured for inventory for broader distribution. Mass customization
was introduced to the Company's U.S. carpet tile business in 1994, and its
principal components included (i) developing a simplified but versatile yarn
utilization system, (ii) investing in highly efficient, state-of-the-art tufting
and custom sampling equipment, and (iii) utilizing innovative design and styling
to create products. The initiative has resulted in substantial operating
improvements in the U.S. carpet tile business in 1995 and 1996, including
increased margins and reduced inventory levels of both raw materials and
standard products. In 1996, the Company implemented aspects of the mass
customization production initiative for its floorcovering operations in Europe
and Australia, and its interior fabrics operations.
Diversification, Expansion and Increased Efficiency in the Interior Fabrics
Business. In response to a shift in demand towards lighter weight, less
expensive fabrics by OEM panel fabric customers, the Company initiated a
significant capital investment program at Interface Fabrics to consolidate and
modernize its yarn manufacturing operations. This program should result in
significant efficiencies and cost savings, which are expected to permit recovery
of that capital investment in approximately two years, as well as new product
capabilities. The Company's new state-of-the-art yarn manufacturing facility in
Guilford, Maine began operating in 1996, and should be fully operational by
March 1997. Interface's strategic acquisitions of Toltec Fabrics, Inc. ("Toltec
Fabrics") in June 1995, and of the Intek division of Springs Industries (now
operated as Intek, Inc.) in December 1995, provide further diversification into
upholstery and seating fabrics; penetrate certain niche markets where Interface
Fabrics has not previously been active; and provide operating efficiencies as a
number of manufacturing processes currently outsourced by these businesses are
brought in-house. Interface will also continue to devote resources to Interface
Fabrics' export business.
War-on-Waste and EcoSense Programs. In January 1995, the Company initiated
a worldwide war-on-waste program. Applying a zero-based definition of waste
(broadly defined as any measurable cost that goes into manufacturing a product
but does not result in identifiable value to the customer), management believes
the Company can eliminate approximately $75 million of such waste by the end of
1998. The Company realized an aggregate of approximately $25 million in savings
(through eliminating such waste) during fiscal 1995 and 1996. The war-on-waste
program represents a first step in the Company's broader EcoSense initiative,
which is inspired in major part by the interest of important customers who are
concerned about the environmental implications of how they and their suppliers
do business. EcoSense is the Company's long-range program to achieve greater
resource efficiency and, ultimately, ecological "sustainability" -- that is,
the point at which Interface is no longer a net "taker" from the earth. Its key
elements are closed loop recycling to obtain all principal raw materials;
tapping benign sources of energy (other than fossil fuels) to drive production
processes; and, most immediately, eliminating waste of raw materials and energy
from all operations. The Company believes that its pursuit of these initiatives
provides a competitive advantage in marketing its products to an increasing
number of important customers.
Increased Integration of Marketing Efforts and Operational Consolidations
"Total Interior Solutions". The Company's objective is to use the complementary
nature of its product lines to implement a "total interior solution" approach to
serving the diverse needs of customers worldwide. Marketing and sales personnel
are being trained in cross-marketing techniques, and the Company is implementing
a marketing communications network to link its worldwide marketing and sales
force. As a related initiative, the Company has consolidated management
responsibility for certain key operational areas, which has significantly
increased global cooperation and coordination in product planning, production
and marketing activities - in effect, "hooking it up". In addition, the new
Re:Source Americas network provides a channel for delivery of a variety of
-2-
<PAGE> 4
services and products offered by the Company in addition to commercial carpet,
including carpet replacement services, adhesives and cleaning chemicals,
specialty products, and raised/access flooring systems.
Geographic Expansion of Manufacturing in Developing Markets. A key element
of the Company's worldwide focus is having manufacturing (as well as marketing
and service) capabilities in important locations around the world that can
produce the same product. The Company constructed a carpet tile manufacturing
facility in Thailand which became operational in March 1996, and it has entered
into a joint venture to manufacture carpet tile in China. The Company will
consider additional locations for manufacturing operations in other parts of the
world as necessary to meet the needs of its existing and future customers.
Investment in Employees. An important component of the Company's recent
success is its commitment to developing and maintaining an enthusiastic and
collaberative work force. To that end, over the past three years, the Company
has made a substantial investment in its 6,000 employees worldwide. In 1996,
thousands of employees participated in a three-day session designed by Pecos
River Learning Center, known as "Play to Win(R)" which combines classroom-style
learning with physically challenging outdoor activities. The Company believes
that this program promotes team-building, and results in increased levels of
mutual trust and respect among employees.
MODULAR AND BROADLOOM CARPET
Products
The Company's traditional business has centered on the development,
manufacture, marketing and servicing of modular carpet, which includes carpet
tile and six-foot roll goods. The Company is the world's largest manufacturer
and marketer of modular carpet, with a 40% worldwide market share. Broadloom
carpet generally consists of tufted carpet sold primarily in twelve-foot rolls.
The Company's broadloom carpet operations are conducted through Bentley Mills
and Prince Street, both of which focus on the high quality, designer-oriented
sector of the broadloom carpet market.
Modular Carpet. The Company's free-lay modular carpet system utilizes
carpet tiles cut in precise, dimensionally stable squares (usually 50 square
centimeters) to produce a floorcovering which combines the appearance and
texture of broadloom carpet with the advantages of a modular carpet system. The
growing use of open plan interiors and modern office arrangements utilizing
demountable, movable partitions and modular furniture systems has encouraged the
use of carpet tile, as compared to other soft surface flooring products. The
Company's GlasBac(R) technology employs a unique, fiberglass-reinforced
polymeric composite backing that allows the tile to be installed and remain flat
on the floor without the need for general application of adhesives or use of
fasteners. Carpet tile thus may be easily removed and replaced, permitting
rearrangement of office partitions and modular furniture systems without the
inconvenience and expense associated with removing, replacing or repairing other
soft surface flooring products, including broadloom carpeting. Carpet tile
facilitates access to sub-floor telephone, electrical, computer and other wiring
by lessening disruption of operations, and also eliminates the cumulative damage
and unsightly appearance commonly associated with frequent cutting of
conventional carpet as utility connections and disconnections are made. Because
a relatively small portion of a carpet installation often receives the bulk of
traffic and wear, the ability to rotate carpet tiles between high traffic and
low traffic areas and to selectively replace worn tiles can significantly
increase the average life and cost efficiency of the floorcovering.
The Company uses a number of conventional and technologically advanced
methods of carpet construction to produce carpet tiles in a wide variety of
colors, patterns, textures, pile heights and densities designed to meet both the
practical and aesthetic needs of a broad spectrum of commercial interiors --
particularly offices, health care facilities, airports, educational and other
institutions, and retail facilities. The Company's carpet tile systems permit
distinctive styling and patterning that can be used to complement interior
designs, to set off areas for particular purposes and to convey graphic
information. While the Company continues to manufacture and sell the major
portion of its carpet tile in standard styles, an increasing volume of the
Company's modular carpet sales are custom or made-to-order products designed to
meet particular customer specifications.
The Company produces and sells carpet tile specially adapted for the health
care facilities market. The Company's carpet tile possesses characteristics
(such as the use of the Intersept(R) antimicrobial, static-controlling nylon
yarns, and thermally pigmented, colorfast yarns) making it suitable for use in
such facilities in lieu of hard surface flooring.
The Company also manufactures and sells fusion-bonded, tufted and
needle-punched six-foot roll goods under the System Six(R) mark. Six-foot roll
goods are structure-backed and offer many of the advantages of both carpet tiles
and broadloom carpet. They are often used in conjunction with carpet tiles to
create special design effects. The Company's current principal customers for
System Six products are in the education, health care and government sectors.
The Company believes, however, that the demand for six-foot roll goods is
increasing generally within the commercial and institutional interiors market,
and expects six-foot roll goods to account for a growing percentage of its U.S.
modular carpet sales in the future.
Broadloom Carpet. The Company has obtained a significant share of the
high-end, designer-oriented broadloom carpet segment by combining innovative
product design and styling capabilities and short production and delivery times
with a marketing strategy geared toward serving and working closely with
interior designers, architects and other specifiers. Prince Street's
design-sensitive broadloom products center around unique, multidimensional
textured carpets with a hand-tufted look, while Bentley Mills' designs emphasize
the dramatic use of color. Collectively, they won three APEX (a product of
excellence) awards in 1994 and two in 1995, from the International Interior
Design Association, and the Prince Street and Bentley Mills brands were rated
the number one and two brands, respectively, for carpet design in the U.S.
according to a 1995 survey of interior designers published in the Floor Focus
industry publication. (The Company's Interface Flooring Systems brand was rated
number three.)
-3-
<PAGE> 5
Services
The Company now provides commercial carpet installation and maintenance
services through the Re:Source Americas network. As of December 29, 1996, the
Re:Source Americas network was comprised of 79 commercial floorcovering dealers
strategically located throughout the United States. The new network: (i) allows
the Company to influence and monitor customer satisfaction throughout the
ownership cycle, from specification through reclamation; (ii) reduces the
Company's cost of selling by bolstering efforts of sales representatives at the
mill level with dealer-level support; and (iii) achieves efficiencies by
consolidating administrative functions of dealers. The Re:Source Americas
network also provides a channel for delivery of a variety of services and
products offered by the Company in addition to commercial carpet, including
carpet replacement services offered by Renovisions (described below), adhesives
and cleaning chemicals manufactured by Rockland React-Rite, specialty products
manufactured by Pandel, and raised/access flooring systems produced by Interface
Architectural Resources.
Renovisions, acquired by the Company in February 1996, is a nationwide
installation services firm that has pioneered a new method of carpet
replacement. The Renovisions(R) process utilizes patented lifting equipment and
specialty tools to lift office equipment and modular workstations in place,
permitting the economical replacement of existing carpet with virtually no
disruption of the customer's business. Other proprietary products facilitate the
movement of file cabinets, office furniture, and even complete work stations
without the inefficiency and disruption associated with unloading and
dismantling the items being moved.
Marketing and Sales
The Company traditionally has focused its carpet marketing strategy on
major accounts, seeking to build lasting relationships with national and
multinational end-users, and on specifiers, such as architects, interior
designers, engineers and contracting firms who often make or significantly
influence the purchase decision. The acquisitions of Bentley Mills and Prince
Street significantly strengthened the Company's relationships with interior
designers and architects and has enhanced the Company's ability to target those
and other specifiers at the critical design stage of commercial projects. The
Company emphasizes sales to the commercial office sector, both new construction
and renovation, as well as to health care facilities, governmental institutions
and public facilities, including libraries, museums, convention and hospitality
centers, airports, schools and hotels. The Company's marketing efforts are
enhanced by the well-known brand names of its carpet products, including
Interface and Heuga in modular carpet, and Bentley Mills and Prince Street in
broadloom carpet.
An important part of the Company's marketing and sales efforts involves the
preparation of custom made samples of requested carpet designs, in conjunction
with the development of innovative product designs and styles that meet the
customer's particular needs. (See "-- Business Strategy and Principal
Initiatives", above, and "-- Product Design, Research and Development", below.)
The Company's mass customization initiative, implemented for its U.S. modular
carpet operations in 1994, included the simplification of the Company's carpet
manufacturing operations and the purchase of five custom sample production
machines, which significantly improved its ability to respond quickly and
efficiently to requests for samples. The turnaround time for the Company to
produce made-to-order carpet samples to customer specifications has been reduced
from an average of 30 days in 1993 to 3 days in 1996, and the average number of
carpet samples produced per month has increased from 90 per month in 1993 to
over 1,300 per month in 1996. This ability has significantly enhanced the
Company's marketing and sales efforts, and has increased the Company's volume of
higher margin custom or made-to-order sales.
The Company primarily uses its internal marketing and sales force of over
700 persons to market its carpet products, and it also relies on Re:Source
Americas network dealers to bolster its sales efforts. The Company maintains a
Creative Services staff that works directly with clients on major design
projects. The efforts of these personnel in helping with product selection,
customer specifications and unique approaches to design and styling issues are
an important component of the marketing aspect of the Company's mass
customization approach. In order to implement its global marketing efforts, the
Company has product and design studios in the United States, England, France,
Germany, Spain, Norway, the Netherlands, Australia, Japan and Singapore. The
Company expects to continue to open such offices in other locations around the
world as necessary to capitalize on emerging marketing opportunities.
As part of its full service approach to marketing, the Company maintains a
Field Services staff to provide on-site customer service for both in-progress
and completed installations. (The Company's ability to provide customer service
also has been significantly enhanced, and will continue to be enhanced in the
future, through the formation and expansion of the Re:Source Americas network.)
In Europe, the Company has licensed selected independent service contractors to
provide carpet maintenance services under the mark, IMAGE(SM) (Interface
Maintenance Advisory Group of Europe).
Manufacturing
The Company manufactures carpet in the United States, the Netherlands, the
United Kingdom, Canada, Australia and Southeast Asia. In addition to enhancing
the Company's ability to develop a strong local presence in foreign markets,
having foreign manufacturing operations enables the Company to supply its
customers with carpet from the location offering the most advantageous terms for
delivery times, exchange rates, duties and tariffs and freight expense. The
Company believes that the ability to offer consistent products and services on a
worldwide basis at attractive prices is an important competitive advantage in
servicing multinational customers seeking global supply relationships.
Consistent with this strategy, the Company in 1996 entered into a joint venture
(owned 70% by the Company) with BASF Corporation and Shanghai China Textile
International Science & Technological Industrial City Development Company, a
Chinese government-sponsored company, to build a carpet tile manufacturing
facility in China. The Company will consider additional locations for
manufacturing operations in other parts of the world as necessary to meet the
demands of customers in growing international markets.
-4-
<PAGE> 6
The Company's significant international operations are subject to various
political, economic and other uncertainties, including risks of restrictive
taxation policies, foreign exchange restrictions, changing political conditions
and governmental regulations. The Company also receives a substantial portion of
its revenues in currencies other than U.S. Dollars, which makes it subject to
the risks inherent in currency translations. Although the Company's ability to
manufacture and ship products from facilities in several foreign countries
reduces the risks of foreign currency fluctuations it might otherwise
experience, and the Company also engages from time to time in hedging programs
intended to reduce further those risks, the scope and volume of the Company's
global operations make it impossible to eliminate completely all foreign
currency translation risks as a factor for the Company's financial results.
The Company utilizes both conventional and technologically advanced methods
of carpet construction. The use of multiple manufacturing processes enables the
Company to manufacture carpet of a variety of designs and styles which can be
sold over a broad range of prices to different sectors of its markets. The
Company is able to manufacture carpet utilizing any of three different
fusion-bonding processes, a tufting process and a needle-punching process.
Tufted products currently account for the substantial majority of the Company's
carpet sales. In 1994 and 1995, the Company made a major capital investment in
high speed tufting technology to improve its tufting operations.
In 1995 and 1996, the Company implemented a manufacturing plan in which it
standardized its worldwide manufacturing procedures. In connection with the
implementation of this plan, the Company adopted global standards for its
tufting equipment, yarn systems and product styling, and changed its standard
carpet tile size from 18 square inches to 50 square centimeters. The Company
believes that changing its standard carpet tile size will allow it to reduce
operational waste and fossil fuel energy consumption, in addition to offering
consistent product sizing for its global customers.
In 1994, the Company entered into arrangements with E. I. DuPont de Nemours
and Company ("DuPont") pursuant to which the Company currently obtains a
significant percentage of its requirements for synthetic fiber (the principal
raw material used in the Company's carpet products). The Company believes that
these arrangements, which reflect the Company's effort to consolidate
purchasing, permit the Company to obtain favorable terms. However, the Company
currently purchases fiber from other long-term suppliers, and there are adequate
alternative sources of supply from which the Company could fulfill its synthetic
fiber requirements if its arrangements with DuPont should change. Other raw
materials used by the Company are also readily available from a number of
sources.
Competition
The commercial floorcovering industry is highly competitive. The Company
competes, on a global basis, in the sale of its modular and broadloom carpet
with other carpet manufacturers and manufacturers of vinyl and other types of
floorcovering. Although the industry recently has experienced significant
consolidation, a large number of manufacturers remain in the industry.
Management believes that the Company is the largest manufacturer of modular
carpet in the world, possessing a global market share that is more than two
times that of its nearest competitor. However, a number of domestic and foreign
competitors manufacture modular carpet as one segment of their business, and
certain of these competitors have financial resources in excess of the
Company's.
The Company believes the principal competitive factors in its primary
floorcovering markets are quality, design, service, broad product lines, product
life, marketing strategy, and pricing. In the commercial office market, modular
carpet competes with various floorcoverings, of which broadloom carpet is the
most common. The quality, service, design, longer average life, flexibility
(design options, selective rotation or replacement, use in combination with roll
goods) and convenience of the Company's modular carpet are its principal
competitive advantages, which are offset in part by its higher initial cost for
comparable grades of broadloom carpet. The acquisitions of Bentley Mills and
Prince Street, with their broadloom carpet product lines, have enhanced the
Company's competitive position by enabling the Company to offer one-stop
shopping to commercial carpet customers and thus to capture some sales that
would have gone to competitors. In addition, the Company believes that the
formation of the Re:Source Americas network, and the attendant improvements in
customer service, have further enhanced the Company's competitive position.
In the health care facilities market, the Company's products compete
primarily with resilient tile. The Company believes that treatment of its
modular carpet with the Intersept antimicrobial chemical agent is a material
factor in its ability to compete successfully in the health care market.
INTERIOR FABRICS
Products
The Company, through Interface Fabrics and its other Interior Fabrics
Group subsidiaries, designs, manufactures and markets specialty fabrics for open
plan office furniture systems and commercial interiors. Sales of panel fabrics
to original equipment manufacturers (OEMs) of movable office furniture systems
constitute the principal portion of the Company's interior fabric operations
(approximately 59% of total fabrics sales in fiscal 1996). In addition, the
Company produces woven and knitted seating fabrics, wall covering fabrics that
are paper-backed for vertical wall surfaces or acrylic-backed for panel-wall
application, ceiling fabrics used to cover tiles or for stretch ceiling
construction, and fabrics used for vertical blinds in office interiors.
Open plan office furniture systems are typically panel-enclosed work
stations customized to particular work environments. The open plan concept
offers a number of advantages over conventional office designs, including more
efficient
-5-
<PAGE> 7
floor space utilization, reduced energy consumption and greater flexibility to
redesign existing space. Since carpet and fabrics are used in the same types of
commercial interiors, the Company's carpet and interior fabrics operations are
able to coordinate the color, design and marketing of both product lines to
their respective customers as part of the Company's "total interior solution"
approach.
The Company, in recent years, has diversified and expanded significantly
both its product offerings and markets for interior fabrics. The Company's 1993
acquisition of the Stevens Linen(TM)lines added decorative, upscale upholstery
fabrics and specialty textile products to Interface Fabrics' traditional
product offerings. The Company's June 1995 acquisition of Toltec Fabrics, a
manufacturer and marketer of fabric for the contract and home furnishings
upholstery markets, enhanced the Company's presence in the contract jobber
market. In addition, the December 1995 acquisition of the Intek division of
Springs Industries, a manufacturer experienced in the production of
lighter-weight panel fabrics, has strengthened Interface Fabrics' capabilities
in that market. All of these developments complement Interface Fabrics'
dominant position with OEMs of movable office furniture systems.
The Company manufactures fabrics made of 100% polyester, as well as
wool-polyester blends and numerous other natural and man-made blends, which are
either woven or knitted. Its products feature a high degree of color
consistency, natural dimensional stability and fire retardancy, in addition to
their overall aesthetic appeal. All of the Company's product lines are color and
texture coordinated. The Company seeks continuously to enhance product
performance and attractiveness through experimentation with different fibers,
dyes, chemicals and manufacturing processes. Product innovation in the interior
fabrics market (similar to the floorcoverings market) is important to achieving
and maintaining market share. (See "-- Business Strategy and Principal
Initiatives", above, and "-- Product Design, Research and Development", below.)
The Company anticipates that future growth opportunities will arise from
the growing market for retrofitting services, where fabrics are used to re-cover
existing panels, and from the increased importance being placed on the aesthetic
design of office space, with upholstery fabric being the segment of its
non-panel fabric business with the greatest anticipated growth potential.
Management also believes that significant growth opportunities exist in
international sales, in domestic health care markets, in contract wallcoverings
and in the provision of ancillary textile processing services such as the
lamination of fabrics onto substrates for pre-formed panels.
Marketing and Sales
The Company's principal interior fabrics customers are OEMs of movable
office furniture systems. Interface Fabrics sells to essentially all of the
major office furniture manufacturers, with the majority of its sales being made
to a small number of companies located in the Grand Rapids, Michigan area (where
domestic office furniture manufacturing is concentrated). Interface Fabrics also
sells to manufacturers and distributors of wallcoverings, vertical blinds,
cubicle curtains, acoustical wallboards, ceiling tiles and residential
furniture, and, since the acquisition of Toltec Fabrics, to contract jobbers.
The Guilford of Maine, Stevens Linen, Toltec and Intek brand names are
well-known in the industry and enhance the Company's fabric marketing efforts.
The Company's sales to OEM customers are made through Interface Fabrics'
own sales force. Interface Fabrics' sales force also markets open line products
for the retrofitting and refurbishing segment of the industry directly to
specifiers under the trade name Guilford of Maine Textile Resources. In
addition, the Company uses independent dealers to assist with sales of its
non-panel fabric products.
Interface Fabrics' sales force also works closely with designers,
architects, facility planners and other specifiers who influence the purchasing
decisions of buyers in the interior fabrics segment. In addition to facilitating
sales, the resulting relationships also provide the Company with marketing and
design ideas that are incorporated into its development of product offerings.
Interface Fabrics maintains a design studio in Dudley, Massachusetts which
facilitates coordination between its in-house designers and the design staffs of
major customers. Interface Fabrics' design capabilities have also benefited
from the product design services provided to it by an affiliate of Roman Oakey.
(See "-Business Strategy and Principal Initiatives", above, and "-- Product
Design, Research and Development", below.)
The Company's U.S. sales offices are located in Saddle Brook, New Jersey
and Grand Rapids, Michigan. Interface Fabrics also has marketing and
distribution facilities in Canada and the United Kingdom, and sales
representatives in Japan, Hong Kong, Singapore, Korea and South Africa. The
Company has sought increasingly, over the past several years, to expand its
export business and international operations in the fabrics segment, both to
accommodate the demand of principal OEM customers that are expanding their
overseas businesses, and to facilitate additional coordinated marketing to
multinational customers of the Company's carpet business as part of the
Company's "total interior solution" approach.
Manufacturing
The Company's fabrics manufacturing facilities are located in Maine,
Massachusetts, Michigan and North Carolina. The production of synthetic and wool
blended fabrics is relatively intricate and requires many steps. Raw fiber is
placed in pressurized vats, and dyes and flame retardants are then forced into
the fiber. Particular attention is devoted to the dyeing process, which requires
a high degree of expertise in order to achieve color consistency. Following
dyeing, the fiber is blended and proceeds through multiple steps, including
carding, spinning, cone winding, twisting, dressing, weaving and finishing. All
raw materials used by the Company are readily available from a number of
sources.
-6-
<PAGE> 8
In response to a shift in Interface Fabrics' traditional panel fabric
market toward lighter weight, less expensive products, the Company implemented a
major capital investment program in 1994 (which included the construction of a
new facility and the acquisition of equipment) to enhance the efficiency and
breadth of Interface Fabrics' yarn manufacturing processes. The program, which
will be completed in March 1997, is designed to improve Interface Fabrics' cost
effectiveness in producing such lighter weight fabrics, reduce manufacturing
cycle time, and enable Interface Fabrics to reinforce its product leadership
position with its OEM customers. The Company anticipates that the program will
allow Interface Fabrics to reduce annual operating costs by $7 million in the
production of its traditional fabric product line; Interface Fabrics already
has begun to achieve cost savings as a result of such program. The acquisition
of Intek in December 1995 provided the Company with immediate and significant
capabilities in the efficient production of lighter weight, less expensive
panel fabrics. The Company believes that it has recently been successful in
designing fabrics that have simplified the manufacturing process, thereby
reducing complexity while improving efficiency and quality. Through the use of
existing raw materials, new fabrics are being manufactured using the mass
customization production strategy. By employing the capabilities that are now
available with the Company's new manufacturing facility, the Company
anticipates that its ability to apply the mass customization production
strategy to the manufacture of fabrics will be expanded. See "-Business
Strategy and Principal Initiatives", above.
The Company offers textile processing services through Interface Fabrics'
Component Technologies division in Grand Rapids, Michigan. Such services include
the lamination of fabrics onto substrates for pre-formed office furniture system
panels, facilitating easier and more cost effective assembly of the system
components by Interface Fabrics' OEM customers.
Competition
The Company competes in the interior fabrics market on the basis of product
design, quality, reliability, price and service. By electing to concentrate on
the open plan office furniture systems segment, Interface Fabrics has been able
to specialize its manufacturing capabilities, product offerings and service
functions, resulting in a leading market position. Through Interface Fabrics and
Intek, the Company is the largest U.S. manufacturer of panel fabric for use in
open plan office furniture systems.
Drawing on its dominant position in the panel fabric segment and through
its strategic acquisitions, the Company has been successfully diversifying its
product offerings for the commercial interiors market to include a variety of
non-panel fabrics, including upholstery, cubicle curtains, wallcoverings,
ceiling fabrics and window treatments. The competition in these segments of the
market is highly fragmented and includes both large, diversified textile
companies, several of which have greater financial resources than the Company,
as well as smaller, non-integrated specialty manufacturers. However, the
Company's capabilities and strong brand names in these segments should enable it
to continue to compete successfully.
SPECIALTY PRODUCTS
The Interface Specialty Products Group is composed of: Rockland React-Rite,
Inc. ("Rockland"), which develops, manufactures and markets specialty chemical
products; Pandel, Inc. ("Pandel"), which produces vinyl carpet tile backing and
specialty mat and foam products; the Company's Intersept antimicrobial sales and
licensing program; and Interface Architectural Resources, Inc. ("Interface
Architectural Resources"), which produces and markets raised/access flooring
systems. As of April 1997, Gordon Whitener assumed corporate responsibility for
the Specialty Products Group. While the Specialty Products Group's revenues
represent a relatively small portion of total Company revenues (approximately 5%
in fiscal 1996), certain operations within this Group traditionally have had the
highest profit margins of any operating division. These subsidiaries, together
with Interface Research Corporation, also serve as the research and development
arm of the Company.
The Company's leading chemical product, in terms of applicability for the
commercial and institutional interiors market, is its proprietary antimicrobial
chemical compound, sold under the registered trademark Intersept. The Company
uses Intersept in many of its carpet and fabric products and has licensed
Intersept to other companies for use in a number of products that are
noncompetitive with the Company's products, such as paint, vinyl wallcoverings,
ceiling tiles and air filters. The licensing arrangements are a component of the
Company's Envirosense(R) program. (See "-- Environmental Initiatives".)
The Company also produces and markets Protekt(2)(TM), a proprietary soil
and stain retardant treatment; water-proofing sheathing for the fiber optic
cable industry and other applications; acrylic monomers, for use in golf balls
and other industrial products; accelerators, used to speed the curing process
for rubber used in tires, hoses and other products; and Fatigue Fighter(R), an
impact-absorbing modular flooring system typically used where people stand for
extended periods.
The Company also markets cable management raised/access flooring systems, a
specialty product which it markets through its Interface Architectural Resources
business unit. The initial product offering, marketed under the name
Intercell(R), is a low-profile (total height of less than three inches) cable
management flooring system, particularly well suited for use in the renovation
of existing buildings. In 1995, the Company acquired the rights to the
Interstitial Systems(TM) access flooring product, a patented, multiple plenum
system that serves to separate pressurized, climate-controlled air flow from the
electrical and telecommunications cables included within the same access
flooring system. In February 1996, the Company acquired C-Tec, Inc. (which was
subsequently merged with Interface Architectural Resources and now operates
under that name), the second largest manufacturer of raised/access flooring
systems in the United States, with net sales in 1996 of approximately $28
million. Interface Architectural Resources markets the successful C-Tec line of
products (Tec-Cor and Tec-Crete), which
-7-
<PAGE> 9
combine the tensile strength of steel and the compressive strength of concrete
to create a safe, durable, strong, uniform and quiet panel which comes in a
variety of surfaces. In 1996, Interface Architectural Resources entered into a
marketing agreement with AMP, Inc., a supplier of electronic and electrical
connectors, to sell Intergy(TM), a modular power delivery system that works in
conjunction with all raised/access flooring systems.
INTERFACE RESEARCH CORPORATION
Under the leadership of President Michael D. Bertolucci, Interface Research
Corporation provides technical support and research and development for the
entire family of Interface companies. Interface Research Corporation has
developed a new polycarbite polymer carpet tile backing, which has demonstrated
excellent performance in field tests conducted to date. The new backing
material has also proved to be useful as an improved and lower cost precoat for
broadloom applications. Interface Research Corporation also provides
significant support to the Company's EcoSense initiative, primarily through its
efforts in identifying recyclable products and raw materials and procedures to
achieve, ultimately, closed-loop recycling of the Company's carpet products. A
major technical effort has been launched to define optimum recycling processes
for the Company's carpet and fabric products. (See"-- Environmental
Initiatives".)
PRODUCT DESIGN, RESEARCH AND DEVELOPMENT
The Company maintains an active research, development and design staff of
approximately 100 persons, and also draws on the research and development
efforts of its suppliers, particularly in the areas of fibers, yarns and modular
carpet backing materials.
Innovation and increased customization in product design and styling are
the principal focus of the Company's product development efforts. The Company's
carpet design and development team is recognized as the industry leader in
carpet design and product engineering. Under the leadership of David Oakey since
January 1994 (pursuant to the Company's exclusive consulting contract with Mr.
Oakey's design firm, Roman Oakey, Inc.), the Company's U.S. modular carpet
subsidiary created 26 new modular carpet designs in 1994, the largest number in
one year in the Company's history, and another 20 and 21 in 1995 and 1996,
respectively. The new modular carpet designs, as well as broadloom designs
introduced by Bentley Mills and Prince Street, were well-received by the
targeted specifier market, and resulted in the Company receiving eight (out of a
possible 12) U.S. carpet industry design awards bestowed by the International
Interior Design Association in 1994, including all five awards in the carpet
tile division, and three IIDA awards in 1995. Mr. Oakey was also instrumental in
the Company's implementation of a new product development concept -- "simple
inputs, pretty outputs" -- resulting in the ability to efficiently produce many
products from a single yarn system. The Company's mass customization production
approach evolved, in major part, from this concept. In addition to increasing
the number and variety of product designs (which enables the Company to increase
high margin custom sales), the mass customization approach increases inventory
turns and reduces inventory levels (for both raw materials and standard
products) and its related costs because of the Company's more rapid and flexible
production capabilities.
The Company's original focus for Roman Oakey's product design/production
engineering services was principally on the Company's carpet tile products for
the U.S. market. Roman Oakey's design services have been extended to the
Company's international carpet tile operations and domestic broadloom companies,
and an affiliate of that firm was engaged to provide similar design services to
the Company's interior fabrics business (which already possessed significant
capabilities in the design area). The Company expects increased levels of
innovation in product design and development for those divisions to be achieved
in the future.
ENVIRONMENTAL INITIATIVES
An important initiative of the Company over the past several years has been
the development of the Envirosense Consortium, an organization of companies
concerned with addressing workplace environmental issues, particularly poor
indoor air quality. The Consortium now totals 24 member organizations, including
interior products manufacturers (a number of which are licensees of the
Company's Intersept antimicrobial agent), professional service organizations and
design professionals.
In the latter part of 1994, the Company commenced a new industrial ecology
initiative called EcoSense, inspired in major part by the interest of important
customers concerned about the environmental implications of how they and their
suppliers do business. EcoSense is directed towards the elimination of energy
and raw materials waste in the Company's businesses, and, on a broader and more
long-term scale, the practical reclamation -- and ultimate restoration -- of
shared environmental resources. The initiative involves a commitment by the
Company to learn to meet its raw material and energy needs through recycling
carpet and other petrochemical products and harnessing benign energy sources,
and to pursue the creation of new processes to help sustain the earth's
non-renewable natural resources.
The Company has engaged some of the world's leading authorities on global
ecology as environmental consultants. The current list of consultants includes
Paul Hawken, author of The Ecology of Commerce, The Next Economy, and Chairman
of The Natural Step, U.S.A.; Bill McDonough, Dean of Architecture, University of
Virginia; Amory Lovins, energy consultant, director of Rocky Mountain Institute;
Daniel Quinn, author of Ishmael, Providence, and The Story of B; John Picard,
President of E2, American environmental consultant; David Brower, former
executive director of the Sierra Club, and founder of The Earth Island
Institute; and Jonathan Porritt, director of Forum for the Future.
-8-
<PAGE> 10
The Company believes that its environmental initiatives are valued by its
employees and an increasing number of its important customers and provide a
competitive advantage in marketing products to such customers. The Company also
believes that the resulting long-term resource efficiency (reduction of wasted
environmental resources) will ultimately produce cost savings to the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Management
believes that the Company is in substantial compliance with all applicable
federal, state and local provisions relating to the protection of the
environment. The costs of complying with environmental protection laws and
regulations have not had a material adverse impact on the Company's financial
condition or results of operations in the past and are not expected to have a
material adverse impact in the future.
BACKLOG
The Company's backlog of unshipped orders was approximately $122,300,000 at
December 29, 1996, compared to approximately $78,900,000 at December 29, 1995.
Backlog of unshipped orders increased in fiscal 1996 as a result of increased
sales volume in the Company's floorcovering operations in the United States
(particularly modular carpet) and the acquisitions of C-Tec and certain of the
commercial floorcovering dealers comprising the Re:Source Americas network.
Historically, backlog is subject to significant fluctuations due to the timing
of orders for individual large projects and currency fluctuations. All of the
backlog of orders at December 29, 1996 is expected to be shipped during the
succeeding six to nine months.
PATENTS AND TRADEMARKS
The Company owns numerous patents in the United States and abroad on its
modular carpet and manufacturing processes and on the use of its Intersept
antimicrobial chemical agent in various products. The duration of United States
patents is between 14 and 20 years from the dates of filing of a patent
application or issuance of the patent; the duration of patents issued in other
countries varies from country to country. The Company considers its know-how and
technology more important to its current business than patents and, accordingly,
believes that expiration of existing patents or nonissuance of patents under
pending applications would not have a material adverse effect on its operations.
However, the Company maintains an active patent and trade secret program in
order to protect its proprietary technology, know-how and trade secrets.
The Company also owns numerous trademarks in the United States and abroad.
In addition to the United States, the primary countries in which the Company has
registered its trademarks are the United Kingdom, Germany, Italy, France,
Canada, Australia, and Japan. Some of the more prominent registered trademarks
of the Company include: Interface, Heuga, Intersept, GlasBac, System Six,
Guilford of Maine, Bentley and Prince St. Technologies. Trademark registrations
in the United States are valid for a period of 10 years and are renewable for
additional 10-year periods as long as the mark remains in actual use. The
duration of trademarks registered in other countries varies from country to
country.
FINANCIAL INFORMATION BY GEOGRAPHIC AREAS
Note 17 of the Company's Consolidated Financial Statements sets forth
information concerning the Company's sales, income and assets by geographic
areas. See Item 8.
EMPLOYEES
At March 15, 1997, the Company employed a total of approximately 6,000
employees worldwide. Of such employees, approximately 1,900 are clerical, sales,
supervisory and management personnel and the balance are manufacturing
personnel.
Three of the commercial flooring dealers acquired by the Company in 1996
have employee groups that are represented by unions. In addition, certain of the
Company's production employees in Australia and the United Kingdom are
represented by unions. As required by the laws of the Netherlands, a Works
Council, the members of which are Company employees, is required to be consulted
by management with respect to certain matters relating to the Company's
operations in that country, such as a change in control of Interface Europe B.V.
(the Company's modular carpet subsidiary based in the Netherlands), and the
approval of such Council is required for certain actions, including changes in
compensation scales or employee benefits. Management believes that its relations
with the Works Council, the unions and all of its employees are good.
-9-
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages as of March 15, 1997, and
principal positions with the Company are as follows. Executive officers serve at
the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION(s)
---- --- ---------------------
<S> <C> <C>
Ray C. Anderson 62 Chairman of the Board and Chief Executive Officer
Charles R. Eitel 47 President and Chief Operating Officer
Michael D. Bertolucci 56 Senior Vice President
Brian L. DeMoura 51 Senior Vice President
Daniel T. Hendrix 42 Senior Vice President - Finance, Chief Financial Officer and Treasurer
Don E. Russell 59 Senior Vice President
John H. Walker 52 Senior Vice President
Gordon D. Whitener 34 Senior Vice President
F. Colville Harrell 62 Vice President - Planning & Analysis
Alan S. Kabus 39 Vice President
John R. Wells 35 Vice President
Raymond S. Willoch 38 Vice President, General Counsel and Secretary
</TABLE>
Mr. Anderson founded the Company in 1973, and has served as the Company's
Chairman and Chief Executive Officer since its founding. In 1996, Mr. Anderson
was appointed by President Clinton to the President's Council on Sustainable
Development. Mr. Anderson is a member of the Board of Directors of NationsBank
Corporation. He also serves on the Boards of numerous nonprofit organizations.
Mr. Eitel joined the Company in November 1993 as President of Interface
Flooring Systems, Inc. ("IFS", the Company's principal U.S. modular carpet
subsidiary) and Interface Americas, Inc. (a wholly-owned U.S. holding company),
with responsibility for the Company's modular carpet operations throughout the
Americas. He also became a Senior Vice President of the Company at that time. In
October 1994, Mr. Eitel was promoted to Executive Vice President of the Company
and President and Chief Executive Officer of the Floorcoverings Group, thereby
assuming overall responsibility for the Company's worldwide carpet business. In
February 1997, Mr. Eitel was promoted to President and Chief Operating Officer
of the Company. From July 1987 until joining the Company, Mr. Eitel served as
President of the Floorcoverings Division (based in Dalton, Georgia) of Collins &
Aikman Corporation. Collins & Aikman is a diversified textile producer,
headquartered in North Carolina. Mr. Eitel also serves as a director of Weeks
Corporation, an industrial real estate company based in Atlanta.
Mr. Bertolucci joined the Company in April 1996 as President of Interface
Research Corporation and Senior Vice President of the Company. From October 1989
until joining the Company, he was Vice President of Technology for Highland
Industries, an industrial fabric company located in Greensboro, North Carolina.
Mr. DeMoura became a Senior Vice President of the Company and President and
Chief Executive Officer of Guilford of Maine, Inc. (now Interface Fabrics) in
March 1994. From August 1990 until joining the Company, Mr. DeMoura served as
President and CEO of Fashion Fabrics of America, Inc., an Orangeburg, South
Carolina based producer of fabrics for the upscale men's and women's apparel
markets.
Mr. Hendrix joined the Company as Financial Manager in 1983. He was
promoted to Treasurer of the Company in 1984, Chief Financial Officer in 1985,
Vice President Finance in 1986, and Senior Vice President Finance in October
1995.
Mr. Russell has served in various executive capacities since 1973. He
became a Senior Vice President in 1986. From September 1995 until April 1997,
Mr. Russell served as President and Chief Executive Officer of the Company's
Specialty Products Group, composed of the Company's chemical and specialty
surfaces subsidiaries (Rockland and Pandel), Intersept antimicrobial sales and
licensing program, and Architectural Resources business unit. Mr. Russell served
as President and CEO of Interface Europe, Inc. (the Company's U.S. holding
company for its subsidiaries in Europe) and Interface Europe B.V. from 1991
until August 1995.
Mr. Walker began his career with the Company as Financial Controller of the
U.K. Division of Heuga Holding B.V. (now Interface Europe B.V.), a
Netherlands-based carpet tile manufacturer, which was acquired by the Company in
1988. He later served as Vice President Sales & Marketing of Interface Europe,
B.V. and in July 1995 was promoted to the position of Senior Vice President of
the Company and President and Chief Executive Officer of Interface Europe, Inc.
In his current position, he has responsibility for the Company's floorcovering
operations in both Europe and the Asia-Pacific region.
Mr. Whitener joined the Company in November 1993 as Senior Vice President -
Sales & Marketing of IFS. In October 1994, he became a Senior Vice President of
the Company and President and Chief Executive Officer of IFS and Interface
Americas, assuming responsibility for the Company's modular carpet operations
throughout the Americas, and Prince Street Technologies, Ltd., the Company's
commercial broadloom carpet operation based in Cartersville, Georgia. Mr.
Whitener also assumed corporate responsibility for Bentley Mills in July 1995
and the Specialty Products Group in April 1997. From April 1988 until joining
the Company, Mr. Whitener served in various sales management capacities with
Collins & Aikman (Floorcoverings Division), including Vice President Marketing.
Mr. Harrell joined the Company as a planning analyst in 1984, and became
Vice President Planning and Analysis in 1986. He served as Senor Vice President
Operations of IFS from September 1992 until October 1994, at which time he
resumed his current position with the parent Company.
-10-
<PAGE> 12
Mr. Kabus joined the Company in 1993 as a result of the Company's
acquisition of Bentley Mills, which he had joined as a salesman in 1984. At the
time of the acquisition, Mr. Kabus was serving as Regional Sales
Manager-Northeast Region of Bentley Mills. He was promoted to Vice President of
the Company and President and Chief Executive Officer of Bentley Mills in July
1995.
Mr. Wells joined the Company in February 1994 as Vice President-Sales of
IFS and was promoted to Senior Vice President-Sales and Marketing of IFS in
October 1994. He was promoted to Vice President of the Company and President and
Chief Executive Officer of IFS in July 1995. Prior to joining the Company, Mr.
Wells worked with the commercial division of Shaw Industries for 13 years, where
he was a key member of the management team that started the Networx Modular
Carpet Division of that company and where he also held various sales management
responsibilities for the Shaw Commercial and Stratton Commercial Divisions.
Mr. Willoch joined the Company as Corporate Counsel in June 1990. He was
promoted to Assistant Secretary in 1991, Assistant Vice President in 1993, Vice
President in January 1996 and Secretary and General Counsel in August 1996.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Atlanta, Georgia in
approximately 15,565 square feet of leased space. The following table lists the
Company's principal manufacturing facilities:
<TABLE>
<CAPTION>
Location Primary Products Floor Space (Sq. Ft.)
-------- ---------------- ---------------------
<S> <C> <C>
Cartersville, Georgia ........................ Broadloom carpet 210,000
Cartersville, Georgia ........................ Broadloom carpet 45,000
City of Industry, California ................. Broadloom carpet 539,641
LaGrange, Georgia ............................ Modular carpet 326,666
West Point, Georgia .......................... Modular carpet 179,300
Athens, Tennessee ............................ Modular carpet 71,577
Scherpenzeel, the Netherlands ................ Modular carpet; Specialty Products 292,142
Shelf, England ............................... Modular carpet 223,342
Heckmondwike, England ........................ Modular carpet 90,000
Craigavon, N. Ireland ........................ Modular carpet 125,060
Ontario (Belleville), Canada ................. Modular carpet 77,000
Picton, Australia ............................ Modular carpet 89,560
Bangkok, Thailand ............................ Modular carpet 66,072
Guilford, Maine .............................. Interior fabrics 396,690
Guilford, Maine............................... Interior fabrics 96,200
Eastport, Maine .............................. Interior fabrics 78,135
Newport, Maine ............................... Interior fabrics 208,932
Dudley, Massachusetts ........................ Interior fabrics 300,000
East Douglas, Massachusetts .................. Interior fabrics 301,772
Grand Rapids, Michigan ....................... Interior fabrics 55,800
Aberdeen, North Carolina ..................... Interior fabrics 88,000
Greensboro, North Carolina ................... Interior fabrics 63,700
Cartersville, Georgia ........................ Specialty products 124,500
Grand Rapids, Michigan........................ Access flooring 120,000
Grand Rapids, Michigan ....................... Access flooring 40,000
Rockmart, Georgia............................. Chemicals 37,500
Chatom, Alabama .............................. Chemicals 7,500
</TABLE>
- ----------------------------
The Company owns all of its manufacturing facilities, except Interface
Fabrics's facility and a portion of Interface Architectural Resources' facility
in Grand Rapids, Michigan; Pandel's facility in Cartersville, Georgia; Bentley
Mills' facilities in City of Industry, California and Athens, Tennessee; and
Toltec's facility in Greensboro, North Carolina, which are leased. The Bangkok,
Thailand facility is owned by a joint venture in which the Company has a 70%
interest.
The Company maintains marketing offices in 91 locations in 39 countries and
distribution facilities in 37 locations in six countries. Most of the marketing
locations and many of the distribution facilities are leased.
The Company believes that its manufacturing and distribution facilities,
and its marketing offices, are sufficient for its present operations. The
Company will continue, however, to consider the desirability of establishing
additional facilities and offices in other locations around the world as part of
its business strategy to meet expanding global market demands. The Company
expects to begin construction of a joint venture carpet tile manufacturing
facility in Shanghai, China in the second quarter of 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings
involving it or any of its property.
-11-
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The information concerning the market prices for the Company's Class A
Common Stock and dividends on the Company's Common Stock included in Notes 12
and 18 of the Notes to the Company's Consolidated Financial Statements in the
Company's 1996 Annual Report to Shareholders is incorporated herein by
reference. As of March 20, 1997, the Company had 478 holders of record of its
Class A Common Stock and 52 holders of record of its Class B Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Information on page 63 of the Company's 1996 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 32 through 36 of the Company's 1996 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Consolidated Financial Statements and the Report of Independent
Certified Public Accountants included on pages 37 through 62 of the Company's
1996 Annual Report to Shareholders are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the caption "Nomination and Election of
Directors" in the Company's definitive Proxy Statement for the Company's 1997
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the Company's 1996 fiscal year, is incorporated herein by reference. Pursuant to
Instruction 3 to Paragraph (b) of Item 401 of Regulation S-K, information
relating to the executive officers of the Company is included in Item 1 of this
Report.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation and
Related Items" in the Company's definitive Proxy Statement for the Company's
1997 Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the Company's 1996 fiscal year, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Principal Shareholders and
Management Stock Ownership" in the Company's definitive Proxy Statement for the
Company's 1997 Annual Meeting of Shareholders, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the Company's 1996 fiscal year, is incorporated herein by reference.
For purposes of determining the aggregate market value of the Company's
voting stock held by non-affiliates, shares held of record by directors and
executive officers of the Company have been excluded. The exclusion of such
shares is not intended to, and shall not, constitute a determination as to which
persons or entities may be "affiliates" of the Company as that term is defined
under federal securities laws.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the captions "Compensation Committee
Interlocks and Insider Participation" (second paragraph only) and "Certain
Relationships and Related Transactions" in the Company's definitive Proxy
Statement for the Company's 1997 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the Company's 1996 fiscal year, is incorporated
herein by reference.
-12-
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements and Notes thereto of
Interface, Inc. and subsidiaries and related Report of Independent Certified
Public Accountants contained in the Company's 1996 Annual Report to
Shareholders, are incorporated by reference in Item 8 of this Report:
Consolidated Balance Sheets -- December 29, 1996 and December 31, 1995
Consolidated Statements of Income -- years ended December 29, 1996,
December 31, 1995 and January 1, 1995
Consolidated Statements of Cash Flows -- years ended December 29, 1996,
December 31, 1995 and January 1, 1995
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
2. FINANCIAL STATEMENT SCHEDULES
The following Consolidated Financial Statement Schedules of Interface,
Inc. and subsidiaries and related Report of Independent Certified Public
Accountants are included as part of this Report (see page 16):
Report of Independent Certified Public Accountants
Schedule II -- Valuation and Qualifying Accounts and Reserves
3. EXHIBITS
The following exhibits are included as part of this Report:
EXHIBIT
NUMBER DESCRIPTION EXHIBIT
------ -------------------
3.1 Articles of Incorporation (composite as of September 8, 1988)
(included as Exhibit 3.1 to the Company's annual report on Form 10-K
for the year ended January 3, 1993 (the "1992 10-K") previously filed
with the Commission and incorporated herein by reference) and Articles
of Amendment (Series A Preferred Stock Designation), dated June 17,
1993 (included as Exhibit 4.1 to the Company's current report on Form
8-K, filed with the Commission on July 7, 1993 and incorporated herein
by reference).
3.2 Bylaws, as amended (included as Exhibit 3.2 to the Company's
quarterly report on Form 10-Q for the quarter ended April 1, 1990,
previously filed with the Commission and incorporated herein by
reference).
4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's Articles
of Incorporation, as amended, and Bylaws defining the rights of holders
of Common Stock of the Company.
4.2 (a) Indenture governing the Company's 9.5% Senior Subordinated Notes
due 2005, dated as of November 15, 1995, among the Company, certain
U.S. subsidiaries of the Company, as Guarantors, and First Union
National Bank of Georgia, as Trustee (the "Indenture") (included as
Exhibit 4.1 to the Company's registration statement on Form S-4, File
No. 33-65201, previously filed with the Commission and incorporated
herein by reference).
(b) Supplement No. 1 to Indenture, dated as of December 27, 1996.
4.3 Form of Exchange Note (included as part of Exhibit 4.2).
10.1 Plan for Reimbursement of Medical and Dental Care Expenses, dated
May 3, 1978 (included as Exhibit 10.19 to the Company's
registration statement on Form S-1, File No. 2-82188, previously
filed with the Commission and incorporated herein by reference).*
10.2 Salary Continuation Plan, dated May 7, 1982 (included as Exhibit
10.20 to the Company's registration statement on Form S-1, File
No. 2-82188, previously filed with the Commission and
incorporated herein by reference).*
10.3 Salary Continuation Agreement (included as Exhibit 10.23 to the
Company's registration statement on Form S-1, File No. 2-82188,
previously filed with the Commission and incorporated herein by
reference).*
10.4 Interface, Inc. Key Employee Stock Option Plan (1993), effective as of
March 1, 1993 (included as Exhibit 10.7 to the 1992 10-K, previously
filed with the Commission and incorporated herein by reference);
Amendment No. 1 thereto (included as Exhibit 10.7 to the Company's
annual report on Form 10-K for the year ended January 2, 1994,
previously filed with the Commission and incorporated herein by
reference); and Amendment No. 2 thereto
-13-
<PAGE> 15
(included as Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (the "1995 10-K"),
previously filed with the Commission and incorporated herein by
reference).*
10.5 Interface, Inc. Offshore Stock Option Plan (included as Exhibit
10.15 to the Company's annual report on Form 10-K for the year
ended January 1, 1989, previously filed with the Commission and
incorporated herein by reference), and Amendment No. 1 thereto
(included as Exhibit 10.11 to the Company's annual report on Form
10-K for the year ended December 29, 1991, previously filed with
the Commission and incorporated herein by reference).*
10.6 Interface, Inc. Omnibus Stock Incentive Plan. *
10.7 Voting Agreement, dated April 13, 1993, among certain
shareholders of the Company (included as Exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the quarter ended
April 4, 1993, previously filed with the Commission and
incorporated herein by reference).
10.8 (a) Credit Agreement, dated as of January 9, 1995, among the Company
(and certain direct and indirect subsidiaries), SunTrust Bank
(formerly Trust Company Bank) and The First National Bank of
Chicago (included as Exhibit 10.10(b) to the Company's annual
report on Form 10-K for the year ended January 1, 1995 (the "1994
10-K"), previously filed with the Commission and incorporated
herein by reference).
(b) Amended and Restated Credit Agreement, dated as of June 30, 1995,
among the Company (and certain direct and indirect subsidiaries),
SunTrust Bank and The First National Bank of Chicago (included as
Exhibit 10 to the Company's quarterly report on Form 10-Q for the
quarter ended July 2, 1995, previously filed with the Commission
and incorporated herein by reference); Amendment No. 1 thereto
dated July 31, 1995, Amendment No. 2 thereto dated November 21,
1995, Amendment No. 3 thereto dated February 28, 1996 (Amendments
No. 1, 2 and 3 were included as Exhibit 10.8(b) to the 1995 10-K,
previously filed with the Commission and incorporated herein by
reference); Amendment No. 4 thereto dated July 30, 1996 (included
as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 29, 1996, previously filed with
the Commission and incorporated herein by reference); and
Fifth Amendment thereto dated December 29, 1996.*
10.9 (a) Loan Agreement, dated as of November 1, 1989, between Interface
Flooring Systems, Inc. and West Point Development Authority
(included as Exhibit 10.24(a) to the Company's annual report on
Form 10-K for the year ended December 31, 1989 (the "1989 10-K"),
previously filed with the Commission and incorporated herein by
reference).
(b) Indenture of Trust, dated as of November 1, 1989, between West
Point Development Authority and SunTrust Bank, as Trustee
(included as Exhibit 10.24(b) to the Company's 1989 10-K,
previously filed with the Commission and incorporated herein by
reference).
(c) Letter of Credit Agreement, dated as of November 1, 1989, among
Interface Flooring Systems, Inc., the Company and SunTrust Bank
(included as Exhibit 10.24(c) to the Company's 1989 10-K,
previously filed with the Commission and incorporated herein by
reference).
(d) Irrevocable Letter of Credit, dated November 2, 1989, established
by SunTrust Bank in favor of SunTrust Bank, as Trustee, in the
initial principal amount of $4,000,000 (included as Exhibit
10.24(d) to the Company's 1989 10-K, previously filed with the
Commission and incorporated herein by reference).
(e) Pledge and Security Agreement, dated as of November 1, 1989, by
Interface Flooring Systems, Inc. in favor of SunTrust Bank
(included as Exhibit 10.24(e) to the Company's 1989 10-K,
previously filed with the Commission and incorporated herein by
reference).
(f) Security Deed and Security Agreement, dated as of November 1,
1989, between Interface Flooring Systems, Inc. and SunTrust Bank,
as Credit Bank (included as Exhibit 10.24(f) to the Company's
1989 10-K, previously filed with the Commission and incorporated
herein by reference).
10.10 Revolving Credit Loan Agreement, dated as of August 5, 1991,
between Interface Flooring Systems, Inc. and SunTrust Bank
(included as Exhibit 10.2 to the Company's quarterly report on
Form 10-Q for the quarter ended September 29, 1991, previously
filed with the Commission and incorporated herein by reference);
Amendment No. 1 thereto dated June 30, 1992 (included as Exhibit
10.19 to the Company's 1992 10-K, previously filed with the
Commission and incorporated herein by reference); Second
Amendment, dated August 5, 1993 (included as Exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the quarter ended
October 3, 1993, previously filed with the Commission and
incorporated herein by reference); Third Amendment, dated June
15, 1994 (included as Exhibit 10.2 to the Company's quarterly
report on Form 10-Q for the quarter ended July 3, 1994,
previously filed with the Commission and incorporated herein by
reference; Fourth Amendment, dated August 5, 1994 (included as
Exhibit 10.1 to the Company's quarterly report on Form 10-Q for
the quarter ended October 2, 1994, previously filed with the
Commission and incorporated herein by reference); Joinder
Agreement and Fifth Amendment thereto, dated as of June 30, 1995
(included as Exhibit 10.10 to the 1995 10-K, previously filed
with the Commission and incorporated herein by reference); and
Sixth Amendment thereto dated August 5, 1996 (included as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 29, 1996, previously filed with the
Commission and incorporated herein by reference).
10.11 Employment Agreement of Charles R. Eitel (included as Exhibit
10.1 to the Company's quarterly report on Form 10-Q for the
quarter ended April 3, 1994, previously filed with the Commission
and incorporated herein by reference); Amendment No. 1 thereto
(included as Exhibit 10.4 to the Company's quarterly report on
Form 10-Q
-14-
<PAGE> 16
for the quarter ended October 1, 1995 (the "Third Quarter 1995
10-Q,"), previously filed with the Commission and incorporated
herein by reference).*
10.12 Agreement (Change In Control) of Charles R. Eitel (included as
Exhibit 10.3 to the Company's Third Quarter 1995 10-Q, previously
filed with the Commission and incorporated herein by reference)*
10.13 Employment Agreement of Brian L. DeMoura (included as Exhibit
10.4 to the Company's quarterly report on Form 10-Q for the
quarter ended July 3, 1994, previously filed with the Commission
and incorporated herein by reference); Amendment No. 1 thereto
(included as Exhibit 10.2 to the Company's Third Quarter 1995
10-Q, previously filed with the Commission and incorporated
herein by reference).*
10.14 Agreement (Change In Control) of Brian L. DeMoura (included as
Exhibit 10.1 to the Company's Third Quarter 1995 10-Q, previously
filed with the Commission and incorporated herein by reference).*
10.15 Employment Agreement of Don E. Russell (included as Exhibit 10.17
to the Company's 1994 10-K, previously filed with the Commission
and incorporated by reference); Amendment No. 1 thereto (included
as Exhibit 10.12 to the Company's Third Quarter 1995 10-Q,
previously filed with the Commission and incorporated herein by
reference).*
10.16 Agreement (Change In Control) of Don E. Russell (included as
Exhibit 10.11 to the Company's Third Quarter 1995 10-Q,
previously filed with the Commission and incorporated herein by
reference).*
10.17 Agreement (Change In Control) of Gordon D. Whitener (included as
Exhibit 10.13 to the Company's Third Quarter 1995 10-Q,
previously filed with the Commission and incorporated herein by
reference).*
10.18 Employment Agreement of Daniel T. Hendrix (included as Exhibit
10.8 to the Company's Third Quarter 1995 10-Q, previously filed
with the Commission and incorporated herein by reference).*
10.19 Agreement (Change In Control) of Daniel T. Hendrix (included as
Exhibit 10.7 to the Company's Third Quarter 1995 10-Q, previously
filed with the Commission and incorporated herein by reference).*
10.20 Employment Agreement of F. Colville Harrell (included as Exhibit
10.6 to the Company's Third Quarter 1995 10-Q, previously filed
with the Commission and incorporated herein by reference).*
10.21 Agreement (Change In Control) of F. Colville Harrell (included as
Exhibit 10.5 to the Company's Third Quarter 1995 10-Q, previously
filed with the Commission and incorporated herein by reference).*
10.22 Employment Agreement of Raymond S. Willoch (included as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 29, 1996, previously filed with the
Commission and incorporated herein by reference).*
10.23 Agreement (Change In Control) of Raymond S. Willoch (included as
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1996, previously filed with the
Commission and incorporated herein by reference).*
10.24 Receivables Sale Agreement, dated as of August 4, 1995, among
Interface Securitization Corporation, Interface, Inc., Special
Purpose Accounts Receivable Cooperative Corporation and Canadian
Imperial Bank of Commerce (included as Exhibit 10.26 to the 1995
10-K, previously filed with the Commission and incorporated
herein by reference) and Amendment thereto dated as of December
27, 1996.
10.25 Receivables Sale Agreement, dated as of December 27, 1996, among
Interface Securitization Corporation, Interface, Inc., certain
financial institutions (as bank purchasers), and Canadian
Imperial Bank of Commerce (as administrative agent).
13 Certain information contained in the Company's Annual Report to
Shareholders for the fiscal year ended December 29, 1996, which
is expressly incorporated into this Report by direct reference
thereto.
21 Subsidiaries of the Company.
23 Consent of BDO Seidman, LLP to the incorporation by reference of
certain reports dated February 20, 1997 into the prospectuses
constituting parts of the Company's registration statements on
Form S-8 (File Numbers 33-28305, 33-28307, 33-69808, 333-10379
and 333-10377).
27 Financial Data Schedule (for SEC use only).
- ----------------
* Management contract or compensatory plan or agreement required to be filed
pursuant to Item 14(c) of this Report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
of the fiscal year covered by this Report.
-15-
<PAGE> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Interface, Inc.
Atlanta, Georgia
The audits referred to in our Report dated February 20, 1997 relating to
the Consolidated Financial Statements of Interface, Inc. and subsidiaries,
incorporated in Item 8 of the Form 10-K by reference to the Annual Report to
Shareholders for the fiscal year ended December 29, 1996, included the audit of
Financial Statement Schedule II (Valuation and Qualifying Accounts and Reserves)
set forth in the Form 10-K. The Financial Statement Schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the Financial Statement Schedule.
In our opinion, such Schedule presents fairly, in all material respects,
the information set forth therein.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 20, 1997
INTERFACE, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at Balance at
beginning costs and other Deductions end of
of year expenses(a) accounts (describe) year
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended:
December 29, 1996 ............. $5,870 $ 3,529(b) $ -- $2,050(c) $7,349
====== ========= ====== ====== ======
December 31, 1995 ............. $6,501 $ 2,448 $ -- $3,079(c) $5,870
====== ========= ====== ====== ======
January 1, 1995 ............... $5,771 $ 3,562(d) $ -- $2,832(c) $6,501
====== ========= ======= ====== ======
</TABLE>
- ---------------
(a) Includes changes in foreign currency exchange rates.
(b) Includes allowance of $1,034 at acquisition date for Renovisions, C-Tec and
certain of the dealers in the Re:Source Americas network.
(c) Write off bad debt.
(d) Includes Prince Street allowance of $780 at acquisition date.
(All other Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are omitted because they
are either not applicable or the required information is shown in the Company's
Consolidated Financial Statements or the Notes thereto.)
-16-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
INTERFACE, INC.
By:/s/ Ray C. Anderson
---------------------------
Ray C. Anderson
Chairman of the Board
and Chief Executive Officer
Date: March 27, 1997
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Ray C. Anderson as attorney-in-fact, with power
of substitution, for him in any and all capacities, to sign any amendments to
this Report on Form 10-K, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Ray C. Anderson Chairman of the Board and Chief Executive Officer March 27, 1997
--------------------------------- (Principal Executive Officer)
Ray C. Anderson
/s/ Daniel T. Hendrix Senior Vice President, Chief Financial Officer, March 27, 1997
--------------------------------- Treasurer and Director (Principal Financial and
Daniel T. Hendrix Accounting Officer)
/s/ Brian L. DeMoura Director March 27, 1997
---------------------------------
Brian L. DeMoura
/s/ Charles R. Eitel Director March 27, 1997
---------------------------------
Charles R. Eitel
/s/ Donald E. Russell Director March 27, 1997
---------------------------------
Donald E. Russell
/s/ John H. Walker Director March 27, 1997
---------------------------------
John H. Walker
/s/ Gordon D. Whitener Director March 27, 1997
---------------------------------
Gordon D. Whitener
/s/ Dianne Dillon-Ridgley Director March 27, 1997
---------------------------------
Dianne Dillon-Ridgley
/s/ Carl I. Gable Director March 27, 1997
---------------------------------
Carl I. Gable
/s/ June M. Henton Director March 27, 1997
---------------------------------
June M. Henton
/s/ J. Smith Lanier, II Director March 27, 1997
---------------------------------
J. Smith Lanier, II
/s/ Leonard G. Saulter Director March 27, 1997
---------------------------------
Leonard G. Saulter
/s/ Clarinus C.Th. van Andel Director March 27, 1997
---------------------------------
Clarinus C.Th. van Andel
</TABLE>
-17-
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
------ ---------------------- ------
<S> <C> <C>
4.2(b) Supplement No. 1 to Indenture, dated as of December 27, 1996.
10.6 Interface, Inc. Omnibus Stock Incentive Plan.*
10.8(b) Fifth Amendment to Amended and Restated Credit Agreement, dated
as of December 29, 1996.
10.24 Amendment dated as of December 27, 1996, to Receivables Sale
Agreement, dated as of August 4, 1995, amont Interface
Securitization Corporation, Interface, Inc., Special Purpose
Account Receivable Cooperative Corporation and Canadian
Imperial Bank of Commerce.
10.25 Receivables Sale Agreement, dated as of December 27, 1996 among
Interface Securitization Corporation, Interface, Inc., certain
financial institutions (as bank purchasers) and Canadian
Imperial Bank of Commerce (as administrative agent).
13 Certain information contained in the Company's Annual Report
to Shareholders for the fiscal year ended December 29, 1996,
which is expressly incorporated into this Report by direct
reference thereto.
21 Subsidiaries of the Company.
23 Consent of BDO Seidman, LLP to the incorporation by reference
of certain reports dated February 20, 1997 into the
prospectuses constituting parts of the Company's registration
statements on Form S-8 (File Numbers 33-28305, 33-28307,
33-69808, 333-10379 and 333-10377).
27 Financial Data Schedule (for SEC only).
- ------------------
* Management contract or compensatory plan or agreement required to be filed
pursuant to Item 14(c) of this Report.
</TABLE>
<PAGE> 1
EXHIBIT 4.2(b)
SUPPLEMENT NO. 1
TO
INDENTURE
THIS SUPPLEMENT NO. I TO INDENTURE (this "SUPPLEMENT"), dated as of
December 27, 1996, among Interface Holding Company, a corporation incorporated
under the laws of the State of Nevada ("HOLDING"); Interface Royalty Company, a
Nevada corporation ("ROYALTY"); Interface Licensing Company, a Nevada
corporation ("LICENSING"); Interface Americas, Inc., a Georgia corporation
("AMERICAS"); Interface Specialty Resources, Inc., a Nevada corporation
("SPECIALTY RESOURCES"); Interface Americas Services, Inc., a Georgia
corporation ("AMERICAS SERVICES"); Bentley Royalty Company, a Nevada corporation
("BENTLEY ROYALTY"); Prince Street Royalty Company, a Nevada corporation
("PRINCE STREET ROYALTY"); Re:Source Americas Enterprises, Inc., a Georgia
corporation ("RE:SOURCE AMERICAS"); Guilford of Maine, Inc., a Nevada
corporation ("GOM"); Guilford of Maine Decorative Fabrics, Inc., a Nevada
corporation ("DECORATIVE FABRICS"); Guilford of Maine Finishing Services, Inc.,
a Nevada corporation ("FINISHING SERVICES"); Guilford of Maine Marketing
Company, a Nevada corporation ("GOM MARKETING"); Interface Architectural
Resources, Inc., a Georgia corporation ("ARCHITECTURAL RESOURCES"); Toltec
Fabrics, Inc., a Georgia corporation ("TOLTEC"); Intek, Inc., a Georgia
corporation ("INTEK"); Intek Marketing Company, a Nevada corporation ("INTEK
MARKETING"); Superior Holding, Inc., a Texas corporation ("SUPERIOR HOLDING");
Quaker City International, Inc., a Pennsylvania corporation (QUAKER CITY");
Commercial Flooring Systems, Inc., a Pennsylvania corporation ("COMMERCIAL
FLOORING"); and Congress Flooring Corp., a Massachusetts corporation ("CONGRESS
FLOORING") and First Union National Bank of Georgia, a national banking
association, as trustee under the Indenture defined below (the "TRUSTEE").
W I T N E S S E T H:
WHEREAS, Interface, Inc., a Georgia corporation (the "COMPANY"), the
Trustee, and the other signatories thereto, are party to that certain Indenture,
dated as of November 15, 1995, relating to $125,000,000 in initial aggregate
principal amount of the Company's 9 1/2 % Senior Subordinated Notes due 2005 and
the Company's 9 1/2 % Series B Senior Subordinated Notes due 2005 (the
"Indenture"); and
WHEREAS, in accordance with Sections 12.03(b) and 4.16 of the Indenture
the signatories hereto, other than the Trustee, desire to supplement the
Indenture for purposes of becoming "Guarantors" of the Securities and the
Indenture, subject to and in accordance with the terms of the Indenture,
including without limitation, Article Twelve of the Indenture; and
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable
<PAGE> 2
consideration, the receipt and adequacy of which are hereby acknowledged, each
of the Additional Guarantors (as defined below) covenants and agrees as follows
for the benefit of each other party to this Supplement and to the Indenture and
for the equal and ratable benefit of the Holders of the Securities:
1.DEFINED TERMS
Holding, Royalty, Licensing, Americas, Specialty Resources, Americas
Services, Bentley Royalty, Prince Street Royalty, Re:Source Americas, GOM,
Decorative Fabrics, Finishing Services, GOM Marketing, Architectural Resources,
Toltec, Intek, Intek Marketing, Superior Holding, Quaker City, Commercial
Flooring and Congress Flooring are collectively referred to herein as the
"ADDITIONAL GUARANTORS" and individually as a "GUARANTOR". Other capitalized
terms used but not otherwise defined are used herein with the meaning specified
for such terms in the Indenture.
2.ADDITIONAL GUARANTORS
Each of the Additional Guarantors agrees that it shall be and become a
Guarantor for all purposes of the Indenture and the Securities issued pursuant
thereto and in accordance therewith and shall be fully liable thereunder and
therefor, subject to the provisions of Article Twelve of the Indenture, to each
Holder of a Security authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, irrespective of the validity and
enforceability of the Indenture, the Securities, or the obligations of the
Company or any other Guarantors to the Holders or the Trustee hereunder or
thereunder to the extent and with the same effect as though each Additional
Guarantor had been one of the Guarantors originally executing and delivering the
Indenture and the Guarantee. All references in the Indenture and each Security
to "Guarantors" or any "Guarantor" shall be deemed to include and to refer to
each and every Additional Guarantor.
3.GUARANTEE
In furtherance of the foregoing and not in limitation thereof, and for
value received, each of the undersigned Additional Guarantors hereby
unconditionally guarantees to the Holder of a Security the payments of principal
of, premium, if any, and interest on, each Security in the amounts and at the
time when due, and interest on the overdue principal, premium, if any, and
interest, if any, of a Security, if lawful, and the payment or performance of
all other obligations of the Company under the Indenture or the Securities, to
each Holder of a Security and the Trustee, all in accordance with and subject to
the terms and limitations of each Security, Article Twelve of the Indenture, and
the Guarantee (of which the Guarantee set forth in this Section 3 of this
Supplement shall be, and shall be deemed to be, a part). The validity and
enforceability of the Guarantee set forth in this Section 3 of this Supplement
shall not be affected by the fact that it is not affixed to any Security or all
of the Securities.
The obligations of each of the undersigned Additional Guarantors to the
Holders of Securities
2
<PAGE> 3
and to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth in Article Twelve of the Indenture, and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates. The indebtedness evidenced by
this Guarantee is, to the extent and the manner provided in the Indenture,
subordinate and subject in right of payment to the prior payment in full in cash
or Cash Equivalents, of all Guarantor Senior Indebtedness as defined in the
Indenture, and this Guarantee is issued subject to such provisions. Each Holder
of a Security by accepting same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to
take such action as may be necessary and appropriate to effectuate the
subordination as provided in the Indenture, and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose; provided, however, that such
subordination provision shall cease to affect amounts deposited in accordance
with the defeasance provisions of the Indenture upon the terms and conditions
set forth therein.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
4.DUPLICATE ORIGINALS
The parties may sign any number of copies of this Supplement.
Each signed copy shall be an original, but all such executed copies together
represent the same agreement.
5.GOVERNING LAW
The laws of the State of New York shall govern this Supplement and the
Guarantees set forth herein. Each Additional Guarantor agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to the Indenture, this Supplement, the Guarantees, or
the Securities.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplement to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
3
<PAGE> 4
INTERFACE HOLDING COMPANY
By: /s/ DANIEL T. HENDRIX
--------------------------------
Name: Daniel T. Hendrix
Title: Senior Vice President
INTERFACE ROYALTY COMPANY
By: /s/ DANIEL T. HENDRIX
--------------------------------
Name: Daniel T. Hendrix
Title: Senior Vice President
INTERFACE LICENSING COMPANY
By: /s/ DANIEL T. HENDRIX
--------------------------------
Name: Daniel T. Hendrix
Title: Senior Vice President
INTERFACE AMERICAS, INC.
By: /s/ DANIEL T. HENDRIX
--------------------------------
Name: Daniel T. Hendrix
Title: Senior Vice President
INTERFACE SPECIALTY RESOURCES, INC.
By: /s/ DANIEL T. HENDRIX
--------------------------------
Name: Daniel T. Hendrix
Title: Senior Vice President
INTERFACE AMERICAS SERVICES, INC.
4
<PAGE> 1
EXHIBIT 10.6
INTERFACE, INC.
OMNIBUS STOCK INCENTIVE PLAN
(JANUARY 20, 1997)
<PAGE> 2
INTERFACE, INC.
OMNIBUS STOCK INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Purpose..................................................................................................1
2. Definitions..............................................................................................1
3. Shares Available Under this Plan.........................................................................4
4. Administration of this Plan..............................................................................4
5. Stock Options............................................................................................4
6. Stock Appreciation Rights................................................................................6
7. Restricted Shares........................................................................................7
8. Deferred Shares..........................................................................................8
9. Performance Shares and Performance Units.................................................................9
10. Transferability.........................................................................................10
11. Adjustments.............................................................................................11
12. Fractional Shares.......................................................................................11
13. Withholding Taxes.......................................................................................11
14. Certain Termination Events, Hardship and
Approved Leaves of Absence..............................................................................12
15. Foreign Employees.......................................................................................12
16. Amendments and Other Matters............................................................................12
17. Effective Date and Shareholder Approval.................................................................13
18. Regulation and Other Approvals..........................................................................13
19. Deferral................................................................................................14
20. Termination.............................................................................................14
</TABLE>
<PAGE> 3
INTERFACE, INC.
OMNIBUS STOCK INCENTIVE PLAN
1. PURPOSE. The purpose of this Plan is to attract and retain
key employees and directors for Interface, Inc. (the "Company") and its
subsidiaries and to provide such persons with incentives and rewards for
superior performance.
2. DEFINITIONS. As used in this Plan, the following terms shall
be defined as set forth below:
"AWARD" means any Appreciation Right, Deferred Share,
Restricted Share, Stock Option, Performance Share or Performance Unit.
"BASE PRICE" means the price to be used as the basis for
determining the Spread upon the exercise of a Freestanding Stock Appreciation
Right.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
"COMMITTEE" means the committee described in Section 4 of this
Plan.
"COMPANY" means Interface, Inc., a Georgia corporation, or any
successor corporation.
"DEFERRAL PERIOD" means the period of time during which
Deferred Shares are subject to deferral limitations under Section 8 of this
Plan.
"DEFERRED SHARES" means an award pursuant to Section 8 of this
Plan of the right to receive Shares at the end of a specified Deferral Period.
"EMPLOYEE" means any person, including an officer, employed by
the Company or a Subsidiary.
"EXERCISE PRICE" means the purchase price payable upon the
exercise of a Stock Option.
"FAIR MARKET VALUE" means the fair market value of the Shares
which, unless otherwise specified by the Committee with respect to any Award,
shall be determined, for any valuation date, as the closing price of the Class A
Shares on Nasdaq (or, if the Class A Shares are not traded on Nasdaq, such other
national exchange on which the Class A Shares are traded).
<PAGE> 4
For purposes hereof, the closing price on the applicable valuation date shall be
used; provided, however, if the Class A Shares are not traded on such valuation
date, the closing price on the immediately preceding trading date for the Class
A Shares shall be used.
"FREESTANDING STOCK APPRECIATION RIGHT" means a Stock
Appreciation Right granted pursuant to Section 6 of this Plan that is not
granted in tandem with a Stock Option or similar right.
"GRANT DATE" means the date specified by the Committee on
which a grant of an Award shall become effective, which shall not be earlier
than the date on which the Committee takes action with respect thereto.
"INCENTIVE STOCK OPTIONS" means any Stock Option that is
intended to qualify as an "incentive stock option" under Section 422 of the Code
or any successor provision.
"NONQUALIFIED STOCK OPTION" means any Stock Option that is not
intended to qualify as an Incentive Stock Option.
"OPTIONEE" means the person so designated in an agreement
evidencing an outstanding Stock Option.
"OUTSIDE DIRECTOR" means a member of the Board who is not an
Employee.
"PARTICIPANT" means an Employee or Outside Director, or any
consultant, outside director of a Subsidiary or independent contractor
performing bona fide services for the Company or a Subsidiary, who is selected
by the Committee to receive benefits under this Plan, provided, however, that
only Employees shall be eligible to receive grants of Incentive Stock Options.
"PERFORMANCE OBJECTIVES" means the objectives established
pursuant to this Plan for Participants who have received Awards of Performance
Shares or Performance Units or, when so determined by the Committee, Deferred
Shares or Restricted Shares. Performance Objectives may be described in terms of
Company-wide objectives, or objectives that are related to the performance of
the individual Participant or of the Subsidiary, division, department or
function within the Company in which the Participant is employed. The
Performance Objectives applicable to Awards intended to qualify as
"performance-based compensation" under Section 162(m) of the Code shall be
selected from among the following measures: return on equity, earnings per
share, total earnings, earnings growth, return on capital, return on assets,
economic value added ("EVA"), sales growth, waste reduction, increase in the
Fair Market Value of the Shares, or any combination thereof. The Award agreement
may provide that if the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company, an
acquisition or divestiture, or other events or circumstances render the
specified Performance Objectives unsuitable or unfair, the Committee may modify
such Performance Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Committee deems appropriate and
2
<PAGE> 5
equitable. For Employees subject to the restrictions of Code Section 162(m),
such changes shall be made in a manner consistent with Code Section 162(m).
"PERFORMANCE PERIOD" means a period of time established under
Section 9 of this Plan within which the Performance Objectives relating to
Performance Shares, Performance Units, Deferred Shares or Restricted Shares are
to be achieved.
"PERFORMANCE SHARE" means a bookkeeping entry that records the
equivalent of one Share awarded pursuant to Section 9 of this Plan.
"PERFORMANCE UNIT" means a bookkeeping entry that records a
unit equivalent to $1.00 awarded pursuant to Section 9 of this Plan.
"PREDECESSOR PLANS" means the Interface, Inc. Key Employee
Stock Option Plan (1993) and the Interface, Inc. Offshore Stock Option Plan,
which have been terminated (as to new grants) as of the effective date of this
Plan specified in Section 17.
"RESTRICTED SHARES" means Shares granted under Section 7 of
this Plan subject to a substantial risk of forfeiture.
"SHARES" means shares of the Class A or Class B common stock
of the Company, $.10 par value per share, or any security into which Shares may
be converted by reason of any transaction or event of the type referred to in
Section 11 of this Plan. Each Award granted under this Plan shall specify
whether it relates to Class A Shares, Class B Shares, or a combination thereof.
"SPREAD" means, in the case of a Freestanding Stock
Appreciation Right, the amount by which the Fair Market Value on the date when
any such right is exercised exceeds the Base Price specified in such right or,
in the case of a Tandem Stock Appreciation Right, the amount by which the Fair
Market Value on the date when any such right is exercised exceeds the Exercise
Price specified in the related Stock Option.
"STOCK APPRECIATION RIGHT" means a right granted under Section
6 of this Plan, including a Freestanding Stock Appreciation Right or a Tandem
Stock Appreciation Right.
"STOCK OPTION" means a right to purchase Shares granted under
Section 5 of this Plan.
"SUBSIDIARY" means either: (i) a corporation of which more
than 50 percent of the outstanding shares or securities (representing the right
to vote for the election of directors) are now or hereafter owned or controlled,
directly or indirectly, by the Company, or (ii) a noncorporate entity which does
not have outstanding shares or securities (as may be the case in a partnership,
joint venture or unincorporated association), but of which more than 50 percent
of the ownership interests (representing the right generally to make decisions
for such other entity) are now or hereafter owned
3
<PAGE> 6
or controlled, directly or indirectly, by the Company; provided, however, for
purposes of determining whether any person may be a Participant for purposes of
any grant of Incentive Stock Options, "Subsidiary" means any corporation in
which the Company owns or controls, directly or indirectly, more than 50 percent
of the total combined voting power represented by all classes of stock issued by
such corporation and outstanding at the time of such grant.
"TANDEM STOCK APPRECIATION RIGHT" means a Stock Appreciation
Right that is granted pursuant to Section 6 of this Plan in tandem with a Stock
Option or any similar right granted under any other plan of the Company.
3. SHARES AVAILABLE UNDER THIS PLAN. Subject to adjustment as
provided in Section 11 of this Plan, the number of Shares that may be issued or
transferred under this Plan shall not in the aggregate exceed the sum of (a)
1,800,000 Shares not previously authorized for issuance under any plan, plus (b)
(i) the number of Shares subject to outstanding stock options granted under the
Predecessor Plans, minus (ii) the number of Shares issued on or after the
effective date hereof pursuant to the exercise of such outstanding stock options
granted under the Predecessor Plans. The (w) Shares subject to any unexercised
portion of terminated Stock Options, (x) Shares subject to any unexercised
portion of terminated stock options that were outstanding under the Predecessor
Plans on the effective date hereof, (y) Shares forfeited under this Plan and
Shares withheld in payment of the Exercise Price or withholding taxes, and (z)
Shares subject to any terminated or surrendered Awards as to which no
Participant has received any payment or other benefit of ownership, may again be
subject to new Awards under this Plan. Such Shares may be Shares of original
issuance, Shares held in treasury, or Shares that have been reacquired by the
Company. No Participant may receive Awards representing more than 500,000 Shares
in any one calendar year. In addition, the maximum number of Performance Units
that may be granted to a Participant in any one calendar year is 1,000,000.
4. ADMINISTRATION OF THIS PLAN.
(a) This Plan shall be administered by one or more committees
appointed by the Board.
(b) The interpretation and construction by the Committee of any
provision of this Plan or of any agreement or document evidencing the grant of
any Award, and any determination by the Committee pursuant to any provision of
this Plan or any such agreement, notification or document, shall be final and
conclusive. No member of the Committee shall be liable to any person for any
such action taken or determination made in good faith.
5. STOCK OPTIONS. The Committee may from time to time authorize
grants to Participants of Stock Options to purchase Shares upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Each grant shall specify the number of Shares to which it
pertains.
4
<PAGE> 7
(b) Each grant shall specify an Exercise Price per Share;
provided, however, the Exercise Price per Share for any Incentive Stock Option
shall be equal to or greater than the Fair Market Value (110 percent of Fair
Market Value for any 10-percent shareholder, within the meaning of Section 422
of the Code) on the Grant Date.
(c) The form of consideration to be paid in satisfaction of the
Exercise Price and the manner of payment of such consideration may be (i) cash
in the form of currency, check or other cash equivalent acceptable to the
Company; (ii) nonforfeitable, unrestricted Shares that have been owned by the
Optionee for at least six months and have a value at the time of exercise that
is equal to the Exercise Price, (iii) any other legal consideration that the
Committee may deem appropriate and may specify in a grant, including, without
limitation, any form of consideration authorized under Section 5(d) below, on
such basis as the Committee may determine in accordance with this Plan, or (iv)
any combination of the foregoing.
(d) On or after the Grant Date of any Stock Option other than an
Incentive Stock Option, the Committee may determine that payment of the Exercise
Price may also be made in whole or in part in the form of Restricted Shares or
other Shares that are subject to risk of forfeiture or restrictions on transfer.
Unless otherwise determined by the Committee, whenever any Exercise Price is
paid in whole or in part by means of any of the forms of consideration specified
in this Section 5(d), the Shares received by the Optionee upon the exercise of
the Stock Options shall be subject to the same risks of forfeiture or
restrictions on transfer as those that applied to the consideration surrendered
by the Optionee; provided, however, such risks of forfeiture and restrictions on
transfer shall apply only to the same number of Shares received by the Optionee
as applied to the forfeitable or restricted Shares surrendered by the Optionee.
(e) On or after the Grant Date of any Stock Option, the Committee
may provide for the automatic grant to the Optionee of a "reload" Stock Option
in the event the Optionee surrenders Shares in satisfaction of the Exercise
Price upon the exercise of a Stock Option as authorized under Sections 5(c) and
(d) above. Each reload Stock Option shall pertain to a number of Shares equal to
the number of Shares utilized by the Optionee to exercise the original Stock
Option. Each reload Stock Option shall have an exercise price equal to Fair
Market Value on the date it is granted and shall expire on the stated expiration
date of the original Stock Option.
(f) Each Stock Option grant shall specify the period of continuous
employment or service of the Optionee with the Company or any Subsidiary (or, in
the case of an Outside Director, service on the Board) that is necessary before
the Stock Option or installments thereof shall become exercisable, and any grant
may provide for the earlier exercise of such rights in the event of a change in
control of the Company (as defined in the agreement evidencing the Stock Option)
or other similar transaction or event.
(g) Stock Options granted under this Plan may be Incentive Stock
Options, Nonqualified Stock Options or a combination of the foregoing; provided,
however, only Nonqualified Stock Options may be granted to Outside Directors or
other non-Employee Participants. Each grant shall
5
<PAGE> 8
specify whether (or the extent to which) the Stock Option is an Incentive Stock
Option or a Nonqualified Stock Option. Notwithstanding any such designation, to
the extent that the aggregate Fair Market Value (determined as of the Grant
Date) of the Shares with respect to which Stock Options designated as Incentive
Stock Options are exercisable for the first time by an Optionee during any
calendar year (under all plans of the Company) exceeds $100,000, such Stock
Options shall be treated as Nonqualified Stock Options.
(h) No Stock Option granted under this Plan may be exercised more
than 10 years from the Grant Date.
(i) Each Stock Option grant shall be evidenced by an agreement
executed on behalf of the Company by a senior officer (vice president level or
higher) thereof and delivered to and accepted by the Optionee, and containing
such terms and provisions as the Committee may determine, consistent with this
Plan. Unless the Committee specifies other terms consistent with the provisions
of this Plan, the terms of any Stock Option shall be substantially the same as
set forth in the sample Incentive Stock Option Agreement attached hereto as
Exhibit A.
6. STOCK APPRECIATION RIGHTS. The Committee may also authorize
grants to Participants of Stock Appreciation Rights. A Stock Appreciation Right
is the right of the Participant to receive from the Company an amount, which
shall be determined by the Committee, expressed as a percentage (not exceeding
100 percent) of the Spread at the time of the exercise of such right. Any grant
of Stock Appreciation Rights under this Plan shall be upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Any grant may specify that the amount payable upon the
exercise of a Stock Appreciation Right may be paid by the Company in cash,
Shares, or a combination thereof, and may either (i) grant to the Participant or
reserve to the Committee the right to elect among those alternatives, or (ii)
preclude the right of the Participant to receive and the Company to issue Shares
or other equity securities in lieu of cash.
(b) Any grant may specify that the amount payable upon the
exercise of a Stock Appreciation Right shall not exceed a maximum specified by
the Committee on the Grant Date.
(c) Any grant may specify (i) a waiting period or periods before
Stock Appreciation Rights shall become exercisable, and (ii) permissible dates
or periods on or during which Stock Appreciation Rights shall be exercisable.
(d) Any grant may specify that a Stock Appreciation Right may be
exercised only in the event of a change in control of the Company (as defined in
the agreement evidencing the Stock Appreciation Right) or other similar
transaction or event.
6
<PAGE> 9
(e) On or after the Grant Date of any Stock Appreciation Rights,
the Committee may provide for the payment to the Participant of dividend
equivalents thereon, in cash or Shares, and on a current, deferred or contingent
basis.
(f) Each grant shall be evidenced by an agreement executed on
behalf of the Company by a senior officer (vice president level or higher)
thereof and delivered to and accepted by the Optionee, which shall describe the
subject Stock Appreciation Rights, identify any related Stock Options, state
that the Stock Appreciation Rights are subject to all of the terms and
conditions of this Plan and contain such other terms and provisions as the
Committee may determine, consistent with this Plan.
(g) Each grant of a Tandem Stock Appreciation Right shall provide
that such Tandem Stock Appreciation Right may be exercised only (i) at a time
when the related Stock Option (or any similar right granted under any other plan
of the Company) is also exercisable and the Spread is positive, and (ii) by
surrender of the related Stock Option (or such other right) for cancellation.
(h) Regarding Freestanding Stock Appreciation Rights only:
(i) Each grant shall specify for each Freestanding Stock
Appreciation Right a Base Price per Share, which shall be equal to or greater
than the Fair Market Value on the Grant Date.
(ii) Successive grants may be made to the same Participant
regardless of whether any Freestanding Stock Appreciation Rights previously
granted to such Participant remain unexercised.
(iii) Each grant shall specify the period or periods of
continuous employment or service of the Participant with the Company or any
Subsidiary that are necessary before the Freestanding Stock Appreciation Rights
or installments thereof shall become exercisable, and any grant may provide for
the earlier exercise of such rights in the event of a change in control of the
Company (as defined in the agreement evidencing the Stock Appreciation Rights)
or other similar transaction or event.
(iv) No Freestanding Stock Appreciation Right granted
under this Plan may be exercised more than 10 years from the Grant Date.
7. RESTRICTED SHARES. Unless otherwise determined by the
Committee, each grant of Restricted Shares shall be made with substantially the
same terms as provided in Section 8 of this Plan as if such Restricted Shares
were Deferred Shares, and the terms of any Award of Restricted Shares shall be
substantially the same as set forth in the sample Restricted Stock Agreement
attached hereto as Exhibit B. Alternately, the Committee may authorize grants to
Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
7
<PAGE> 10
(a) Each grant shall, unless otherwise determined by the
Committee, constitute an immediate transfer of the ownership of Shares to the
Participant in consideration of the performance of services, entitling such
Participant to dividend, voting and other ownership rights, subject to the
substantial risk of forfeiture and restrictions on transfer hereinafter referred
to.
(b) Each grant may be made without additional consideration from
the Participant or in consideration of a payment by the Participant that is less
than the Fair Market Value on the Grant Date.
(c) Each grant shall provide that the Restricted Shares covered
thereby shall be subject to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code for a period to be determined by the Committee
on the Grant Date, and any grant (or sale) may provide for the earlier
termination of such risk of forfeiture in the event of a change in control of
the Company (as defined in the agreement evidencing the Restricted Shares) or
other similar transaction or event.
(d) Each grant shall provide that, during the period for which
such substantial risk of forfeiture is to continue, the transferability of the
Restricted Shares shall be prohibited or restricted in the manner and to the
extent prescribed by the Committee on the Grant Date. Such restrictions may
include, without limitation, rights of repurchase or first refusal rights of the
Company, or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee.
(e) Any grant may be further conditioned upon the attainment of
Performance Objectives established by the Committee in accordance with the
applicable provisions of Section 9 of this Plan regarding Performance Shares and
Performance Units.
(f) Any grant may require that any or all dividends or other
distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional Shares, which may be subject to the same
restrictions as the underlying Award or such other restrictions as the Committee
may determine.
(g) Each grant shall be evidenced by an agreement executed on
behalf of the Company by a senior officer (vice president level or higher)
thereof and delivered to and accepted by the Participant, and containing such
terms and provisions as the Committee may determine, consistent with this Plan.
Unless otherwise directed by the Committee, all certificates representing
Restricted Shares, together with a stock power that shall be endorsed in blank
by the Participant with respect to such shares, shall be held in custody by the
Company until all restrictions thereon lapse.
8. DEFERRED SHARES. The Committee may authorize grants of
Deferred Shares to Participants upon such terms and conditions as the Committee
may determine in accordance with the following provisions:
8
<PAGE> 11
(a) Each grant shall constitute the agreement by the Company to
issue or transfer Shares to the Participant in the future in consideration of
the performance of services, subject to the fulfillment during the Deferral
Period of such conditions as the Committee may specify.
(b) Each grant may be made without additional consideration from
the Participant or in consideration of a payment by the Participant that is less
than the Fair Market Value on the Grant Date.
(c) Each grant shall provide that the Deferred Shares covered
thereby shall be subject to a Deferral Period, which shall be fixed by the
Committee on the Grant Date, and any grant (or sale) may provide for the earlier
termination of such Deferral Period in the event of a change in control of the
Company (as defined in the agreement evidencing the Deferred Shares) or other
similar transaction or event.
(d) During the Deferral Period, the Participant shall not have any
right to transfer any rights under the subject Award, shall not have any rights
of ownership in the Deferred Shares and shall not have any right to vote such
shares, but the Committee may, on or after the Grant Date, authorize the payment
of dividend equivalents on such shares, in cash or additional Shares, and on a
current, deferred or contingent basis.
(e) Any grant may be further conditioned upon the attainment of
Performance Objectives established by the Committee in accordance with the
applicable provisions of Section 9 of this Plan regarding Performance Shares and
Performance Units.
(f) Each grant shall be evidenced by an agreement executed on
behalf of the Company by a senior officer (vice president level or higher)
thereof and delivered to and accepted by the Participant, and containing such
terms and provisions as the Committee may determine, consistent with this Plan.
9. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee may
also authorize grants of Performance Shares and Performance Units, which shall
become payable to the Participant upon the achievement of specified Performance
Objectives, upon such terms and conditions as the Committee may determine in
accordance with the following provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which may be subject to adjustment to
reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Performance Share
or Performance Unit shall commence on the Grant Date and may be subject to
earlier termination in the event of a change in control of the Company (as
defined in the agreement evidencing the Performance Share or Performance Unit)
or other similar transaction or event.
9
<PAGE> 12
(c) Each grant shall specify the Performance Objectives that are
to be achieved by the Participant.
(d) Each grant may specify for the established Performance
Objectives a minimum acceptable level of achievement below which no payment will
be made, and in such event shall set forth a formula for determining the amount
of any payment to be made if performance is at or above such minimum acceptable
level but falls short of the maximum or full achievement of the established
Performance Objectives.
(e) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that shall have been earned, and any
grant may specify that any such amount may be paid by the Company in cash,
Shares, or a combination thereof, and may either grant to the Participant or
reserve to the Committee the right to elect among those alternatives.
(f) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the Committee
on the Grant Date. Any grant of Performance Units may specify that the amount
payable, or the number of Shares to be issued, with respect thereto may not
exceed maximums specified by the Committee on the Grant Date.
(g) Any grant of Performance Shares may provide for the payment
to the Participant of dividend equivalents thereon, in cash or additional
Shares, and on a current, deferred or contingent basis.
(h) The Committee may adjust Performance Objectives and the
related minimum acceptable level of achievement if, in the judgment of the
Committee, events or transactions have occurred after the Grant Date that are
unrelated to the performance of the Participant and result in distortion of the
Performance Objectives or the related minimum acceptable level of achievement.
(i) Each grant shall be evidenced by an agreement executed on
behalf of the Company by a senior officer (vice president level or higher)
thereof and delivered to and accepted by the Participant, which shall state that
the Performance Shares or Performance Units are subject to all of the terms and
conditions of this Plan and such other terms and provisions as the Committee may
determine, consistent with this Plan.
10. TRANSFERABILITY.
(a) Except as provided in Section 10(b) below, no Award granted
under this Plan shall be transferable by a Participant other than by will or the
laws of descent and distribution, and, during a Participant's lifetime, Stock
Options and Stock Appreciation Rights shall be exercisable only by the
Participant or, in the event of the Participant's legal incapacity, by his or
her guardian or legal representative acting in a fiduciary capacity on behalf of
the Participant under state law and court supervision.
10
<PAGE> 13
(b) The Committee may expressly provide in an Award agreement (or
an amendment to an Award agreement) that a Participant may transfer such Award
(other than an Incentive Stock Option) to a spouse or lineal descendant (a
"Family Member"), a trust for the exclusive benefit of Family Members, a
partnership or other entity in which all the beneficial owners are Family
Members, or any other entity affiliated with the Participant that may be
approved by the Committee. Subsequent transfers of Awards shall be prohibited
except in accordance with this Section 10(b). All terms and conditions of the
Award, including provisions relating to the termination of the Participant's
employment or service with the Company or a Subsidiary, and the effect thereof,
shall continue to apply following a transfer made in accordance with this
Section 10(b).
(c) Any Award made under this Plan may provide that all or any
part of the Shares that are (i) to be issued or transferred by the Company upon
the exercise of Stock Options or Stock Appreciation Rights, upon the termination
of the Deferral Period applicable to Deferred Shares or upon achievement of the
Performance Objectives specified for Performance Shares or Performance Units, or
(ii) no longer subject to the substantial risk of forfeiture and restrictions on
transfer referred to in Section 7 of this Plan, shall be subject to further
restrictions upon transfer.
11. ADJUSTMENTS. The Committee may make or provide for such
adjustments in the (i) number of Shares covered by outstanding Stock Options,
Stock Appreciation Rights, Deferred Shares and Performance Shares granted
hereunder; (ii) Exercise and Base Prices per share applicable to such Stock
Options and Stock Appreciation Rights; and (iii) kind of Shares covered thereby,
as the Committee in its discretion may in good faith determine to be equitably
required in order to prevent dilution or enlargement of the rights of Optionees
that otherwise would result from (x) any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure
of the Company; (y) any merger, consolidation, spin-off, spin-out, split-off,
split-up, reorganization, partial or complete liquidation or other distribution
of assets, or issuance of rights or warrants to purchase securities; or (z) any
other corporate transaction or event having an effect similar to any of the
foregoing. Moreover, except as limited by Code Section 162(m), in the event of
any such transaction or event, the Committee may provide in substitution for any
or all outstanding Awards under this Plan such alternative consideration as it
may in good faith determine to be equitable under the circumstances and may
require in connection therewith the surrender of all Awards so replaced. The
Committee may also make or provide for such adjustments in the number of Shares
specified in Section 3 of this Plan as the Committee in its discretion may in
good faith determine to be appropriate in order to reflect any transaction or
event described in this Section 11.
12. FRACTIONAL SHARES. The Company shall not be required to issue
any fractional Shares pursuant to this Plan. The Committee may provide for the
elimination of fractions or for the settlement thereof in cash.
13. WITHHOLDING TAXES. To the extent that the Company is required
to withhold federal, state, local or foreign taxes in connection with any
payment made or benefit realized by a Participant or other person under this
Plan, it shall be a condition to the receipt of such payment or the realization
of such benefit that the Participant or such other person make arrangements
satisfactory
11
<PAGE> 14
to the Company for payment of all such taxes required to be withheld. At the
discretion of the Committee, such arrangements may include relinquishment of a
portion of such benefit or delivery of Shares in payment of such taxes.
14. CERTAIN TERMINATION EVENTS, HARDSHIP AND APPROVED LEAVES OF
ABSENCE. In the event of termination of employment by reason of death,
disability, normal retirement, or early retirement with the consent or agreement
of the Company, or a leave of absence approved by the Company, or in the event
of hardship or other special circumstances, of a Participant who holds (i) a
Stock Option or Stock Appreciation Right that is not immediately and fully
exercisable, (ii) any Restricted Shares as to which the substantial risk of
forfeiture or the prohibition or restriction on transfer has not lapsed, (iii)
any Deferred Shares as to which the Deferral Period is not complete, (iv) any
Performance Shares or Performance Units that have not been fully earned, or (v)
any Shares that are subject to any transfer restriction pursuant to Section
10(c) of this Plan, the Committee may in its discretion take any action that it
deems to be equitable under the circumstances or in the best interests of the
Company, including, without limitation, waiving or modifying any limitation or
requirement with respect to any Award under this Plan. Notwithstanding the
foregoing, the Committee may not waive or modify any Performance Objective
relating to an Award, or modify a Stock Option, intended to satisfy the
requirements for "performance-based compensation" in a manner consistent with
Section 162(m) of the Code.
15. FOREIGN EMPLOYEES. In order to facilitate the making of any
grant or combination of grants under this Plan, the Committee may provide for
such special terms for Awards to Participants who are foreign nationals, or who
are employed by the Company or any Subsidiary outside of the United States of
America, as the Committee may consider necessary or appropriate to accommodate
differences in local law, tax policy or custom. Moreover, the Committee may
approve such supplements to, or amendments, restatements or alternative versions
of, this Plan as it may consider necessary or appropriate for such purposes
without thereby affecting the terms of this Plan as in effect for any other
purpose; provided, however, that no such supplements, amendments, restatements
or alternative versions shall include any provisions that are inconsistent with
the terms of this Plan, as then in effect, unless this Plan could have been
amended to eliminate such inconsistency without further approval by the
shareholders of the Company.
16. AMENDMENTS AND OTHER MATTERS.
(a) This Plan may be amended from time to time by the Board or the
Executive Committee of the Board, but no such amendment shall increase any of
the amounts or limitations specified in Section 3 of this Plan, other than to
reflect an adjustment made in accordance with Section 11, without the further
approval of the shareholders of the Company.
(b) With the concurrence of the affected Optionee, the Committee
may cancel any agreement evidencing Stock Options or any other Award granted
under this Plan. In the event of such cancellation, the Committee may authorize
the granting of new Stock Options or other Awards hereunder, which may or may
not cover the same number of Shares that had been the subject of the
12
<PAGE> 15
prior Award, in such manner, at such Exercise Price and subject to such other
terms, conditions and discretions, as would have been applicable under this Plan
had the canceled Stock Options or other Award not been granted.
(c) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary and shall not interfere in any way with any right that the Company or
any Subsidiary would otherwise have to terminate any Participant's employment or
other service at any time.
(d) To the extent that any provision of this Plan would prevent
any Stock Option that was intended to qualify under particular provisions of the
Code from so qualifying, such provision of this Plan shall be null and void with
respect to such Stock Option, provided, however, that such provision shall
remain in effect with respect to other Stock Options, and there shall be no
further effect on any provision of this Plan.
17. EFFECTIVE DATE AND SHAREHOLDER APPROVAL. This Plan shall be
effective as of the date of its approval by the Board or the Executive Committee
of the Board (January 20, 1997), subject to approval by the shareholders of the
Company at the next Annual Meeting of Shareholders. The Committee may grant
Awards subject to the condition that this Plan shall have been approved by the
shareholders of the Company.
18. REGULATION AND OTHER APPROVALS.
(a) The obligation of the Company to sell or deliver Shares with
respect to Stock Options and Awards granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(b) The Plan is intended to comply with Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 and the Committee shall interpret and
administer the provisions of the Plan or any agreement setting forth an Award in
a manner consistent therewith. Any provisions inconsistent with such Rule shall
be inoperative and shall not affect the validity of the Plan.
(c) Each Stock Option and Award is subject to the requirement
that, if at any time the Committee determines, in its discretion, that the
listing, registration or qualification of Shares issuable pursuant to the Plan
is required by any securities exchange (including Nasdaq) or under any state or
federal law, or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of a
Stock Option or the issuance of Shares, no Stock Options shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
in a manner acceptable to the Committee.
13
<PAGE> 16
(d) Notwithstanding anything contained in the Plan to the
contrary, in the event that the disposition of Shares acquired pursuant to the
Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended, and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act of 1933, as amended, and Rule 144 or other
regulations thereunder. The Committee may require any individual receiving
Shares pursuant to the Plan, as a condition precedent to receipt of such Shares
(including upon exercise of a Stock Option), to represent and warrant to the
Company in writing that the Shares acquired by such individual are acquired
without a view to any distribution thereof and will not be sold or transferred
other than pursuant to an effective registration thereof under the Securities
Act or pursuant to an exemption applicable under the Securities Act, or the
rules and regulations promulgated thereunder. The certificates evidencing any of
such Shares shall be appropriately legended to reflect their status as
restricted securities as aforesaid.
(e) In the event that changes are made to Code Section 162(m) to
permit greater flexibility with respect to any Award or Stock Option under the
Plan, the Committee may, subject to this Section 18, make any adjustments it
deems appropriate in such Award or Stock Option.
19. DEFERRAL. The Committee may permit a Participant to defer to
another plan or program such Participant's receipt of Shares or cash that would
otherwise be due to such Participant by virtue of the exercise, vesting or
achievement of an Award. If any such deferral election is required or permitted,
the Committee shall, in its sole discretion, establish rules and procedures for
such payment deferrals.
20. TERMINATION. This Plan shall terminate on January 19, 2007,
and no Award shall be granted after that date.
14
<PAGE> 1
EXHIBIT 10.8(b)
FIFTH AMENDMENT TO
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Fifth Amendment") made and entered into as of December 29, 1996, by and
among INTERFACE, INC., a Georgia corporation ("Interface"), INTERFACE
SCHERPENZEEL B.V., a "besloten vennootschap met beperkte aansprakelijkheid"
(private company with limited liability) incorporated and existing under the
laws of The Netherlands with its registered seat in Scherpenzeel, Gld., The
Netherlands ("Scherpenzeel B.V."), INTERFACE EUROPE LIMITED, a private company
limited by shares organized and existing under the laws of England and Wales
("Europe Limited"; Interface, Scherpenzeel B.V. and Europe Limited referred to
collectively herein as the "Borrowers"), SUNTRUST BANK, ATLANTA (formerly Trust
Company Bank), a banking corporation organized under the laws of the State of
Georgia ("TCB"), THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association ("FNBC"), the other banks and lending institutions listed on the
signature pages hereof (TCB, FNBC, and such other banks and lending institutions
referred to collectively herein as the "Lenders"), SUNTRUST BANK, ATLANTA
(formerly Trust Company Bank), in its capacity as agent for those Lenders having
outstanding Domestic Syndicated Loan Commitments or having outstanding Domestic
Revolving Loans or Term Loans as provided in the Credit Agreement defined below
(the "Domestic Agent"), THE FIRST NATIONAL BANK OF CHICAGO, in its capacity as
agent for those Lenders having outstanding Multicurrency Syndicated Loan
Commitments or having outstanding Multicurrency Revolving Loans as provided in
the Credit Agreement defined below (the "Multicurrency Agent"; the Domestic
Agent and the Multicurrency Agent referred to collectively herein as the
"Co-Agents"), and SUNTRUST BANK, ATLANTA (formerly Trust Company Bank), in its
capacity as collateral agent for the Co-Agents and the Lenders (the "Collateral
Agent");
W I T N E S S E T H:
WHEREAS, the Borrowers, the Co-Agents, the Collateral Agent,
and the Lenders are parties to a certain Credit Agreement dated as of January 9,
1995, as amended and restated by a certain Amended and Restated Credit Agreement
dated as of June 30, 1995, and as further amended by a certain First Amendment
to Amended and Restated Credit Agreement dated as of July 31, 1995, by a certain
Second Amendment to Amended and Restated Credit Agreement dated as of November
21, 1995, by a certain Third Amendment to Amended and Restated Credit Agreement
dated as of February 28, 1996, and by a certain Fourth Amendment to Amended and
<PAGE> 2
Restated Credit Agreement dated as of July 30, 1996 (as so amended and restated,
the "Credit Agreement");
WHEREAS, Interface has advised the Lenders of a proposed
corporate reorganization involving Interface and certain of its existing
Subsidiaries, such corporate reorganization to be effected by the transactions
more particularly described on Schedule 1.01 attached hereto and by this
reference made a part hereof (collectively, the "1996 Reorganization
Transactions");
WHEREAS, the Co-Agents and the Lenders are willing to consent
to the 1996 Reorganization Transactions, subject to the terms, conditions, and
requirements set forth in this Fifth Amendment.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Borrowers, the Lenders, the Co-Agents and
the Collateral Agent agree as follows:
1. DEFINED TERMS. Except as otherwise expressly defined herein, each
capitalized term used in this Fifth Amendment that is defined in the Credit
Agreement is used herein with the meaning assigned to such capitalized term in
the Credit Agreement.
2. AMENDMENTS TO SECTION 1.01 ("DEFINITIONS").
(a) Section 1.01 of the Credit Agreement is hereby amended by adding
the following defined terms and definitions thereof in proper alphabetical
order:
"Fifth Amendment to Credit Agreement" shall mean the Fifth
Amendment to Amended and Restated Credit Agreement dated as of December
29, 1996, by and among the Borrowers, the Lenders, the Co-Agents, and
the Collateral Agent, together with all Schedules and Exhibits thereto.
"1996 Reorganization Credit Parties" shall mean, collectively,
Guilford of Maine, Inc., a Nevada corporation, Guilford of Maine
Finishing Services, Inc., a Nevada corporation, Guilford of Maine
Decorative Fabrics, Inc., a Nevada corporation, Guilford of Maine
Marketing Co., a Nevada corporation, Intek Marketing Co., a Nevada
corporation, Interface Holding Company, a Nevada corporation, Interface
Americas, Inc., a Georgia corporation, Interface Americas Services,
Inc., a Georgia corporation, Interface Specialty Resources, Inc., a
Nevada corporation, Re:Source Americas Enterprises, Inc., a Georgia
corporation, Interface Royalty Company, a Nevada corporation, Interface
Licensing Company, a Nevada corporation, Prince Street Royalty Company,
a Nevada corporation, Bentley Royalty Company, a Nevada corporation,
Superior Holding, Inc., a Texas
-2-
<PAGE> 3
corporation, Quaker City International, Inc., a Pennsylvania
corporation, Commercial Flooring Systems, Inc., a Pennsylvania
corporation, Congress Flooring Corp., a Massachusetts corporation, and
their respective successors and permitted assigns.
"1996 Reorganization Transactions" shall mean those
transactions more particularly described on Schedule 1.01 attached
hereto and by this reference made a part hereof.
(b) The defined terms and definitions listed below that appear in the
Credit Agreement are hereby amended by deleting said defined terms and
definitions in their entirety and substituting in lieu thereof the following
defined terms and definitions:
"Bank Purchasers" shall mean, collectively, CIBC and each
other financial institution, if any, that becomes a party to the
Receivables Backup Purchase Agreements, and their respective successors
and assigns.
"Credit Parties" shall mean, collectively, each of the
Borrowers, the Guarantors, and the L/C Account Parties (including all
Persons that are currently Borrowers, Guarantors, and L/C Account
Parties and all Persons who may at any time in the future become
Borrowers, Guarantors, or L/C Account Parties), and every other Person
who from time to time executes a Security Document with respect to all
or any portion of the Obligations.
"Guarantors" shall mean, collectively, Interface, Interface
Interior Fabrics, Inc. (formerly Guilford of Maine, Inc.), Guilford
(Delaware), Inc., Interface Flooring Systems, Inc., Rockland React-Rite
Inc., Interface Research Corporation, Interface Europe, Inc., Pandel,
Inc., Interface Asia-Pacific, Inc., Bentley, Prince Street, Intek,
Inc., Toltec Fabrics, Inc., C-Tec, Inc. (now Interface Architectural
Resources, Inc.), the 1996 Reorganization Credit Parties, and all other
Material Subsidiaries (other than Interface SPC) that are not Foreign
Subsidiaries, and their respective successors and permitted assigns.
"Pledge Agreements" shall mean, collectively, those certain
Pledge and Security Agreements (including supplements thereto and all
assumptions, amendments and/or restatements thereof), Agreement of
Pledge, and Deed of Pledge, executed in favor of the Collateral Agent,
substantially in the forms of Exhibits E-1 through E-16, providing for
the grant of first priority Liens on the Pledged Stock, as the same may
be further supplemented, amended or restated from time to time.
"Pledged Stock" shall mean, collectively, (i) all issued and
outstanding capital stock, together with all warrants, stock options,
and other purchase and conversion rights with respect to such capital
stock, of each of Interface Interior Fabrics, Inc. (formerly Guilford
of Maine, Inc.), Guilford (Delaware) Inc., Interface Flooring Systems,
Inc., Interface Research
-3-
<PAGE> 4
Corporation, Rockland React-Rite, Inc., Pandel, Inc., Interface Europe,
Inc., Interface Asia- Pacific, Inc., Bentley, Prince Street, Intek,
Inc., Toltec Fabrics, Inc., C-Tec, Inc. (now Interface Architectural
Resources, Inc.), the 1996 Reorganization Credit Parties, and all other
Material Subsidiaries of Interface organized in the United States, and
(ii) 66% of all issued and outstanding capital stock, together with 66%
of all warrants, stock options, and other purchase and conversion
rights with respect to such capital stock, of Europe Limited, Interface
Europe B.V., Interface Heuga Singapore Pte Ltd., Guilford of Maine
(Canada), Inc., Interface Flooring Systems (Canada), Inc., Interface
Heuga Hong Kong Ltd., Interface Heuga Australia Pty Limited, and all
other Material Subsidiaries that are Foreign Subsidiaries directly
owned by Interface and/or one or more other Subsidiaries organized in
the United States.
"Receivables Backup Purchase Agreements" shall mean the
agreements among Interface SPC, as seller, Interface, as collection
agent, and the Bank Purchasers, as purchasers, providing for the sale
by Interface SPC, and the purchase by the Bank Purchasers, of accounts
receivable (or undivided ownership interests therein) originated by
certain of the Consolidated Companies, as in effect on December 31,
1996, and as the same may be amended, restated or supplemented from
time to time.
3. DOCUMENTS TO BE DELIVERED PURSUANT TO THE FIFTH AMENDMENT. Interface
shall execute and deliver, or shall cause to be executed and delivered, the
following documents to the Co-Agents and the Collateral Agent for the benefit of
the Lenders:
(a) The Fourth Supplement to Subsidiary Guaranty Agreement
substantially in the form of Exhibit D-3 attached to this Fifth
Amendment, as executed on behalf of each of the 1996 Reorganization
Credit Parties;
(b) The Supplement No. 4 to the Contribution Agreement in the
form of Exhibit I-2 attached to this Fifth Amendment, as executed on
behalf of each of the 1996 Reorganization Credit Parties;
(c) The Fourth Master Amendment of Credit Documents as
executed on behalf of each of the Credit Parties;
(d) The Pledge and Security Agreement in the form of Exhibit
E-7 attached to this Fifth Amendment, as executed on behalf of
Interface, accompanied by (i) all stock certificates representing the
shares of Interface Holding Company, Interface Royalty Company, and
Interface Licensing Company constituting the Pledged Stock subject
thereto that has not been previously delivered to the Collateral Agent,
(ii) stock powers for those shares duly executed in blank, (iii)
Uniform Commercial Code financing statements relating thereto, and (iv)
any other documentation requested by the Collateral Agent in order to
assure
-4-
<PAGE> 5
the perfection of a first priority Lien on such Pledged Stock in favor
of the Collateral Agent for the benefit of the Lenders;
(e) The Pledge and Security Agreement in the form of Exhibit
E-8 attached to this Fifth Amendment, as executed on behalf of Bentley,
accompanied by (i) all stock certificates representing the shares of
Bentley Royalty Company constituting the Pledged Stock subject thereto,
(ii) stock powers for those shares duly executed in blank, (iii)
Uniform Commercial Code financing statements relating thereto, and (iv)
any other documentation requested by the Collateral Agent in order to
assure the perfection of a first priority Lien on such Pledged Stock in
favor of the Collateral Agent for the benefit of the Lenders;
(f) The Pledge and Security Agreement in the form of Exhibit
E-9 attached to this Fifth Amendment, as executed on behalf of Prince
Street, accompanied by (i) all stock certificates representing the
shares of Prince Street Royalty Company constituting the Pledged Stock
subject thereto, (ii) stock powers for those shares duly executed in
blank, (iii) Uniform Commercial Code financing statements relating
thereto, and (iv) any other documentation requested by the Collateral
Agent in order to assure the perfection of a first priority Lien on
such Pledged Stock in favor of the Collateral Agent for the benefit of
the Lenders;
(g) The Pledge and Security Agreement in the form of Exhibit
E-10 attached to this Fifth Amendment, as executed on behalf of
Re:Source Americas Enterprises, Inc., accompanied by (i) all stock
certificates representing the shares of Superior Holding, Inc., Quaker
City International, Inc., and Congress Flooring Corp. constituting the
Pledged Stock subject thereto, (ii) stock powers for those shares duly
executed in blank, (iii) Uniform Commercial Code financing statements
relating thereto, and (iv) any other documentation requested by the
Collateral Agent in order to assure the perfection of a first priority
Lien on such Pledged Stock in favor of the Collateral Agent for the
benefit of the Lenders;
(h) The Assumption, Amendment and Restatement of Pledge and
Security Agreement in the form of Exhibit E-11 attached to this Fifth
Amendment, as executed on behalf of Interface Holding Company,
accompanied by (i) all stock certificates representing the shares of
Interface Specialty Resources, Inc. and Interface Americas, Inc.
constituting the portion of the Pledged Stock subject thereto that has
not been previously delivered to the Collateral Agent, (ii) stock
powers for all Pledged Stock subject thereto duly executed in blank,
(iii) Uniform Commercial Code financing statements relating thereto,
and (iv) any other documentation requested by the Collateral Agent in
order to assure the perfection of a first priority Lien on such Pledged
Stock in favor of the Collateral Agent for the benefit of the Lenders;
-5-
<PAGE> 6
(i) The Assumption, Amendment and Restatement of Pledge and
Security Agreement in the form of Exhibit E-12 attached to this Fifth
Amendment, as executed on behalf of Interface Interior Fabrics, Inc.
(formerly Guilford of Maine, Inc.), accompanied by (i) all stock
certificates representing the shares of Guilford of Maine, Inc.,
Guilford of Maine Finishing Services, Inc., Guilford of Maine
Decorative Fabrics, Inc., Guilford of Maine Marketing Co., and Intek
Marketing Co. constituting the portion of the Pledged Stock subject
thereto that has not been previously delivered to the Collateral Agent,
(ii) stock powers for all Pledged Stock subject thereto duly executed
in blank, (iii) Uniform Commercial Code financing statements relating
thereto, and (iv) any other documentation requested by the Collateral
Agent in order to assure the perfection of a first priority Lien on
such Pledged Stock in favor of the Collateral Agent for the benefit of
the Lenders;
(j) The Assumption, Amendment and Restatement of Pledge and
Security Agreement in the form of Exhibit E-13 attached to this Fifth
Amendment, as executed on behalf of Interface Americas, Inc.,
accompanied by (i) all stock certificates representing the shares of
Interface Americas Services, Inc. constituting the Pledged Stock
subject thereto that has not been previously delivered to the
Collateral Agent, (ii) stock powers for all Pledged Stock subject
thereto duly executed in blank, (iii) Uniform Commercial Code financing
statements relating thereto, and (iv) any other documentation requested
by the Collateral Agent in order to assure the perfection of a first
priority Lien on such Pledged Stock in favor of the Collateral Agent
for the benefit of the Lenders;
(k) The Pledge and Security Agreement in the form of Exhibit
E-14 attached to this Fifth Amendment, as executed on behalf of
Interface Americas Services, Inc., accompanied by (i) all stock
certificates representing the shares of Re:Source Americas Enterprises,
Inc. constituting the Pledged Stock subject thereto, (ii) stock powers
for those shares duly executed in blank, (iii) Uniform Commercial Code
financing statements relating thereto, and (iv) any other documentation
requested by the Collateral Agent in order to assure the perfection of
a first priority Lien on such Pledged Stock in favor of the Collateral
Agent for the benefit of the Lenders;
(l) The Assumption, Amendment and Restatement of Pledge and
Security Agreement in the form of Exhibit E-15 attached to this Fifth
Amendment, as executed on behalf of Interface Specialty Resources,
Inc., accompanied by (i) stock powers for all Pledged Stock subject
thereto duly executed in blank, (ii) Uniform Commercial Code financing
statements relating thereto, and (iii) any other documentation
requested by the Collateral Agent in order to assure the perfection of
a first priority Lien on such Pledged Stock in favor of the Collateral
Agent for the benefit of the Lenders;
(m) The Pledge and Security Agreement in the form of Exhibit
E-16 attached to this Fifth Amendment, as executed on behalf of Quaker
City International, Inc., accompanied by (i) all stock certificates
representing the shares of Commercial Flooring Systems, Inc.
-6-
<PAGE> 7
constituting the Pledged Stock subject thereto, (ii) stock powers for
those shares duly executed in blank, (iii) Uniform Commercial Code
financing statements relating thereto, and (iv) any other documentation
requested by the Collateral Agent in order to assure the perfection of
a first priority Lien on such Pledged Stock in favor of the Collateral
Agent for the benefit of the Lenders;
(n) Certificates of the Secretary or Assistant Secretary of
each of Interface, Bentley, Prince Street, Interface Interior Fabrics,
Inc. (formerly Guilford of Maine, Inc.), and the 1996 Reorganization
Credit Parties (x) attaching and certifying copies of the resolutions
of the board of directors (or, if applicable, the executive committee
thereof) of each such Consolidated Company, authorizing as applicable
(A) the execution, delivery and performance of the documents by such
Consolidated Company as provided in this Section 3, and (B) the
granting of the pledges and security interests granted pursuant to the
documents described in clauses (d) through (k) of this Section 3, and
(y) certifying the by-laws of such Consolidated Company and the name,
title and true signature of each officer of such Consolidated Company
executing such documents;
(o) Copies of the certificate or articles of incorporation of
each of the 1996 Reorganization Credit Parties, as certified by the
Secretary of State of the state of incorporation of such corporation,
and certificates of the Secretary or an Assistant Secretary of each of
Interface, Bentley, Prince Street, and Interface Interior Fabrics, Inc.
(formerly Guilford of Maine, Inc.) certifying as to the absence of any
amendments, restatements, or other changes to the certificates or
articles of incorporation of such Consolidated Companies since June 30,
1995;
(p) Certificates of good standing or existence, as may be
available from the Secretary of State of the jurisdictions of
incorporation of each of Interface, Bentley, Prince Street, Interface
Interior Fabrics, Inc. (formerly Guilford of Maine, Inc.), and the 1996
Reorganization Credit Parties;
(q) Examination reports from the appropriate Uniform
Commercial Code records in Georgia (with respect to Interface,
Interface Holding Company, Bentley, Prince Street, Interface Americas,
Inc., Interface Americas Services, Inc., Interface Specialty Resources,
Inc., Re:Source Americas Enterprises, Inc., Interface Interior Fabrics,
Inc., and Guilford of Maine, Inc.), the Secretary of State of
California (with respect to Bentley), the Secretary of State of Maine
(with respect to Interface Interior Fabrics, Inc., and Guilford of
Maine, Inc.), and the Secretary of State of Pennsylvania (with respect
to Quaker City International, Inc.), in each case showing no Liens
granted by any such Consolidated Companies other than (x) Liens
permitted by Section 9.02 of the Credit Agreement, and (y) Liens in
favor of the Collateral Agents;
-7-
<PAGE> 8
(r) Copies of all documents and instruments, including all
consents, authorizations and filings, required under any Requirement of
Law or by any material Contractual Obligation of Interface, Bentley,
Prince Street, Interface Interior Fabrics, Inc. (formerly Guilford of
Maine, Inc.), or any of the 1996 Reorganization Credit Parties, in
connection with the execution, delivery, performance, validity and
enforceability of the documents described in this Section 3, and such
consents, authorizations, filings and orders shall be in force and
effect and all applicable waiting periods shall have expired;
(s) Certified copies of the Intercompany Loan Documents;
(t) Acknowledgments from each of G. Kimbrough Taylor, Jr. and
Kilpatrick & Cody as to their appointment as agent for service of
process for the various 1996 Reorganization Credit Parties; and
(u) The favorable opinion of Kilpatrick & Cody, United States
counsel to Interface, Bentley, Prince Street, Interface Interior
Fabrics, Inc. (formerly Guilford of Maine, Inc.), and the 1996
Reorganization Credit Parties, substantially in the form of Exhibit CC
attached to this Fifth Amendment.
In addition to the foregoing, all corporate proceedings, and all other legal
matters in connection with the authorization, legality, validity, and
enforceability of the documents described in this Section 3, shall have been
reasonably satisfactory in form and substance to the Co-Agents.
4. AMENDMENT TO SECTION 9.03 ("MERGERS, ACQUISITIONS, SALES, ETC."). Section
9.03 of the Credit Agreement is hereby amended by deleting the word "or"
immediately preceding clause (vi) of Section 9.03 and inserting the word "or"
and an additional clause (vii) immediately following clause (vi) of Section 9.3
as follows:
(vii) The 1996 Reorganization Transactions;
5. WRITTEN CONSENT OF CO-AGENTS. Each of the Co-Agents, acting pursuant to the
provisions of Sections 9.08 and 9.13 of the Credit Agreement, hereby consents to
the actions to be taken with respect to the Intercompany Loans as expressly
provided in the 1996 Reorganization Transactions, notwithstanding any
restrictions or limitations otherwise applicable to such actions pursuant to
Sections 9.08 and 9.13 of the Credit Agreement.
6. AMENDMENT TO SCHEDULE 7.01 ("ORGANIZATION AND OWNERSHIP OF SUBSIDIARIES").
Schedule 7.01 to the Credit Agreement is hereby amended by deleting said
Schedule 7.01 in its entirety and substituting in lieu thereof the Schedule 7.01
attached to this Fifth Amendment.
-8-
<PAGE> 9
7. AMENDMENT TO SCHEDULE 7.20 ("INTERCOMPANY LOANS"). Schedule 7.20 to
the Credit Agreement is hereby amended by deleting said Schedule 7.20 in its
entirety and substituting in lieu thereof the Schedule 7.20 attached to this
Fifth Amendment.
8. ADDITIONAL EXHIBITS. The Credit Agreement is hereby amended by adding
to the Credit Agreement the following exhibits attached to this Fifth Amendment
and made a part of the Credit Agreement by this reference: Exhibit D-3 (Form of
Fourth Supplement to Subsidiary Guaranty Agreement from 1996 Reorganization
Credit Parties), Exhibit I-2 (Form of Supplement No. 4 to the Contribution
Agreement from 1996 Reorganization Credit Parties), Exhibit E-7 (Form of Pledge
and Security Agreement from Interface), Exhibit E-8 (Form of Pledge and Security
Agreement from Bentley), Exhibit E-9 (Form of Pledge and Security Agreement from
Prince Street), Exhibit E-10 (Form of Pledge and Security Agreement from
Re:Source Americas Enterprises, Inc.), Exhibit E-11 (Form of Assumption,
Amendment and Restatement of Pledge and Security Agreement from Interface
Holding Company), Exhibit E-12 (Form of Assumption, Amendment and Restatement of
Pledge and Security Agreement from Interface Interior Fabrics, Inc.), Exhibit
E-13 (Form of Assumption, Amendment and Restatement of Pledge and Security
Agreement from Interface Americas, Inc.), Exhibit E-14 (Form of Pledge and
Security Agreement from Interface Americas Services, Inc.), Exhibit E-15 (Form
of Assumption, Amendment and Restatement of Pledge and Security Agreement from
Interface Specialty Resources, Inc.), Exhibit E-16 (Form of Pledge and Security
Agreement from Quaker City International, Inc.), and Exhibit CC (Form of Opinion
of Kilpatrick & Cody).
9. REPRESENTATIONS AND WARRANTIES. Each of Interface (as to itself and
all other Consolidated Companies) and each of the other Borrowers (as to itself
and all of its Subsidiaries) represents and warrants to the Lenders as follows:
(a) All representations and warranties set forth in the Credit
Agreement are true and correct in all material respects with the same effect as
though such representations and warranties have been made on and as of the date
hereof (except that the representation and warranty set forth in Section 7.19 of
the Credit Agreement shall not be deemed to relate to any time subsequent to the
date of the initial Loans under the Credit Agreement);
(b) No Default or Event of Default has occurred and is continuing on
the date hereof;
(c) Since the date of the most recent financial statements of the
Consolidated Companies submitted to the Lenders pursuant to Section 8.07(b),
there has been no change which has had or
-9-
<PAGE> 10
could reasonably be expected to have a Materially Adverse Effect (whether or not
any notice with respect to such change has otherwise been furnished to the
Lenders pursuant to Section 8.07);
(d) Each of the Borrowers has the corporate power and authority to
make, deliver and perform this Fifth Amendment and has taken all necessary
corporate action to authorize the execution, delivery and performance of this
Fifth Amendment. 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 any Borrower, or the
validity or enforceability against any Borrower, of this Fifth Amendment, other
than such consents, authorizations or filings which have been made or obtained
(including without limitation, any necessary consultations with any Borrower's
supervisory board, works council ("Ondernemingsraad") or similar body); and
(e) This Fifth Amendment has been duly executed and delivered by each
of the Borrowers and this Fifth Amendment constitutes the legal, valid and
binding obligations of the Borrowers, respectively, enforceable against the
Borrowers in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
10. EFFECTIVENESS OF FIFTH AMENDMENT. This Fifth Amendment shall become
effective upon (i) the execution and delivery to the Domestic Agent of
counterparts hereof (whether originals or facsimile transmissions thereof) on
behalf of each of the Borrowers, the Co-Agents, and the Lenders, (ii) the
execution and delivery to the Domestic Agent of the documents described in
Section 3 of this Third Amendment, and (iii) the execution and delivery to the
Domestic Agent of a certificate from an officer of Interface confirming to the
Lenders and the Co-Agents that (x) each of the 1996 Reorganization Transactions
has been consummated consistent with the description thereof as set forth in
Schedule 1.01 attached to this Fifth Amendment, and (y) after giving effect to
the 1996 Reorganization Transactions and this Fifth Amendment, no Default or
Event of Default has occurred and is continuing, and the representations and
warranties set forth in Section 9 are true and correct as of such date.
11. REFERENCES TO CREDIT AGREEMENT. On and after the date this Fifth
Amendment becomes effective as provided in Section 10 above, each and every
reference in the Credit Documents to the Credit Agreement shall be deemed to
refer to and mean the Credit Agreement as amended by this Fifth Amendment and as
the same may be further amended, restated or supplemented from time to time. The
parties further confirm and agree that (i) except as expressly amended herein,
the Credit Agreement remains in full force and effect in accordance with its
terms, and (ii) all other Credit Documents remain in full force and effect in
accordance with their respective terms.
-10-
<PAGE> 11
12. COUNTERPARTS. This Fifth Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
13. MISCELLANEOUS. This Fifth Amendment and the rights and obligations
of the parties hereunder shall be construed in accordance with and be governed
by the law (without giving effect to the conflict of law principles thereof) of
the State of Georgia. This Fifth Amendment shall be binding on and shall inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment
to be duly executed and delivered in Atlanta, Georgia, by their duly authorized
officers as of the day and year first above written.
INTERFACE, INC.
By: /s/ DANIEL T. HENDRIX
---------------------------
Daniel T. Hendrix
Vice President
INTERFACE SCHERPENZEEL,
B.V.
By: /s/ DANIEL T. HENDRIX
---------------------------
Daniel T. Hendrix
Attorney-in-Fact
INTERFACE EUROPE LIMITED
By: /s/ DANIEL T. HENDRIX
--------------------------
Daniel T. Hendrix
Attorney-in-Fact
- 11 -
<PAGE> 12
SUNTRUST BANK, ATLANTA
(FORMERLY TRUST COMPANY BANK),
AS DOMESTIC AGENT AND
COLLATERAL AGENT
By: /s/
---------------------------
Name:
Title:
By: /s/
---------------------------
Name:
Title:
-12-
<PAGE> 13
THE FIRST NATIONAL BANK
OF CHICAGO, AS
MULTICURRENCY AGENT
By: /s/
---------------------------
Name:
Title:
-13-
<PAGE> 14
Address for Notices: SUNTRUST BANK, ATLANTA
(FORMERLY TRUST COMPANY BANK)
One Park Place, N.E.
Atlanta, Georgia 30303
Attn: John K. Shoffner By: /s/
---------------------------
Name:
Title:
Telex No.: 542210
Answerback: TRUSCO INT ATL
By: /s/
---------------------------
Name:
Title:
Domestic Lending Office:
One Park Place, N.E.
Atlanta, Georgia 30303
Telex No.: 542210
Answerback: TRUSCO INT ATL
Eurocurrency Lending Office:
One Park Place, N.E.
Atlanta, Georgia 30303
Telex No.: 542210
Answerback: TRUSCO INT ATL
-14-
<PAGE> 15
Address for Notices: THE FIRST NATIONAL BANK
Mail Suite 0324 OF CHICAGO
One First National Plaza
Chicago, Illinois 60670-0324
Attention: Al R. Chircop
By: /s/
--------------------------
Name:
Telex No.: 4330253 Title:
Answerback: FNBC UI
Telecopy No.: 312/732-3885
Administrative Office:
One First National Plaza
Chicago, Illinois 60670
Attention: Al R. Chircop
Payment Offices:
(See Schedule 4.01)
-15-
<PAGE> 16
Address for Notices: ABN AMRO BANK N.V.
Suite 1200, One Ravinia Drive
Atlanta, Georgia 30346
Attn: Mark Clegg By: /s/
------------------------------
Name:
Telephone: 770/396-0066 Title:
Telecopy: 770/395-9188
Telex: 682 7258 By: /s/
------------------------------
Answerback: ABNBANKATL Name:
Title:
Domestic Lending Office:
ABN AMRO Bank N.V., Atlanta Agency
Suite 1200, One Ravinia Drive
Atlanta, GA 30346
Eurocurrency Lending Office:
ABN AMRO Bank N.V., Atlanta Agency
Suite 1200, One Ravinia Drive
Atlanta, GA 30346
-16-
<PAGE> 17
Address for Notices: BANK SOUTH, A DIVISION OF
NATIONSBANK, N.A. (SOUTH)
600 Peachtree Street, 19th Floor (SUCCESSOR BY MERGER TO BANK SOUTH,
Atlanta, GA 30308-2214 N.A.)
Attention: George Hodges
Telephone: 404/607-4591 By: /s/
Telecopy: 404/607-6323 ------------------------------
Name: David H. Dinkins
Title: Vice President
By: /s/
------------------------------
Name:
Title:
With a copy to:
c/o NationsBank, N.A.
100 North Tryon Street
Mail Code NC1-007-08-11
Charlotte, NC 28255
Attention: Lance Walton
Domestic Lending Office:
600 Peachtree Street
19th Floor
Atlanta, GA 30308-2214
Eurodollar Lending Office:
600 Peachtree Street
19th Floor
Atlanta, GA 30308-2214
-17-
<PAGE> 18
Address for Notices: THE BANK OF TOKYO-MITSUBISHI,
LIMITED, ATLANTA AGENCY
4970 Georgia-Pacific Center
133 Peachtree Street, N.E.
Atlanta, Georgia 30303 By: /s/
------------------------------
Attn: Gary L. England Name:
Title:
Telephone: 404/577-2960
Telecopy: 404/577-1155
Telex No.: 6827300
Answerback: 6827300BOT ATL
Domestic Lending Office:
5050 Georgia-Pacific Center
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
Eurodollar Lending Office:
5050 Georgia-Pacific Center
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
-18-
<PAGE> 19
Address for Notices: CIBC, INC.
Canadian Imperial Bank of
Commerce
Two Paces West By: /s/
2727 Paces Ferry Road, Suite 1200 ------------------------------
Atlanta, Georgia 30339 Name:
Attn: William C. Humphries Title:
Vice President
Telephone: 404/319-4999
Telecopy: 404/319-4950
Domestic Lending Office:
Canadian Imperial Bank of Commerce
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
Eurocurrency Lending Office:
Canadian Imperial Bank of Commerce
Two Paces West
2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339
-19-
<PAGE> 20
Address for Notices: CREDITANSTALT-BANKVEREIN
Two Ravinia Drive, Suite 1680
Atlanta, Georgia 30346
Attention: Carl Drake By: /s/
------------------------------
Name:
Telephone: 770/390-1850 Title:
Telecopy: 770/389-1851
By: /s/
------------------------------
Name:
Title:
Domestic Lending Office:
245 Park Avenue
New York, New York 10167
Eurodollar Lending Office:
245 Park Avenue
New York, New York 10167
-20-
<PAGE> 21
Address for Notices: CREDIT LYONNAIS NEW YORK BRANCH
Credit Lyonnais Atlanta Agency
303 Peachtree Street, N.E.
Suite 4400 By: /s/
Atlanta, GA 30308 ------------------------------
Attn: David Cawrse Name:
Title:
Telephone: 404/524-3700
Telecopy: 404/584-5249 CREDIT LYONNAIS ATLANTA AGENCY
By: /s/
------------------------------
Name:
Title:
Domestic Lending Office:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
and/or
Credit Lyonnais Atlanta Agency
303 Peachtree Street, N.E.
Suite 4400
Atlanta, GA 30308
Eurodollar Lending Office:
Credit Lyonnais Atlanta Agency
303 Peachtree Street, N.E.
Suite 4400
Atlanta, GA 30308
and/or
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
-21-
<PAGE> 22
Address for Notices: THE SUMITOMO BANK, LIMITED
(ASSIGNEE OF THE DAIWA BANK, LIMITED)
233 South Wacker Drive
Suite 5400
Chicago, Illinois 60606 By: /s/
Attn: Operations Manager ------------------------------
Name:
Title:
Telephone: 312/876-0181
Telecopy: 312/876-1995
By: /s/
------------------------------
Name:
Title:
Domestic Lending Office:
233 South Wacker Drive
Suite 5400
Chicago, Illinois 60606
Eurodollar Lending Office:
233 South Wacker Drive
Suite 5400
Chicago, Illinois 60606
-22-
<PAGE> 23
Address for Notices: FIRST UNION NATIONAL
BANK OF GEORGIA
999 Peachtree Street, N.E.
6th Floor
Atlanta, Georgia 30309
Attn: Irene Barton By: /s/
------------------------------
Name:
Title:
Telephone: 404/827-7986
Telecopy: 404/827-7199
Domestic Lending Office:
999 Peachtree Street, N.E.
6th Floor
Atlanta, Georgia 30309
Eurodollar Lending Office:
999 Peachtree Street, N.E.
6th Floor
Atlanta, Georgia 30309
-23-
<PAGE> 24
Address for Notices: FLEET BANK OF MAINE
80 Exchange Street
Bangor, Maine 04401
Attn: Neil Buitenhuys By: /s/
------------------------------
Name:
Title:
Telephone: 207/941-6140 or 6180
Telecopy: 207/941-6023
Domestic Lending Office:
511 Congress St., P.O. Box 1280
Portland, Maine 04104-5006
Eurodollar Lending Office:
511 Congress St., P.O. Box 1280
Portland, Maine 04104-5006
-24-
<PAGE> 25
Address for Notices: NATIONSBANK, N.A.
(FORMERLY KNOWN AS NATIONSBANK, N.A.
(CAROLINAS) AND NATIONSBANK OF NORTH
100 North Tryon Street CAROLINA, N.A.)
Mail Code NC1-007-08-11
Charlotte, NC 28255 By: /s/
------------------------------
Attention: Lance Walton Name: David H. Dinkins
Title: Vice President
Telephone: 704/386-6744
Telecopy: 704/386-1270
Domestic Lending Office:
One Independence Center
101 North Tryon Street
Mail Code NC1-001-15-03
Charlotte, North Carolina 28255
Eurocurrency Lending Office:
One Independence Center
101 North Tryon Street
Mail Code NC1-001-15-03
Charlotte, North Carolina 28255
-25-
<PAGE> 26
Address for Notices: PNC BANK, N.A.
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attn: Robert J. Mitchell, Jr. By: /s/
------------------------------
Name:
Title:
Telephone: 412/762-6547
Telecopy: 412/762-6484
Domestic Lending Office:
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Eurodollar Lending Office:
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburth, PA 15265
-26-
<PAGE> 27
Address for Notices: WACHOVIA BANK OF GEORGIA, N.A.
191 Peachtree Street, N.E.
30th Floor
Atlanta, Georgia 30383
Attn: Doug Strickland By: /s/
------------------------------
Name:
Title:
By: /s/
------------------------------
Name:
Telecopy: 404/332-1382 Title:
Telex: 404/332-6920
Answerback: FNBAINTL
Domestic Lending Office:
191 Peachtree Street, N.E.
Atlanta, Georgia 30383
Eurocurrency Lending Office:
191 Peachtree Street, N.E.
Atlanta, Georgia 30383
-27-
<PAGE> 1
EXHIBIT 10.24
AMENDMENT
Dated as of December 27, 1996
to
RECEIVABLES SALE AGREEMENT
Dated as of August 4, 1995
THIS AMENDMENT ("Amendment") dated as of December 27, 1996 is
entered into among Interface Securitization Corporation (the "Seller"),
Interface, Inc. ("Interface"), as the initial "Collection Agent" under the Sale
Agreement referred to below, Special Purpose Accounts Receivable Cooperative
Corporation (the "Purchaser") and Canadian Imperial Bank of Commerce, as
servicing agent (the "Servicing Agent").
PRELIMINARY STATEMENT. The Seller has entered into a
Receivables Sale Agreement dated as of August 4, 1995 with Interface, the
Purchaser and the Servicing Agent (as heretofore amended, the "Sale Agreement").
Capitalized terms used herein that are not otherwise defined herein shall have
the meanings assigned to such terms in the Sale Agreement. The Seller,
Interface, the Purchaser and the Servicing Agent have agreed, on the terms and
conditions stated below, to amend the Sale Agreement as hereinafter set forth.
SECTION 1. Amendments to the Sale Agreement. Subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, the Sale
Agreement is, effective the date hereof, amended as set forth below:
1.1 Article I of the Sale Agreement is amended as follows:
(a) The definition therein of "Consent and Acknowledgment" is
amended to delete the phrase "dated as of the date hereof" appearing
therein.
(b) The definition therein of "Guilford" is amended to delete
such definition in its entirety and to substitute the following new
definition therefor:
<PAGE> 2
" 'Guilford' means Interface Interior Fabrics, Inc.
(formerly known as Guilford of Maine, Inc.), a Delaware
corporation."
(c) The definition therein of "Originator" is amended to
delete such definition in its entirety and to substitute the following
new definition therefor:
" 'Originator' means any of Bentley, Guilford,
Interface Flooring, Prince Street, Toltec, Intek, Intek
Marketing and Guilford Marketing; provided that, for purposes
of determining the Aged Receivables Ratio, the Dilution
Horizon, the Dilution Ratio or the Loss Reserve Ratio on any
date, such determination shall be made without regard to the
net sales made, or the Receivables originated, by Guilford or
Intek on or after (i) in the case of Guilford, the 'Effective
Date' under and as defined in the Guilford Assumption
Agreement and (ii) in the case of Intek, the 'Effective Date'
under and as defined in the Intek Assumption Agreement."
(d) The definition therein of "Parallel Sale Agreement" is
amended to delete such definition in its entirety and to substitute the
following new definition therefor:
" 'Parallel Sale Agreement' means that certain
Receivables Sale Agreement dated as of December 27, 1996 among
the Seller, Interface, certain financial institutions parties
thereto, and the PSA Agent, as the same may from time to time
be amended, restated supplemented or otherwise modified in
accordance with the terms of this Agreement."
(e) The definition therein of "PSA Agent" is amended to delete
such definition in its entirety and to substitute the following new
definition therefor:
" 'PSA Agent' means Canadian Imperial Bank of
Commerce, in its capacity as 'Administrative Agent' for the
PSA Purchasers under the Parallel Sale Agreement, and any
successor thereto in such capacity."
2
<PAGE> 3
(f) The definition therein of "Related Rights" is amended to
add, in the parenthetical clause, immediately after the word
"therewith", the following:
" including, without limitation, each Assumption
Agreement".
(g) The definition therein of "Sale Documents" is amended to
delete such definition in its entirety and to substitute the following
new definition therefor:
" 'Sale Documents' means this Agreement, the Parallel
Sale Agreement, the Transfer Agreements, the Assumption
Agreements, the Inventory Transfer Agreements, the Exhibits
hereto and thereto, and all other certificates, agreements and
documents executed from time to time by any Transaction Party
in favor of or otherwise for the benefit of the Purchaser, the
Servicing Agent, the PSA Purchasers, the PSA Agent or any
Transaction Party in connection with the transactions
contemplated in any of the foregoing."
(h) The definition therein of "Transfer Agreement" is amended
to add, immediately after the phrase "between the Seller and such
Originator", the following parenthetical clause:
" (whether such Originator is an original signatory
thereto or became a party to such agreement pursuant to an
Assumption Agreement)".
1.2 Article I of the Sale Agreement is further amended to add,
in appropriate alphabetical order, the following new definitions thereto:
" 'Assumption Agreement' means either the Guilford
Assumption Agreement or the Intek Assumption
Agreement."
" 'Guilford Marketing' means Guilford of Maine
Marketing Co., a Nevada corporation."
3
<PAGE> 4
" 'Guilford Assumption Agreement' means that certain
Assumption and Amendment Agreement dated as of December 27,
1996 among Guilford, Guilford Marketing and the Seller."
" 'Intek' means Intek, Inc., a Georgia corporation."
" 'Intek Marketing' means Intek Marketing Co., a
Nevada corporation."
"'Intek Assumption Agreement' means that certain
Assumption and Amendment Agreement dated as of December 27,
1996 among Intek, Intek Marketing and the Seller."
" 'Inventory Transfer Agreement' means either (i)
that certain Bill of Sale and Assignment and Assumption
Agreement effective as of December 29, 1996 between Guilford
and Guilford Marketing or (ii) that certain Asset Purchase
Agreement effective as of December 29, 1996 between Intek and
Intek Marketing, in each case as such agreement may be
amended, modified, extended or waived from time to time with
the consent of the Majority Bank Purchasers and the
Administrative Agent."
" 'Prince Street' means Prince Street Technologies,
Ltd., a Georgia corporation."
" 'Toltec' means Toltec Fabrics, Inc., a Georgia
corporation."
1.3 The Schedules to the Sale Agreement are amended in the
following manner:
(a) Schedule C to the Sale Agreement is amended to add to the
list of Lock-Box Banks and Lock-Boxes set forth therein the Lock-Box
Banks and Lock-Boxes identified on Schedule 1 attached hereto.
(b) Schedule D to the Sale Agreement is amended to add to the
list of addresses of Transaction Parties set forth therein the
addresses identified on Schedule 2 attached hereto.
4
<PAGE> 5
(c) Schedule E to the Sale Agreement is amended to add to the
list of assumed names set forth therein the assumed names identified on
Schedule 3 attached hereto.
SECTION 2. Conditions Precedent. This Amendment shall
become effective and be deemed effective as of the date hereof
upon receipt by the Servicing Agent of each of the following:
(a) counterparts of this Amendment executed by the Seller,
Interface and the Purchaser,
(b) an Amended and Restated Performance Guaranty,
substantially in the form of Exhibit A hereto, executed by Interface,
(c) evidence acceptable to the Servicing Agent (including
Uniform Commercial Code search reports) that all Receivables originated
by any of Prince Street Technologies, Ltd., Toltec Fabrics, Inc.,
Intek, Inc., Intek Marketing Co. or Guilford of Main Marketing Co.
(each a "New Originator" and collectively the "New Originators") and
all proceeds thereof are free and clear of liens, security interests,
claims and encumbrances other than Permitted Liens,
(d) acknowledgment copies of UCC-1 financing statements, and
all other documents reasonably requested by the Servicing Agent, to
perfect, evidence and protect (i) the Purchaser's Ownership Interest in
the Receivables originated by the New Originators, and (ii) the
Seller's ownership interest in the Receivables originated by the New
Originators,
(e) with respect to each Lock-Box identified on Schedule 1
attached hereto, an original Lock-Box Agreement for such Lock-Box
substantially in the form of Exhibit E to the Sale Agreement executed
by the Seller and the appropriate New Originator and Lock-Box Bank,
(f) a certificate of the Seller's secretary or assistant
secretary attesting to: (i) resolutions of the Seller's Board of
Directors authorizing the execution by the Seller of the Sale Documents
(including this Amendment) to be executed by the Seller; (ii) the names
and signatures of
5
<PAGE> 6
the officers of the Seller authorized to execute the Sale Documents
(including this Amendment) to be executed by the Seller; and (iii) the
completeness and correctness of the attached articles or certificate of
incorporation and by-laws of the Seller,
(g) a certificate of the secretary or assistant secretary of
each of Interface and each New Originator attesting to: (i) resolutions
of such Transaction Party's Board of Directors (or a duly authorized
committee thereof) authorizing the execution by such Transaction Party
of the Sale Documents to be executed by it; (ii) the names and
signatures of the officers of such Transaction Party authorized to
execute the Sale Documents to be executed by it; and (iii) the
completeness and correctness of the attached articles or certificate of
incorporation (certified, in the case of each New Originator, by the
appropriate Secretary of State) and by-laws of such Transaction Party,
(h) opinions from counsel for the Transaction Parties,
substantially in the respective forms attached hereto as Exhibit B, and
covering such other matters as the Servicing Agent or the Purchaser may
reasonably request,
(i) certificates of recent date issued by the Secretary of
State of the States of each New Originator's jurisdiction of
incorporation as to the legal existence and good standing of such New
Originator,
(j) an executed Transfer Agreement between the Seller and each
New Originator (other than Guilford of Maine Marketing Co. and Intek
Marketing Co.), respectively,
(k) executed Assumption and Amendment Agreements in the form
attached hereto as Exhibit C among (i) the Seller, Guilford and
Guilford of Maine Marketing Co. and (ii) the Seller, Intek and Intek
Marketing Co., and
(l) Consent and Acknowledgment executed by each New
Originator.
6
<PAGE> 7
SECTION 3. Covenants, Representations and Warranties of the
Seller.
3.1 Upon the effectiveness of this Amendment, each of the
Seller and the Collection Agent hereby reaffirms all covenants, representations
and warranties made by it in the Sale Agreement and agrees that all such
covenants, representations and warranties shall be deemed to have been remade as
of the effective date of this Amendment.
3.2 Each of the Seller and the Collection Agent hereby
represents and warrants that (i) this Amendment constitutes a legal, valid and
binding obligation of such Person, enforceable against such Person in accordance
with its terms and (ii) upon the effectiveness of this Amendment, no Event of
Termination or event or circumstance which, with the giving of notice or the
passage of time or both, would constitute an Event of Termination, shall exist
under the Sale Agreement.
SECTION 4. Reference to and Effect on the Sale Agreement.
4.1 Upon the effectiveness of this Amendment, each reference
in the Sale Agreement to "this Agreement", "hereunder", "hereof", "herein", or
words of like import shall mean and be a reference to the Sale Agreement as
amended hereby, and each reference to the Sale Agreement in any other document,
instrument or agreement executed and/or delivered in connection therewith shall
mean and be a reference to the Sale Agreement as amended hereby.
4.2 Except as specifically amended above, the Sale Agreement
and all other documents, instruments and agreements executed and/or delivered in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed.
4.3 The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Purchaser or the Servicing Agent under the Sale Agreement or any other document,
instrument or agreement executed in connection therewith, nor constitute a
waiver of any provision contained therein, except as specifically set forth
herein.
7
<PAGE> 8
SECTION 5. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 6. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 7. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.
INTERFACE SECURITIZATION CORPORATION
By: /s/ Daniel T. Hendrix
---------------------------------
Daniel T. Hendrix
Title: Senior Vice President and Treasurer
INTERFACE, INC., as Collection Agent
By: /s/ Daniel T. Hendrix
---------------------------------
Daniel T. Hendrix
Title: Senior Vice President and Treasurer
SPECIAL PURPOSE ACCOUNTS RECEIVABLE
COOPERATIVE CORPORATION, as Purchaser
By: /s/
---------------------------------
Title: Assistant Treasurer
CANADIAN IMPERIAL BANK OF COMMERCE,
as Servicing Agent
By: /s/
---------------------------------
Title: Authorized Signatory
9
<PAGE> 1
EXHIBIT 10.25
RECEIVABLES SALE AGREEMENT
among
INTERFACE SECURITIZATION CORPORATION
as Seller
INTERFACE, INC.
as Collection Agent
CERTAIN FINANCIAL INSTITUTIONS
as Bank Purchasers
and
CANADIAN IMPERIAL BANK OF COMMERCE
as Administrative Agent
Dated as of December 27, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I: DEFINITIONS ..................................................... 1
SECTION 1.1 ........................................................ 1
ARTICLE II: THE FACILITY .................................................... 26
ARTICLE III:WHAT IS SOLD .................................................... 26
SECTION 3.1 Determination of Ownership Interest ................. 26
SECTION 3.2 Frequency of Determining Ownership Interest ......... 27
SECTION 3.3 Maximum Ownership Interest and Investment ........... 28
SECTION 3.4 Reduction of Commitments ............................ 28
SECTION 3.5 Extension of Stated Termination Date ................ 29
ARTICLE IV: PURCHASE PRICE .................................................. 29
SECTION 4.1 Determination of Cash Component of Purchase
Price ............................................... 29
SECTION 4.2 Satisfaction of Deferred Payment Component of
Purchase Price ...................................... 30
SECTION 4.3 Several Obligations ................................. 30
ARTICLE V: FEES AND EXPENSES ............................................... 32
SECTION 5.1 [Intentionally left blank] .......................... 32
SECTION 5.2 Settlement Date Payments ............................ 32
SECTION 5.2.1 Purchase Discount ................................... 32
SECTION 5.2.2 Purchase Premium .................................... 32
SECTION 5.2.3 Commitment Fee ...................................... 32
SECTION 5.2.4 Collection Agent Fee ................................ 33
SECTION 5.3 Legal Fees and Other Expenses ....................... 33
SECTION 5.4 Interest on Unpaid Amounts .......................... 33
ARTICLE VI: PURCHASE PROCEDURES ............................................. 33
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.1 Types of Purchases ................................. 33
SECTION 6.2 Notice Requirements ................................ 34
SECTION 6.3 Selection of Tranche Periods and Discount
Rates .............................................. 34
SECTION 6.4 Conditions Precedent to Initial Purchase ........... 37
SECTION 6.5 Condition Precedent to all Incremental
Purchases .......................................... 40
SECTION 6.6 Conditions Precedent to All Purchases .............. 40
ARTICLE VII: SETTLEMENT PROCEDURES ........................................ 40
SECTION 7.1 Settlement Dates ................................... 40
SECTION 7.2 Application of Collections ......................... 41
SECTION 7.2.1 Application of Collections on Days That Are
Not Settlement Dates ............................... 41
SECTION 7.2.2 Application of Collections on Settlement
Dates .............................................. 42
SECTION 7.3 Adjustments due to Dilution, Etc ................... 43
SECTION 7.4 Receivables Activity Report ........................ 43
SECTION 7.5 Payments Generally ................................. 43
ARTICLE VIII: ADMINISTRATIVE AGENT AND COLLECTION AGENT .................... 44
SECTION 8.1 Appointment of Administrative Agent ................ 44
SECTION 8.2 Appointment of Collection Agent .................... 47
SECTION 8.2.1 Replacement of Collection Agent; Notification
of Obligors ........................................ 48
ARTICLE IX: REPRESENTATIONS AND WARRANTIES ............................... 49
SECTION 9.1 Representations and Warranties of the Seller
and the Collection Agent ........................... 49
SECTION 9.2 Representations and Warranties of
Interface .......................................... 53
ARTICLE X: COVENANTS .................................................... 54
SECTION 10.1 Affirmative Covenants of the Seller and the
Collection Agent ................................... 54
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 10.2 Reporting Requirements of the Seller and the
Collection Agent ................................... 56
SECTION 10.3 Negative Covenants of the Seller and the
Collection Agent ................................... 58
SECTION 10.4 Covenants of the Seller and Interface
Relating to Separate Legal Identity ................ 61
SECTION 10.5 Covenants of Interface ............................. 63
ARTICLE XI: INDEMNIFICATIONS; INCREASED COSTS ............................. 64
SECTION 11.1 Indemnification by the Seller of the Bank
Purchasers, etc .................................... 64
SECTION 11.2 Indemnification Due to Failure to Consummate
Purchase or Certain Reductions in
Investment ......................................... 66
SECTION 11.3 Increased Costs; Capital Adequacy .................. 67
SECTION 11.4 Notices ............................................ 69
SECTION 11.5 Purchasing Offices ................................. 69
SECTION 11.6 Limitations on Certain Payment
Obligations ........................................ 69
ARTICLE XII: EVENTS OF TERMINATION ........................................ 70
SECTION 12.1 Events of Termination .............................. 70
SECTION 12.2 Remedies ........................................... 74
ARTICLE XIII: MISCELLANEOUS ............................................... 75
SECTION 13.1 Amendments, Etc .................................... 75
SECTION 13.2 Notices, Etc ....................................... 76
SECTION 13.3 Payments Net of Taxes .............................. 76
SECTION 13.4 No Waiver; Remedies ................................ 80
SECTION 13.5 Binding Effect; Assignability; Continuing
Obligation ......................................... 80
SECTION 13.6 Governing Law ...................................... 83
SECTION 13.7 Security Interest .................................. 83
SECTION 13.8 Construction of the Agreement ...................... 83
SECTION 13.9 Confidentiality .................................... 83
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 13.10 Agent Determinations on Concentration
Limits ............................................. 84
SECTION 13.11 Not a Joint Venture ................................ 84
SECTION 13.12 Execution in Counterparts .......................... 84
SECTION 13.13 Submission to Jurisdiction, Appointment of
Agent to Accept Service of Process ................. 84
SECTION 13.14 Change in Accounting Principles, Fiscal Year
or Tax Laws ........................................ 85
</TABLE>
iv
<PAGE> 6
Schedules
Schedule A - Special Concentration Limits
Schedule B - Credit and Collection Policy
Schedule C - List of Lock-Box Banks
Schedule D - List of Addresses of the Transaction Parties
Schedule E - List of Assumed Names
Schedule F - Existing Shareholder Group
Schedule G - Fiscal Month Closing Dates
-v-
<PAGE> 7
Exhibits
Exhibit A - Form of Notice for Initial and Incremental
Purchases
Exhibit B - Form of Notice of Election Not to Make
Reinvestment Purchases
Exhibit C - Form of Notice of Payment to Reduce Investment
Exhibit D - Form of Notice to Lock-Box Bank
Exhibit E - Form of Lock-Box Agreement
Exhibit F - Form of Receivables Activity Report
Exhibit G - Form of Legal Opinion of Counsel for the
Transaction Parties
Exhibit H - Form of Transfer Agreement
Exhibit I - Form of Consent and Acknowledgment
Exhibit J - Form of Assumption Agreement
-vi-
<PAGE> 8
RECEIVABLES SALE AGREEMENT dated as of December 27, 1996
among:
(i) INTERFACE SECURITIZATION CORPORATION, a Delaware
corporation (the "Seller"),
(ii) INTERFACE, INC., a Georgia corporation
("Interface"), as the initial "Collection Agent,"
(iii) CERTAIN FINANCIAL INSTITUTIONS PARTIES HERETO
(each, a "Bank Purchaser"), and
(iv) CANADIAN IMPERIAL BANK OF COMMERCE, as
administrative agent (the "Administrative Agent")
for the Bank Purchasers.
ARTICLE I: DEFINITIONS
SECTION 1.1 Definitions. In addition to any other terms
defined herein, the following terms used herein shall have the meanings herein
specified (to be equally applicable to both the singular and plural forms of the
terms defined):
"Accrued Finance Charges" means, with respect to the
Investment allocated to any Tranche Period on any date of determination, an
amount calculated in the manner set forth below:
AFC = (PD + PP + CAF) X DSP X AI
---
360
where AFC = Accrued Finance Charges
PD = Purchase Discount in respect of
such Tranche Period
PP = Purchase Premium in respect of such
Tranche Period
CAF = Collection Agent Fee
<PAGE> 9
DSP = the number of days in the Tranche
Period preceding such date of
determination
AI = such Investment (or if such
Investment allocated to such
Tranche Period has changed during
such Tranche Period, the average
daily Investment allocated to such
Tranche Period)
"Adjusted LIBO Rate" means, with respect to each Tranche
Period in respect of which the Purchase Discount and the related Yield Reserve
for the Investment allocated thereto is to be calculated in reference to LIBOR,
a rate per annum equal to the rate obtained by dividing (a) LIBOR for such
Tranche Period by (b) a percentage equal to 1 minus the then stated maximum rate
(stated as a decimal) of all reserves requirements (including, without
limitation, any marginal, emergency, supplemental, special or other reserves)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency liabilities as defined in Regulation D (or against any successor
category of liabilities as defined in Regulation D).
"Administrative Agent" means CIBC, acting in such capacity,
and any replacement thereof under Section 8.1.
"Affiliate" means, with respect to any Person, a Person: (i)
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such Person; (ii) that
beneficially owns or holds 10% or more of any class of the voting stock (or, in
the case of a Person that is not a corporation, 10% or more of the equity
interest) of such Person; or (iii) 10% or more of the voting stock (or, in the
case of a Person that is not a corporation, 10% or more of the equity interest)
of which is beneficially owned or held, directly or indirectly, by such Person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting stock or an equity interest, by contract
or otherwise.
-2-
<PAGE> 10
"Aged Receivables Ratio" means, as of any date of
determination, a fraction, expressed as a percentage, (i) the numerator of which
is the aggregate unpaid balance of Receivables that were either (a) past due
(from the original due date) 61 days to 90 days as of the end of the fiscal
month then most recently ended (or ending on such date of determination), or (b)
were less than 91 days past due (from the original due date) as of such date but
which were Defaulted Receivables as of such date and (ii) the denominator of
which is the aggregate amount of net sales of the Originators during the third
full fiscal month prior to such fiscal month.
"Aggregate Ownership Interest" means, at any time, a
percentage equal to the sum at such time of the Bank Group Ownership Interest
hereunder and the "Ownership Interest" under and as defined in the Parallel Sale
Agreement.
"Agreement" means this Receivables Sale Agreement, as it may
be amended, restated, supplemented or otherwise modified from time to time.
"Applicable Margin" means, during any fiscal quarter of
Interface, the percentage determined for such fiscal quarter from the chart set
forth below based on Interface's Interest Coverage Ratio and Leverage Ratio
determined as of the last day of the second fiscal quarter immediately preceding
the then current fiscal quarter:
Interest Coverage Ratio
<TABLE>
<CAPTION>
Less Than Greater Than Greater Than
or Equal 3.0:1.00 and Less or Equal
Leverage Ratio to 3.0:1.0 Than 5.0:1.0 to 5.0:1.0
- -------------- ---------- ------------------- --------------
<S> <C> <C> <C>
Greater than or
equal to 50% 1.000% 0.875% 0.750%
Greater than 35%
and less than
50% 0.875% 0.750% 0.500%
Less than or
equal to 35% 0.750% 0.500% 0.375%
</TABLE>
provided, however, if Interface fails to deliver its financial statements, for
such second preceding fiscal quarter pursuant to Section 10.2 prior to the first
day of the then-current fiscal quarter, the Applicable Margin during such
current fiscal quarter shall be 1.000%.
"Assumption Agreement" means either the Guilford
Assumption Agreement or the Intek Assumption Agreement.
"Bank Group Ownership Interest" means, at any time, a
percentage equal to the aggregate Ownership Interests then held by the Bank
Purchasers hereunder.
-3-
<PAGE> 11
"Bank Purchaser" means any financial institution party hereto
as of the date hereof and identified as being a "Bank Purchaser" on the
signature pages hereto, and any successor or assign thereof.
"Bankruptcy Code" means the Bankruptcy Reform Act of
1978 (11 U.S.C. ss.ss.101 et seq.), as amended.
"Base Rate" means the higher of the following two rates (with
any change in the Base Rate to be effective as of the date of change of either
of the following rates):
(a) the rate which the New York Agency of CIBC publicly
announces from time to time as its base rate, as in effect from time to
time, and
(b) the Federal Funds Rate, as in effect from time to
time, plus one-half to one percent (0.50%) per annum.
CIBC's base rate is a reference rate and does not necessarily represent the
lowest or best rate charged to customers; CIBC may make commercial loans or
other loans at rates of interest at, above or below its base rate.
"Bentley" means Bentley Mills, Inc., a Delaware
corporation.
"Business Day" means any day on which banks are not
authorized or required to close in New York, New York or Atlanta,
Georgia and, if the applicable Business Day relates to a Tranche Period in
respect of which the Discount Rate is the Adjusted LIBO Rate, on which trading
is carried on by and between banks in the London interbank market.
"Certificate of Deposit Rate" means, with respect to each
Tranche Period in respect of which the Purchase Discount and the related Yield
Reserve for the Investment allocated thereto is to be calculated in reference to
the Certificate of Deposit Rate, the rate (rounded, if necessary, to the next
higher 1/16 of 1.0%, if the rate is not such a multiple), as determined by the
Administrative Agent at approximately 9:00 A.M. (local time for the
Administrative Agent) on the first day of such Tranche Period
-4-
<PAGE> 12
and identified on Telerate as the consensus bid rate for secondary certificates
of deposit in an amount approximately comparable to the Pro Rata Share of the
Administrative Agent (as a Bank Purchaser) in the aggregate Investment allocated
to such Tranche Period and with a maturity equal to such Tranche Period. As of
the date of the execution of this Agreement, such consensus bid rate appears on
page 5 of Telerate. If the foregoing rate is unavailable on Telerate for any
reason, then such rate shall be determined by the Administrative Agent from the
comparable rate quoted on another interest rate reporting service of recognized
standing as designated by the Administrative Agent to the Collection Agent, the
Seller and the Bank Purchasers.
"Change in Control Provision" means any term or provision
contained in any indenture, debenture, note, or other agreement or document
evidencing or governing Interface Control Debt which requires, or permits the
holder(s) of such Interface Control Debt to require, that such Interface Control
Debt be redeemed, repurchased, defeased, prepaid or repaid, either in whole or
in part, or the maturity of such Interface Control Debt to be accelerated in any
respect, as a result of a change in ownership of the capital stock of Interface
or voting rights with respect thereto.
"CIBC" means Canadian Imperial Bank of Commerce, and
its successors and assigns.
"Class B Shareholders' Agreement" means that certain Voting
Agreement for Interface, Inc. Class B Common Stock Shareholders dated as of
April 13, 1993 by and among Ray C. Anderson and approximately 38 other holders
of Class B common stock of Interface, pursuant to which Ray C. Anderson is
entitled to direct the voting of the shares of Class B common stock subject
thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection" means any amount paid by an Obligor or any other
party with respect to a Receivable.
-5-
<PAGE> 13
"Collection Agent" means Interface or any replacement
thereof under Section 8.2.1.
"Collection Agent Fee" means the percentage used to determine
the fee payable by the Bank Purchasers to the Collection Agent, as described in
Section 5.2.4.
"Commitment" means, in respect of any Bank Purchaser, the
amount set opposite such Bank Purchaser's name on the signature pages hereto, as
such amount may be reduced from time to time in accordance with Section 3.4 or
modified in accordance with Section 13.1 or 13.5.
"Commitment Fee" has the meaning assigned to such term
in Section 5.2.3.
"Commitment Termination Date" means the earliest to occur of
(i) any Business Day designated by the Seller as the Commitment Termination Date
on not less than three Business Days' prior written notice given by the Seller
to the Administrative Agent, (ii) the Business Day on which the Commitments of
the Bank Purchasers shall be reduced to zero in accordance with the terms of
Section 3.4, (iii) the date on which the Administrative Agent shall declare the
Commitment Termination Date to have occurred pursuant to Section 12.2, (iv) the
date of the occurrence of a Termination Event of the type described in Section
12.1(f) or (v) the Stated Termination Date.
"Consent and Acknowledgment" means a letter agreement made by
an Originator in favor of the Bank Purchasers pursuant to which, among other
things, such Originator consents to, and acknowledges, the transactions
contemplated hereby, in substantially the form attached hereto as Exhibit I, as
such letter agreement may be amended, restated, supplemented or otherwise
modified from time to time.
"Consolidated Companies" means, collectively, Interface
and all of its Subsidiaries.
"Consolidated EBITA" means, for any fiscal period of
Interface, an amount equal to (A) the sum for such fiscal period of Consolidated
Net Income (Loss) plus, to the extent subtracted
-6-
<PAGE> 14
in determining such Consolidated Net Income (Loss), provisions for taxes based
on income, Consolidated Interest Expense, and amortization of goodwill and
deferred financing costs, minus (B) any items of gain (or plus any items of
loss) which were included in determining such Consolidated Net Income (Loss) and
were (x) not realized in the ordinary course of business or (y) the result of
any sale of assets.
"Consolidated Interest Expense" means, for any fiscal period
of Interface, total interest expense of the Consolidated Companies (including
without limitation, interest expense attributable to capitalized leases in
accordance with GAAP, all capitalized interest, all commissions, discounts and
other fees and charges owed with respect to bankers acceptance financing, and
total interest expense (whether shown as interest expense, or as loss and
expenses on sale of receivables) under a receivables purchase facility)
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income (Loss)" means, for any fiscal period
of Interface, the net income (or loss) of the Consolidated Companies on a
consolidated basis for such period (taken as a single accounting period)
determined in conformity with GAAP, but excluding therefrom (to the extent
otherwise included therein) (i) any gains or losses, together with any related
provision for taxes, realized upon any sale of assets other than in the ordinary
course of business, (ii) any income or loss of any Person accrued prior to the
date such Person becomes a Subsidiary of Interface or is merged into or
consolidated with any Consolidated Company or all of substantially all of such
Person's assets are acquired by any Consolidated Company, and (iii) the income
of any Consolidated Company to the extent that the declaration or payment of
dividends or similar distributions by such Consolidated Company of that income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation.
"Consolidated Net Worth" means, as of any date of
determination, Shareholders' Equity of Interface, excluding (i) the effects of
foreign currency translation adjustments under Financial Accounting Standards
Board Statement No. 52 as in
-7-
<PAGE> 15
effect on the date hereof, and (ii) after-tax gains on the sales of assets
outside the ordinary course of business of the Consolidated Companies and any
after-tax gains with respect to pension reversions, in any case with respect to
(i) and (ii) above, as such adjustments or gains occur subsequent to December
29, 1991.
"Convertible Preferred Stock" means Interface's Series A
Cumulative Convertible Preferred Stock having an aggregate liquidation value of
$25,000,000 and 7.0% cumulative dividend, being convertible into shares of
Interface's Class A common stock at the rate of one share of Class A common
stock for each $14.7875 of "conversion value" of such Preferred Stock (as
defined in the Articles of Amendment of Interface executed with respect to such
Preferred Stock and subject to adjustments as provided therein), and being
subject to redemption at the option of the holders thereof not earlier than June
1, 2003, on the terms and conditions set forth in such Articles of Amendment.
"Credit and Collection Policy" means, in the case of any
Originator, the written credit and collection policy utilized by such Originator
as of the date hereof, a copy of which is attached hereto in Schedule B, as the
same may be amended or otherwise modified in strict compliance with this
Agreement.
"Currency Contracts" means any forward contracts, futures
contracts, foreign exchange contracts, currency swap agreements, and other
similar agreements and arrangements entered into by any Consolidated Company
designed to protect any Consolidated Company against fluctuations in foreign
exchange rates.
"Defaulted Receivable" means any Receivable which:
(1) has been or should have been charged-off in
conformity with the applicable Credit and
Collection Policy; or
(2) is owed by an Obligor who is in bankruptcy,
reorganization, insolvency or similar proceedings.
-8-
<PAGE> 16
"Dilution Horizon" means, as of any date of determination, a
fraction, expressed as a percentage, the numerator of which shall be the
aggregate net sales by all of the Originators during the fiscal month then most
recently ended (or ending on such date of determination) and the denominator of
which shall be the aggregate Eligible Receivables originated by Originators and
outstanding as of the last day of such fiscal month.
"Dilution Ratio" means, as of any date of determination, a
fraction, expressed as a percentage, the numera tor of which is the aggregate
amount of Dilutions in respect of Receivables for the fiscal month then most
recently completed (or ending on such date of determination) and the denominator
of which is the aggregate amount of net sales by all of the Originators
occurring during the fiscal month prior to such fiscal month then most recently
completed (or then ending).
"Dilution Reserve" means, as of any date of determination, a
percentage equal to the following:
DPR = (2.25 x DH x ADP) + ((HDP - ADP) x HDP/ADP)
where: DPR = the Dilution Reserve;
DH = the Dilution Horizon;
ADP = the average Dilution Ratio during the period
of twelve consecutive full fiscal months
immmediately preceding (or ending on) such
date of determination; and
HDP = the highest Dilution Ratio during the twelve
consecutive full fiscal months immediately
preceding (or ending on) such date of
determination.
"Dilutions" means the aggregate amount of any reductions and
cancellations of Receivables which have been reduced or cancelled, respectively,
for any reason other than that (1) the Obligors have made payments thereon or
(2) the Seller has charged-off such Receivables in accordance with the
applicable Credit and Collection Policy. The term "Dilutions" shall include,
without limitation, credits, rebates, freight charges, cash discounts, volume
discounts, cooperative adver tising expenses, royalty payments, warranties,
allowances, disputes, chargebacks, returned or repossessed goods, and allowances
for early payments.
"Discount Rate" means, in the case of any Tranche Period, the
Adjusted LIBO Rate, the Base Rate or the Fixed CD Rate, as applicable.
"Dollars" or "$" means, unless another currency is expressly
identified, the lawful currency of the United States.
"Earlier Sale Agreement" means that certain Receivables Sale
Agreement dated as of August 4, 1995 among the Seller,
-9-
<PAGE> 17
Interface, certain financial institutions parties thereto, Trust Company Bank
and The First National Bank of Chicago, as co-agents for such financial
institutions, Trust Company Bank, as administrative agent, and The First
National Bank of Chicago, as documentation and collateral agent, as the same has
been amended, supplemented or otherwise modified prior to the date hereof.
"Eligible Receivable" means any Receivable:
(1) which is not unpaid for more than 60 days past the
date on which it was due;
(2) which is required to be paid in full within 31 days
of the invoice date; provided that a Receivable that
meets the criteria set forth in this definition but
for this clause (2) may nonetheless constitute an
"Eligible Receivable" if (a) such Receivable is
required to be paid in full within 61 days of the
invoice date and (b) the outstanding balance of such
Receivable, together with the aggregate outstanding
balance of all other Receivables that constitute
"Eligible Receivables" by reason of this proviso,
does not at any time exceed an amount equal to 30% of
the aggregate outstanding balance of all Receivables
that constitute Eligible Receivables at such time
(including Receivables that are Eligible Receivables
by reason of this proviso);
(3) which is denominated in, and payable only in, U.S.
Dollars;
(4) which is not a Defaulted Receivable;
(5) the Obligor of which has had no Defaulted Receiv
able at any time during the immediately preceding
twelve-month period;
(6) the Obligor of which does not then have more than
10% of its total Receivables unpaid for more than
120 days past the dates on which they were due;
-10-
<PAGE> 18
(7) the Obligor of which is not an Affiliate of any of
the Transaction Parties, any of the Bank
Purchasers or the Administrative Agent;
(8) the Obligor of which is not a government or
subdivision or agency of a government; provided that
a Receivable that meets the criteria set forth in
this definition but for this clause (8) may
nonetheless constitute an "Eligible Receivable" if
(a) the Obligor thereon is a governmental entity
acceptable to the Administrative Agent and (b) the
outstanding balance of such Receivable, together with
the aggregate outstanding balance of all other
Receivables that constitute "Eligible Receivables" by
reason of this proviso, does not at any time exceed
an amount equal to 8% of the aggregate Investment of
all Bank Purchasers hereunder (net of the aggregate
amount, if any, owed by the Seller to one or more of
the Bank Purchasers under Article XI) at such time;
(9) the Obligor of which is a resident of the United
States; provided that a Receivable that meets the
criteria set forth in this definition but for this
clause (9) may nonetheless constitute an "Eligible
Receivable" if:
(a) the outstanding balance of such
Receivable, together with the aggregate
outstanding balance of all other Receivables
that constitute "Eligible Receivables" by
reason of this proviso, does not exceed an
amount equal to that portion of the
aggregate Reserve at such time representing
the components described in clauses (1) and
(3) of the definition of "Reserve";
(b) in addition to the restrictions
set forth in clause (a): in the case of any
Receivable owing by an Obligor that is
located in a country in respect of which the
-11-
<PAGE> 19
"sovereign rating" assigned by S&P is
"investment grade", the outstanding balance
thereof, together with the aggregate
outstanding balance of all other Receivables
that constitute "Eligible Receivables" by
reason of this proviso and that are owed by
Obligors in such countries, does not exceed
a sublimit equal to that portion of the
aggregate Reserve at such time representing
the component described in clause (1) of the
definition of "Reserve";
(c) in addition to the restrictions
set forth in clause (a): in the case of any
Receivable owing by an Obligor that is
located in a country in respect of which the
"sovereign rating" assigned by S&P is less
than "investment grade" (or in respect of
which S&P has not assigned a "sovereign
rating"), the outstanding balance thereof,
together with the aggregate outstanding
balance of all other Receivables that
constitute "Eligible Receivables" by reason
of this proviso and that are owed by
Obligors in such countries, does not exceed
a sublimit equal to the Standard
Concentration Limit then in effect; and
(d) the Seller is in compliance
with the terms of Section 3.3 at such time;
(10) which is not (i) subject to any dispute, claim,
defense or offset and which has not been compromised,
adjusted or modified (including by extension of time
for payment or the granting of any discounts,
allowances or credits) or (ii) evidenced by any note
or other instrument;
(11) which arises out of a "current transaction", and the
purchase of which with the proceeds of notes having a
maturity at the time of issuance not exceeding 270
days would constitute a "current
-12-
<PAGE> 20
transaction", as such term is defined in Section
3(a)(3) of the Securities Act of 1933, as amended;
(12) which is an "account" within the meaning of the
Uniform Commercial Code of the State in which is
located the Seller's principal place of business or,
if the Seller has more than one place of business,
its chief executive office;
(13) which arose from a bona fide sale of merchandise or
insurance or the rendering of services accepted by
the Obligor of that Receivable, the performance and
delivery of which has been completed by the
applicable Originator and by all parties other than
the Obligor; without limiting the generality of the
foregoing, such sale is not a "bill and hold",
consignment, "sale on approval", conditional sale or
similar arrangement;
(14) in which each Bank Purchaser shall, upon the Purchase
by it of an Ownership Interest therein, acquire good
and marketable title to such Ownership Interest
therein, free and clear of all liens, security
interests and encumbrances (other than Permitted
Liens);
(15) that is the legal, valid and binding payment
obligation of the Obligor thereon;
(16) that represents 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;
(17) which does not contravene any applicable law, rule or
regulation in any material respect (including,
without limitation, laws, rules and regulations
relating to truth in lending, fair credit billing,
fair credit reporting, equal credit opportunity, fair
debt collection practices and privacy);
-13-
<PAGE> 21
(18) which is not subject to any restrictions on the
transfer, assignability or sale thereof;
(19) which has been generated in accordance with the
terms and conditions of, and otherwise satisfies,
the applicable Credit and Collection Policy;
(20) other than to the extent any portion thereof is
payable on account of sales taxes;
(21) which was generated in the ordinary course of
business of the applicable Originator;
(22) in respect of which no cash deposit or other advance
payment shall have been received by the applicable
Originator or any other Person thereon or in respect
thereof; and
(23) which shall have been purchased by the Seller from an
Originator for reasonably equivalent value (other
than by the extinguishment or reduction of antecedent
debt) pursuant to a Transfer Agreement and all rights
of the Seller, as transferee thereunder, are fully
assignable to the Bank Pur chasers without any
restriction on such assignment.
"ERISA" means the Employee Retirement Income Security Act of
1974 and the rules and regulations thereunder, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer with the Seller under Section
414 of the Code.
"Event of Termination" shall have the meaning assigned to that
term in Section 12.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute thereto.
-14-
<PAGE> 22
"Excluded Taxes" has the meaning assigned to such term
in Section 13.3.
"Existing Shareholder Group" means (i) for so long as Ray C.
Anderson shall be living and is performing the duties of chairman and chief
executive officer of Interface, Ray C. Anderson and each other party to the
Class B Shareholders' Agreement, David Milton, Daniel T. Hendrix, Charles R.
Eitel, Royce R. Renfroe, Brian L. DeMoura, and David W. Porter, and (ii) at all
times thereafter, the individuals listed on Schedule F; provided that in the
case of each individual referred to in the preceding clauses (i) and (ii), for
purposes of this definition the reference to such individual shall be deemed to
include the members of such individual's immediate family, such individual's
estate, and any trusts established by such individual (whether inter vivos or
testamentary) for the benefit of members of such individual's immediate family.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with member banks
of the Federal Reserve System arranged by Federal funds brokers, as published
for such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by the
Administrative Agent.
"fiscal" means, when used in respect of any period, such
fiscal period of Interface.
"Fixed CD Rate" means, with respect to any Tranche Period, a
rate per annum equal to the sum of (i) the rate obtained by dividing (x) the
Certificate of Deposit Rate for such Tranche Period by (y) a percentage equal to
1 minus the stated maximum rate (stated as a decimal) of all reserve
requirements as specified in Regulation D (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) applicable during
such Tranche Period to new nonpersonal time
-15-
<PAGE> 23
deposits in the United States in and amount equal to or in excess of $100,000
with a maturity comparable to such Tranche Period of any member bank of the
Federal Reserve System, plus (ii) the then daily net annual assessment rate as
estimated by the Administrative Agent for determining the then current annual
assessment payable to the Federal Deposit Insurance Corporation for insuring
time deposits of the Administrative Agent in the United States.
"Foreign Subsidiary" shall mean each Consolidated Company that
is organized under the laws of a jurisdiction other than the United States of
America or any state thereof.
"Funded Debt" means all Indebtedness for money borrowed,
Indebtedness evidenced or secured by purchase money Liens, capitalized leases,
conditional sales contracts and similar title retention debt instruments, and
Indebtedness evidenced by bonds, debentures, notes or other similar instruments,
including all current maturities of such Indebtedness. The calculation of Funded
Debt shall include all Funded Debt of the Consolidated Companies, plus (i) all
Funded Debt of other Persons to the extent guaranteed by a Consolidated Company,
to the extent supported by a letter of credit issued for the account of a
Consolidated Company, or as to which and to the extent which a Consolidated
Company or its assets otherwise have become liable for payment thereof, (ii) the
aggregate "Investment" from time to time outstanding under, and as defined in,
the Parallel Sale Agreement, (iii) the aggregate Investment from time to time
outstanding hereunder plus (iv) any other amounts due and owing to the Bank
Purchasers hereunder.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements 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.
"Guaranty" means any contractual obligation, contingent or
otherwise, of a Person with respect to any Indebtedness or
-16-
<PAGE> 24
other obligation or liability of another Person, including without limitation,
any such Indebtedness, obligation or liability directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable, including contractual obligations (contingent or otherwise) arising
through any agreement to purchase, repurchase, or otherwise acquire such
Indebtedness, obligation or liability or any security therefor, or any agreement
to provide funds for the payment or discharge thereof (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain solvency, assets, level of income, or other financial condition, or to
make any payment other than for value received. The amount of any Guaranty shall
be deemed to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which guaranty is made or, if not so stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Guilford" means Interface Interior Fabrics, Inc.
(formerly known as Guilford of Maine, Inc.).
"Guilford Marketing" means Guilford of Maine Marketing
Co., a Nevada corporation.
"Guilford Assumption Agreement" means that certain Assumption
and Amendment Agreement dated as of December 27, 1996 among Guilford, Guilford
Marketing and the Seller.
"Incremental Purchase" means any Purchase (other than the
Initial Purchase) which causes the amount of the Investment of any Bank
Purchaser, or the aggregate Investment of all Bank Purchasers, to increase.
"Indebtedness" of any Person means, without duplication (i)
all obligations of such Person which in accordance with GAAP would be shown on
the balance sheet of such Person as a liability (including, without limitation,
obligations for borrowed money and for the deferred purchase price of property
or services, and obligations evidenced by bonds, debentures, notes or other
similar instruments); (ii) all rental obligations under leases
-17-
<PAGE> 25
required to be capitalized under GAAP; (iii) all Guaranties of such Person
(including contingent reimbursement obligations under undrawn letters of
credit); (iv) Indebtedness of others secured by any Lien upon property owned by
such Person, whether or not assumed; and (v) obligations or other liabilities
under Currency Contracts, Interest Rate Contracts, or similar agreements or
combinations thereof.
"Initial Purchase" means the first Purchase made under
this Agreement.
"Intek" means Intek, Inc., a Georgia corporation.
"Intek Marketing" means Intek Marketing Co., a Nevada
corporation.
"Intek Assumption Agreement" means that certain Assumption and
Amendment Agreement dated as of December 27, 1996 among Intek, Intek Marketing
and the Seller.
"Interest Coverage Ratio" means the ratio of
Consolidated EBITA to Consolidated Interest Expense.
"Interest Rate Contracts" means any forward contracts, futures
contracts, interest rate exchange agreements, interest rate cap agreements,
interest rate collar agreements, and other similar agreements and arrangements
entered into by any Consolidated Company designed to protect any Consolidated
Company against fluctuations in interest rates.
"Interface" means Interface, Inc., a Georgia
corporation.
"Interface Control Debt" means, at any time, debt of Interface
for borrowed money in an aggregate principal amount outstanding at such time in
excess of $10,000,000 which is subject to Change in Control Provisions,
excluding debt of Interface arising under (i) the Interface Credit Agreement or
(ii) any Guaranty or any security or collateral document of Interface delivered
pursuant to the Interface Credit Agreement and guaranteeing or securing the
"Obligations" under the Interface Credit Agreement.
-18-
<PAGE> 26
"Interface Credit Agreement" means that certain Amended and
Restated Credit Agreement dated as of June 30, 1995 among Interface, certain
Affiliates thereof, certain lenders, Trust Company Bank and The First National
Bank of Chicago, as "Co-Agents", and Trust Company Bank, as "Collateral Agent",
as the same may from time to time be amended, restated, supplemented or
otherwise modified. If at any time the Interface Credit Agreement shall be
terminated or shall otherwise cease to be in effect,
(i) the term "Interface Credit Agreement" shall
mean, for purposes of the definition herein of "Interface Control
Debt", any revolving credit agreement or similar credit facility
that shall have been used to refinance the indebtedness under, or
otherwise replace, the Interface Credit Agreement;
(ii) for purposes of Section 12.2(k)(i), an Event of
Termination shall exist hereunder, at any time following such
termination or cessation, upon the occurrence of any event or
circumstance that would, but for such termination or cessation, have
constituted an "Event of Default" under the Interface Credit Agreement
(as amended, restated, supplemented or otherwise modified prior to the
date of such termination or cessation) by reason of the failure of any
Person to comply with any of the following provisions of the Interface
Credit Agreement: Section 8.09 ["Financial Covenants"], 8.10 ["Notices
Under Certain Other Indebtedness"] or 9.03 ["Mergers, Acquisitions,
Sales, Etc."], or by reason of Section 10.09 ["Money Judgment"] of the
Interface Credit Agreement; it being understood that (A) each such
provision shall, following such termination or cessation, be deemed to
survive such termination or cessation and be incorporated herein by
this reference thereto and (B) to the extent any notice shall be
required to be given by any co-agent or lender under the Interface
Credit Agreement in order for an "Event of Default" thereunder to
exist, such notice may be given by the Administrative Agent or any Bank
Purchaser hereunder;
(iii) for purposes of Section 13.5(d), Section 8.05
of the Interface Credit Agreement (as amended,
-19-
<PAGE> 27
restated, supplemented or otherwise modified prior to the date of such
termination or cessation) shall survive the termination or cessation of
the Interface Credit Agreement and shall be deemed incorporated herein
by this reference thereto upon any such termination or cessation, and
(iv) for purposes of Section 13.5(b), clause (ii) of
the proviso thereof shall cease to have effect.
"Interface Flooring" means Interface Flooring Systems,
Inc., a Georgia corporation.
"Inventory Transfer Agreement" means either (i) that certain
Bill of Sale and Assignment and Assumption Agreement effective as of December
29, 1996 between Guilford and Guilford Marketing or (ii) that certain Asset
Purchase Agreement effective as of December 29, 1996 between Intek and Intek
Marketing, in each case as such agreement may be amended, modified, extended or
waived from time to time with the consent of the Majority Bank Purchasers and
the Administrative Agent.
"Investment" means, in respect of any Bank Purchaser at
any time, the sum of:
(1) the aggregate amount of cash paid by such Bank
Purchaser to the Seller for its Initial Purchase
(if applicable) and all Incremental Purchases,
less the amount of all Collections received and
applied to such Bank Purchaser's Investment
pursuant to Sections 6.2(c) or Section
7.2.2(c)(ii)(A) and of all payments made by the
Seller and applied to such Bank Purchaser's
Investment under Sections 3.3 and 7.3; and
(2) any amounts owed by the Seller to such Bank
Purchaser under Article XI.
"Leverage Ratio" means the ratio, expressed as a percentage,
of Funded Debt to Total Capitalization for the Consolidated Companies.
-20-
<PAGE> 28
"LIBOR" means, for any Tranche Period, the offered rate for
deposits in Dollars, for a period comparable to such Tranche Period and in an
amount comparable to the Pro Rata Share of the Administrative Agent (as a Bank
Purchaser) in the aggregate Investment allocated to such Tranche Period and
appearing on the Reuters Screen LIBO Page as of 11:00 A.M. (London, England
time) on the day that is two Business Days prior to the first day of such
Tranche Period. If two or more of such rates appear on the Reuters Screen LIBO
Page, the rate shall be the arithmetic mean of such rates. If the foregoing rate
is unavailable from the Reuters Screen for any reason, then such rate shall be
determined by the Administrative Agent from Telerate Page 3750 or, if such rate
is also unavailable on such service, then on any other interest rate reporting
service of recognized standing designated in writing by the Administrative Agent
to the Collection Agent, the Seller and the Bank Purchasers. In each case such
rate shall be rounded, if necessary, to the next higher 1/16 of 1.0%, if the
rate is not such a multiple.
"Lien" means any mortgage, pledge, security interest, lien,
charge, hypothecation, assignment, deposit arrangement, title retention,
preferential right, trust or other arrangement having the practical effect of
the foregoing and shall include the interest of a vendor or lessor under any
conditional sale agreement, capitalized lease or other title retention
agreement.
"Lock-Box" means any lock-box(es) or account(s) to which the
Obligors remit Collections or into which Collections are otherwise deposited
upon receipt by a Lock-Box Bank.
"Lock-Box Bank" means any institution at which a Lock-Box is
kept or by which a Lock-Box is maintained.
"Loss Reserve Ratio" means, as of any date, a percentage equal
to the following:
LRR = 2.25 x ARR x S
where: LRR = the Loss Reserve Ratio;
ARR = the highest average, determined for each of twelve
consecutive full fiscal months immediately
preceding (or ending on) such date of
determination, of the Aged Receivables Ratio for
three full consectutive fiscal months during such
period;
S = a fraction, expressed as a percentage, the
numerator of which is the aggregate amount of net
sales of the Originators during the three full
fiscal months then most recently ended (or ending
on such date of determination), and the
denominator of which is the aggregate unpaid
balance of all Eligible Receivables originated by
the Originators and outstanding as of the last
day of the fiscal month then most recently ended
(or ending on such date of determination).
"Majority Bank Purchasers" means Bank Purchasers at any time
holding at least 66-2/3% of the then aggregate outstanding Investment hereunder
or, if no Investment is then outstanding, Bank Purchasers having at least
66-2/3% of the Commitments at such time.
-21-
<PAGE> 29
"Maximum Ownership Interest" means 100%.
"Monthly Settlement Date" means each date (or, if any such
date is not a Business Day, the first Business Day following such date) set
forth on Schedule G hereto.
"Moody's" means Moody's Investors Service, Inc.
"Obligor" means any Person which is obligated to make
payment on a Receivable.
"Originator" means any of Bentley, Guilford, Interface
Flooring, Prince Street, Toltec, Intek, Intek Marketing and Guilford Marketing;
provided that, for purposes of determining the Aged Receivables Ratio, the
Dilution Horizon, the Dilution Ratio or the Loss Reserve Ratio on any date, such
determination shall be made without regard to the net sales made, or the
Receivables originated, by Guilford or Intek on or after (i) in the case of
Guilford, the "Effective Date" under and as defined in the Guilford Assumption
Agreement and (ii) in the case of Intek, the "Effective Date" under and as
defined in the Intek Assumption Agreement.
"Originator Entity shall have the meaning assigned to that
term in Section 10.4.
"Ownership Interest" means, at any time, an undivided
percentage ownership interest of a Bank Purchaser in the Receivables, the
related Collections and the Related Rights, as described in Section 3.1(a).
"Parallel Sale Agreement" means that certain Receivables Sale
Agreement dated as of August 4, 1995 among the Seller, Interface, SPARC and
CIBC, as "Servicing Agent" thereunder, as the same has been on or prior to the
date hereof, or may from time to time hereafter be, amended, restated,
supplemented or otherwise modified in accordance with the terms of this
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation
and any successor thereto.
-22-
<PAGE> 30
"Permitted Liens" means any lien, claim or encumbrance (i)
arising under this Agreement in favor of the Administrative Agent, for the
benefit of the Bank Purchasers, or under the Parallel Sale Agreement in favor of
the PSA Agent, for the benefit of SPARC, (ii) in respect of taxes that are not
delinquent or (iii) constituting a Permitted Tax Lien.
"Permitted Tax Lien" means at any time any lien, claim or
encumbrance in respect of taxes the payment of which is being contested by the
Seller or Interface in good faith and in respect of which adequate reserves
shall have been set aside; provided that any such lien, claim or encumbrance
shall cease to be a Permitted Tax Lien if a material risk of loss or forfeiture
of any Receivable by reason of such lien, claim or encumbrance shall then exist.
"Person" means an individual, partnership, corporation
business trust, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Plan" means each employee benefit plan (as defined in Section
3(3) of ERISA) currently sponsored, maintained or contributed to by any
Transaction Party or any ERISA Affiliate or with respect to which any
Transaction Party or any ERISA Affiliate has any liability.
"Prince Street" means Prince Street Technologies, Ltd.,
a Georgia corporation.
"Pro Rata Share" means, with respect to any Bank Purchaser at
any time, a fraction (expressed as a percentage) the numerator of which shall be
the Commitment of such Bank Purchaser at such time and the denominator of which
shall be the aggregate Commitments at such time. In the event the Commitments
shall have been terminated, the Pro Rata Share of each Bank Purchaser at any
time shall be (i) if any Ownership Interests shall then be outstanding, a
fraction (expressed as a percentage) the numerator of which shall be the
Ownership Interest of such Bank Purchaser at such time and the denominator of
which shall be the aggregate Ownership Interests hereunder at such time and (ii)
if no Ownership Interests shall then be outstanding, the Pro Rata Share
-23-
<PAGE> 31
of such Bank Purchaser immediately prior to the termination of the Commitments.
"PSA Agent" means CIBC, in its capacity as "Servicing Agent"
under the Parallel Sale Agreement, and any successor thereto in such capacity.
"Purchase" means any purchase by any Bank Purchaser of an
Ownership Interest from the Seller under this Agreement, and includes its
participation in the Initial Purchase, any Incremental Purchase and any
Reinvestment Purchase. The terms "Purchase", "Initial Purchase", "Incremental
Purchase" and "Reinvestment Purchase" shall generally refer to the collective
action of the Bank Purchasers in effecting purchases of (or increases in)
Ownership Interests at the same time and in an amount corresponding to their
respective Pro Rata Shares at such time. When used with respect to any Bank
Purchaser, such term shall mean such Bank Purchaser's participation in such
Purchase.
"Purchase Discount" has the meaning assigned to such
term in Section 5.2.1.
"Purchase Premium" has the meaning assigned to such
term in Section 5.2.2.
"Purchasing Office" shall mean, for each Bank Purchaser, the
office such Bank Purchaser may designate in writing from time to time to the
Seller and the Administrative Agent for purposes of all allocations of such Bank
Purchaser's Investment to a Discount Rate of a particular type.
"Receivable" means the obligation of an Obligor to pay for
merchandise sold or services rendered by an Originator, and includes the rights
in connection therewith to payment of any interest or finance charges and in the
merchandise (including returned goods) and contracts relating to such
Receivable, all security interests, guaranties and property securing or
supporting payment of such Receivable, all books and records relating to the
Receivables and all proceeds of the foregoing.
-24-
<PAGE> 32
"Receivables Activity Report" means the report in the form of
Exhibit F hereto to be provided by the Collection Agent in accordance with
Section 7.4 of this Agreement.
"Receivables Pool" means all Receivables that shall have been
purchased by the Seller from Originators.
"Reinvestment Purchase" means any Purchase made with
Collections.
"Reinvestment Suspension Period" means a period beginning on,
as applicable, the Commitment Termination Date or the date that Reinvestment
Purchases shall cease for any other reason (whether pursuant to Section 6.2(b),
6.6 or otherwise) and ending on the initial date thereafter (if any) on which
Reinvestment Purchases shall recommence.
"Related Rights" means all rights and remedies of the Seller
under each Transfer Agreement (or any instrument, document or agreement executed
in connection therewith including, without limitation, each Assumption
Agreement) pursuant to which any Receivable shall have been transferred by an
Originator to the Seller.
"Reserve" means, as of any date, an amount equal to the
aggregate investment on such date multiplied by the greater of (a) 10% and (b)
the sum of the items set forth below (each expressed as a percentage):
(1) the higher of (i) the Loss Reserve Ratio as of such
date and (ii) the product of (x) the quotient, expressed
as a percentage, of the Standard Concentration Limit
divided by the aggregate outstanding balance of all
Eligible Receivables as of such date, multiplied by
(y) five (5);
(2) 1%;
(3) Yield Reserve as of such date and
(4) the Dilution Reserve as of such date.
In the event that any Pemitted Tax Lien shall have attached to any Receivable
in the Receivables Pool, the Reserve shall be increased by an amount equal to
the related tax that is then being contested.
"Reuters Screen" means, when used in connection with any
designated page and LIBOR, the display page so designated on the Reuters Monitor
Money Rates Service (or such other page as may replace that page on that service
for the purpose of displaying rates comparable to LIBOR).
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc.
"Sale Documents" means this Agreement, the Parallel Sale
Agreement, the Transfer Agreements, the Assumption Agreements, the Inventory
Transfer Agreements, the Exhibits hereto and thereto and all other certificates,
agreements and documents executed from time to time by any Transaction Party in
favor of or otherwise for the benefit of the Bank Purchasers, the Administrative
Agent, SPARC, the PSA Agent or any Transaction
-25-
<PAGE> 33
Party in connection with the transactions contemplated in any of the foregoing.
"Seller" means Interface Securitization Corporation, a
Delaware corporation, and its successors and permitted assigns.
"Settlement Date" means any date, as described in Section 7.1
of this Agreement, on which the Collection Agent is required to remit specified
payments to the Bank Purchasers.
"Shareholders' Equity" means, with respect to any Person as at
any date of determination, shareholders' equity of such Person determined on a
consolidated basis in conformity with GAAP.
"SPARC" means Special Purpose Accounts Receivable
Cooperative Corporation, a California cooperative corporation,
and its successors and assigns.
"Special Concentration Limit" means, with respect to any
Obligor listed on Schedule A (together with its Affiliates and subsidiaries),
the amount indicated opposite the name of such Obligor; provided that the
Administrative Agent may, at any time in its discretion but subject to Section
13.10, reduce or increase the Special Concentration Limit for any such Obligor,
or add the name of any other Obligor to Schedule A, through the delivery by the
Administrative Agent to the Seller of an amended Schedule A; provided that, in
the event any increase in a Special Concentration Limit would cause such limit
to exceed the Standard Concentration Limit then in effect, the consent of the
Majority Bank Purchasers shall be required prior to giving effect to such
increase.
"Standard Concentration Limit" means, with respect to all of
the Receivables owing from a single Obligor (except for an Obligor listed on
Schedule A), together with Receivables owing from its Affiliates or
subsidiaries, an amount equal to $1,800,000; provided that (i) the
Administrative Agent may, at any time in its discretion but subject to Section
13.10, reduce the Standard Concentration Limit for any Obligor through the
delivery of a notice by the Administrative Agent to the Seller, and (ii) the
Administrative Agent may, at any time on the direction of the
-26-
<PAGE> 34
Majority Bank Purchasers, increase the Standard Concentration Limit for any
Obligor through the delivery of a notice by the Administrative Agent to the
Seller.
"Stated Termination Date" means December 26, 1997 or such
later date determined in accordance with Section 3.5.
"Subordinated Note" means that certain Subordinated Noted
dated December 27, 1996 executed by the Seller to the order of Interface and
evidencing advances made from time to time by Interface to the Seller, as the
same may be amended, restated, supplemented or otherwise modified from time to
time in accordance with the terms of this Agreement.
"Subsidiary" means, with respect to any Person, any
corporation or other entity (including, without limitation, partnerships, joint
ventures, and associations) regardless of its jurisdiction of organization or
formation, at least a majority of the total combined voting power of all classes
of voting stock or other ownership interests of which shall, at the time as of
which any determination is being made, be owned by such Person, either directly
or indirectly through one or more other Subsidiaries.
"Taxes" has the meaning assigned to such term in
Section 13.3.
"Telerate" means, when used in connection with any designated
page and the Certificate of Deposit Rate or LIBOR, the display page so
designated on the Dow Jones Telerate Service (or such other page as may replace
that page on that service for the purpose of displaying rates comparable to the
Certificate of Deposit Rate or LIBOR).
"Toltec" means Toltec Fabrics, Inc., a Georgia corporation.
"Total Capitalization" means the sum of Funded Debt and
Consolidated Net Worth for the Consolidated Companies.
"Tranche Period" means, with respect to any allocation of
Investment for which the Discount Rate shall be: (a) the Base Rate, a period of
days not to exceed 30 days; (b) the Adjusted
-27-
<PAGE> 35
LIBO Rate, a period of one, two, three or six months, with such Tranche Period
ending on the day in the applicable succeeding calendar month which corresponds
numerically to the beginning day of such Tranche Period; provided, however, that
if there is no such numerically corresponding day in such succeeding month, such
Tranche Period shall end on the last Business Day of such succeeding month; and
(c) the Fixed CD Rate, a period of 30, 60, 90 or 180 days commencing on a
Business Day selected by the Seller; provided that:
(i) The initial Tranche Period for any new
Investment (whether in connection with the Initial Purchase or any
Incremental Purchase) shall commence on the date of the applicable
Purchase and each Tranche Period occurring thereafter in respect of
such Investment shall commence on the day on which the next preceding
Tranche Period expires.
(ii) If any Tranche Period would end on a day which
is not a Business Day, such Tranche Period shall end on the next
succeeding Business Day; provided, however, that in the case of Tranche
Periods in respect of which the Adjusted LIBO Rate shall apply, if such
next succeeding Business Day falls in a new month, such Tranche Period
shall end on the immediately preceding Business Day.
(iii) In the case of any Tranche Period which
commences before the Commitment Termination Date and would otherwise
end on a date occurring after the Commitment Termination Date, such
Tranche Period shall end on the Termination Date. The duration of each
Tranche Period which commences after the Commitment Termination Date
shall be of such duration as shall be selected by the Administrative
Agent.
"Transaction Parties" means, collectively, the Seller,
Interface and the Originators.
"Transfer Agreement" means, in the case of any Originator, an
agreement, in substantially the form attached hereto as Exhibit H, between the
Seller and such Originator (whether such Originator is an original signatory
thereto or became a party to such agreement pursuant to an Assumption
-28-
<PAGE> 36
Agreement) pursuant to which the Seller will purchase Receivables from such
Originator, as such agreement may be amended, modified, extended or waived from
time to time with the consent of the Majority Bank Purchasers and the
Administrative Agent.
"Yield Reserve" means, as of any date of determination (i)
the product of (a) the sum of the then highest Discount Rate and Applicable
Margin and (b) 120/360 plus (ii) all unpaid Accrued Finance Charges as of such
date.
SECTION 1.2 Accounting Terms and Determination. Unless
otherwise defined or specified herein, all accounting terms shall be construed
herein, all accounting determinations hereunder shall be made, all financial
statements required to be delivered hereunder shall be prepared, and all
financial records required hereunder shall be maintained in accordance with
GAAP, except that financial records of Foreign Subsidiaries may be maintained in
accordance with generally accepted accounting principles in effect from time to
time in the jurisdiction of organization of such Foreign Subsidiary; provided,
however, that any financial covenant calculations made for the purpose of
determining the "Applicable Margin" hereunder shall be made in accordance with
GAAP and such generally accepted accounting principles in such foreign
jurisdictions, as the case may be, as in effect on the date of this Agreement
and applied on a basis consistent with the preparation of the financial
statements referred to in Section 9.1(k) unless and until the parties enter into
an agreement with respect thereto in accordance with Section 13.14; and provided
further, that for purpose of such calculations, the Convertible Preferred Stock
shall be considered as capital stock of Interface and not as Funded Debt.
ARTICLE II: THE FACILITY
Prior to the Commitment Termination Date, the Seller may from
time to time, in its sole discretion, offer to sell Ownership Interests in the
Receivables Pool to the Bank Purchasers, and may from time to time thereafter
offer to increase such Ownership Interests. Each Bank Purchaser severally
agrees, subject to the terms and conditions of this Agreement, to purchase an
Ownership Interest and from time to time to increase such Ownership Interest.
-29-
<PAGE> 37
ARTICLE III: WHAT IS SOLD
SECTION 3.1. Determination of Ownership Interest.
(a) A Bank Purchaser shall acquire, upon payment of the cash
component of the purchase price in respect of any Purchase hereunder, an
undivided percentage ownership interest in the Receivables Pool at such time,
including in all Receivables therein, any Collections relating to such
Receivables and all Related Rights with respect thereto. The undivided
percentage interest of any Bank Purchaser in the Receivables Pool covered by
this Agreement and Collections and Related Rights with respect thereto shall be
referred to in this Agreement as the "Ownership Interest" of such Bank
Purchaser. The Ownership Interest of any Bank Purchaser on any date, except as
provided in paragraph (b) below, shall be equal to a fraction (expressed as a
percentage) calculated in the following manner:
I + R
-----------
ER
where: I = the Investment of such Bank Purchaser as of
such date;
R = the Reserve in respect of the Investment of
such Bank Purchaser on such date;
ER = the outstanding balance of all Eligible
Receivables on such date in the Receivables
Pool, minus the aggregate amount by which the
outstanding balance of Eligible Receivables
of each Obligor in the Receivables Pool
exceeds the Standard Concentration Limit (or,
if applicable, the Special Concentration
Limit for such Obligor).
The Ownership Interest in respect of any Bank Purchaser will
change from time to time, except as provided in paragraphs (b) or (c) of this
Section, whenever the Investment of such Bank Purchaser, the related Reserve,
the Eligible Receivables, or the Standard Concentration Limit or Special
Concentration Limit with respect to any Obligor changes.
-30-
<PAGE> 38
(b) During any Reinvestment Suspension Period, the Ownership
Interest of each Bank Purchaser will remain fixed at the percentage in effect as
of the close of business on the Business Day immediately preceding the
commencement of that period.
(c) The Ownership Interest of each Bank Purchaser in the
Receivables will be reduced to zero when such Bank Purchaser receives the
following amounts:
(1) its Investment;
(2) the amounts payable to such Bank Purchaser
pursuant to Section 7.2.2(b);
(3) all accrued and unpaid Commitment Fee in respect
of such Bank Purchaser; and
(4) all other amounts payable to such Bank Purchaser
under this Agreement.
When the Ownership Interest in respect of any Bank Purchaser is reduced to zero,
such Bank Purchaser shall not be entitled to receive any additional Collections
from the Receivables.
(d) Subject to the provisions of Section 8.2(d), upon any Bank
Purchaser's purchase of an Ownership Interest, (i) the Collection Agent shall be
entitled to endorse all drafts, checks and other forms of payment on account of
the Receivables and to settle, adjust and forgive any amounts payable on the
Receivables and (ii) the Bank Purchasers (and the Administrative Agent on their
behalf) shall be entitled to exercise all other incidences of ownership in the
Receivables.
SECTION 3.2. Frequency of Determining Ownership Interest. The
Collection Agent shall determine or be deemed to determine each Ownership
Interest daily and report it to the Administrative Agent at the following times:
(a) on the date of the Initial Purchase;
(b) on the last Business Day of each week;
-31-
<PAGE> 39
(c) on each Settlement Date;
(d) on the date of an Incremental Purchase;
(e) on the Business Day immediately preceding any Reinvestment
Suspension Period;
(f) on the last Business Day of any Reinvestment
Suspension Period;
(g) when the Administrative Agent has reason to believe that
the Maximum Ownership Interest has been exceeded; and
(h) at the reasonable request of any Bank Purchaser.
SECTION 3.3. Maximum Ownership Interest and Investment. (a) If
at any time the Aggregate Ownership Interest exceeds the Maximum Ownership
Interest, the Seller shall immediately make a payment to the Collection Agent in
an aggregate amount sufficient to reduce the Aggregate Ownership Interest to the
Maximum Ownership Interest, such payment to be applied ratably (determined on
the basis of the respective investments outstanding on the date of such payment)
to the Investment hereunder and the "Investment" under the Parallel Sale
Agreement. The calculation of such payment at any time shall take into account
the corresponding reduction in the Reserve hereunder and the reduction in the
"Reserve" under the Parallel Sale Agreement that shall occur at the time of the
reduction in Investment hereunder and under the Parallel Sale Agreement.
(b) If at any time (i) the Investment of any Bank Purchaser
exceeds the Commitment then in effect with respect to such Bank Purchaser or
(ii) the aggregate Investment hereunder exceeds the aggregate Commitments then
in effect hereunder, the Seller shall immediately make a payment to the
Administrative Agent in an amount sufficient to reduce the aggregate Investment
or Bank Purchaser's Investment, as applicable, to the extent necessary to cause
such condition to cease to exist. Any such payment to the Administrative Agent
will be used to reduce the Investment of the Bank Purchasers, ratably in
accordance with their respective Commitments (in the case of a reduction by
-32-
<PAGE> 40
reason of the circumstances described in clause (ii) above), or such Bank
Purchaser (in the case of a reduction by reason of the circumstances described
in clause (i) above).
SECTION 3.4. Reduction of Commitments. The Seller may at any
time elect to terminate in whole or reduce in part the unused portion of the
Commitments by giving the Administrative Agent not less than three Business
Days' written notice; provided, however, that each partial reduction shall be in
an amount equal to $5,000,000 or an integral multiple of $1,000,000 in excess
thereof; and provided further that any partial reduction shall be applied
ratably to the Commitments of all of the Bank Purchasers in accordance with
their respective Pro Rata Shares at such time.
SECTION 3.5. Extension of the Stated Termination Date. On or
prior to the date (an "Extension Request Date") occurring sixty days prior to
the Stated Termination Date then in effect, the Seller may, by written notice
thereof to the Administrative Agent, request that the Bank Purchasers agree to
extend the Stated Termination Date. Each Bank Purchaser, in its sole discretion,
shall determine for itself whether to extend the Stated Termination Date in
respect of its Commitment and shall advise the Administrative Agent of its
determination. In the event that all of the Bank Purchasers shall elect to
extend the Stated Termination Date, the Administrative Agent shall so advise the
Seller by not later than the Stated Termination Date otherwise then in effect.
In the event the Administrative Agent shall fail to advise the Seller (or any
Bank Purchaser shall fail to notify the Administrative Agent) in response to any
extension request, such extension request shall be deemed to have been denied.
Upon issuance by the Administrative Agent of notice to the Seller of the consent
on the part of all of the Bank Purchasers to any extension request, the "Stated
Termination Date" shall thereupon become the date which is 364 days following
the date of such notice from the Administrative Agent.
ARTICLE IV: PURCHASE PRICE
The purchase price payable by each Bank Purchaser for its
Ownership Interest in the Receivables and any Collections
-33-
<PAGE> 41
shall be comprised of a cash component and a deferred payment component.
SECTION 4.1. Determination of Cash Component of Purchase
Price. Upon satisfaction of the conditions precedent to the making of a Purchase
hereunder, each Bank Purchaser shall accept an offer from the Seller to make a
Purchase, and in connection therewith such Bank Purchaser will pay the following
amounts in cash to the Seller:
(a) for Initial and Incremental Purchases, its Pro Rata Share
of the amount specified in the notice required to be delivered by the Seller
under Section 6.2(a); or
(b) for a Reinvestment Purchase, the amount obtained by
multiplying (i) the dollar amount of the Collections received on the date of
such Purchase by (ii) the Ownership Interest of such Bank Purchaser on that
date, and subtracting from such amount any amounts required to be set aside in
accordance with Section 7.2.1(a)(ii) or then payable to the Administrative Agent
for the account of such Bank Purchaser under Section 7.2.2(b);
provided that the payment of any amount described in (a) or (b) above would not
cause (and such amount shall be reduced so as not to cause) any of the following
to occur:
(1) the Investment of such Bank Purchaser to exceed the
Commitment of such Bank Purchaser; or
(2) the aggregate Investment of all Bank Purchasers to exceed
the aggregate Commitments hereunder; or
(3) the Aggregate Ownership Interest to exceed the Maximum
Ownership Interest.
SECTION 4.2. Satisfaction of Deferred Payment Component of
Purchase Price. Upon and after the reduction of the Ownership Interest of any
Bank Purchaser to zero as described in Section 3.1(c), all Collections or other
cash received by such Bank Purchaser on account of Receivables and the interest
of such Bank Purchaser therein and all Receivables held by or on behalf of such
Bank Purchaser will be transmitted in the form received
-34-
<PAGE> 42
by such Bank Purchaser to the Seller. After the reduction of the Ownership
Interest of any Bank Purchaser to zero as described in Section 3.1(c), such Bank
Purchaser will reassign to the Seller the Ownership Interest of such Bank
Purchaser in the Receivables, without recourse, representation or warranty
(except as to such Bank Purchaser's own title thereto), by an assignment
acceptable to the Seller and such Bank Purchaser. Upon such reassignment to the
Seller, the deferred payment component of the purchase price in respect of such
Bank Purchaser's Ownership Interest under this Article IV shall be deemed to be
satisfied.
SECTION 4.3. Several Obligations. (a) Unless the
Administrative Agent shall have received notice from a Bank Purchaser prior to
the date of the Initial Purchase or any Incremental Purchase that such Bank
Purchaser will not make available to the Administrative Agent such Bank
Purchaser's Pro Rata Share of the aggregate Purchase Price for such Purchase,
the Administrative Agent may assume that such Bank Purchaser has made such
portion available to the Administrative Agent on the date of such Purchase in
accordance with Section 4.1(a) and the Administrative Agent may, in reliance
upon such assumption, make available to the Seller on such date a corresponding
amount. If and to the extent that such Bank Purchaser shall not have so made
such Pro Rata Share available to the Administrative Agent, such Bank Purchaser
and the Seller severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Seller until the date such
amount is repaid to the Administrative Agent, at (i) in the case of the Seller,
a rate equal to the sum of the Purchase Premium plus the Purchase Discount
applicable at the time to the Investment allocated to the making of such
Purchase by each of the complying Bank Purchasers and (ii) in the case of such
Bank Purchaser, the Federal Funds Rate. If such Bank Purchaser shall repay to
the Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank Purchaser's Purchase for purposes of this Agreement.
(b) The failure of any Bank Purchaser to make the payment of
its Pro Rata Share of any Purchase Price to be made by it as part of the Initial
Purchase or any Incremental Purchase shall not relieve any other Bank Purchaser
of its obligation, if
-35-
<PAGE> 43
any, hereunder to make its Purchase of an Ownership Interest on the date
thereof, but no Bank Purchaser shall be responsible for the failure of any other
Bank Purchaser to pay its Pro Rata Share of any Purchase Price on the date of
any Purchase.
(c) If any Bank Purchaser shall obtain any payment or
reduction (including, without limitation, any amounts received as adequate
protection of a deposit treated as cash collateral under the Bankruptcy Code) of
its Investment or of any obligation of the Seller or the Collection Agent
hereunder (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its Pro Rata Share of payments or reductions
on account of the aggregate Investment or on account of such obligations
obtained by all the Bank Purchasers, such Bank Purchaser shall forthwith (i)
notify each of the other Bank Purchasers and the Administrative Agent of such
receipt, and (ii) purchase from the other Bank Purchasers such participations in
the affected Investment or obligations as shall be necessary to cause such
purchasing Bank Purchaser to share the excess payment or reduction, net of costs
incurred in connection therewith, ratably with each of them, provided that if
all or any portion of such excess payment or reduction is thereafter recovered
from such purchasing Bank Purchaser or additional costs are incurred, the
purchase shall be rescinded and the purchase price restored to the extent of
such recovery or such additional costs, but without interest unless the Bank
Purchaser obligated to return such funds is required to pay interest on such
funds. The Seller agrees that any Bank Purchaser so purchasing a participation
from another Bank Purchaser may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Bank Purchaser were the initial holder
of the underlying Investment or obligation.
ARTICLE V: FEES AND EXPENSES
SECTION 5.1. [Intentionally left blank].
SECTION 5.2. Settlement Date Payments. On each Settlement
Date, the Seller will pay to the Administrative Agent,
-36-
<PAGE> 44
for the account of the Bank Purchasers, the following, in accordance with, and
in the manner provided in, Section 7.2.2:
SECTION 5.2.1. Purchase Discount. A "Purchase Discount" equal
to, in the case of the aggregate Investment allocated to any Tranche Period, a
rate per annum equal to the Discount Rate selected for such Tranche Period in
accordance with Section 6.3; provided, that no provision of this Agreement shall
require the payment or permit the collection of Purchase Discount in excess of
the maximum permitted by applicable law; provided, further, that if on any
Settlement Date during any period in which the Investment of any Bank Purchaser
is being reduced, the sum of (A) the aggregate amount of Receivables that cease
to be Eligible Receivables during such period and (B) all amounts pursuant to
clauses (2) and (3) of Section 3.1(c) which accrued and were unpaid during such
period, is equal to or greater than 75% of the aggregate Reserve as of the last
Business Day on which such Bank Purchaser's Investment was not being reduced,
then the Purchase Discount shall equal 1.5% per annum in excess of the Base
Rate. Changes in the rate payable hereunder shall be effective on each day on
which a change in the applicable Discount Rate occurs.
SECTION 5.2.2. Purchase Premium. A "Purchase Premium" equal
to, in the case of the aggregate Investment allocated to any Tranche Period,
(i) if the Discount Rate selected therefor shall be the Adjusted LIBOR Rate or
the Fixed CD Rate, the Applicable Margin, and (ii) if the Discount Rate
selected therefor shall be the Base Rate, zero.
SECTION 5.2.3. Commitment Fee. If such Settlement Date is a
Monthly Settlement Date, a "Commitment Fee" for the period from the immediately
preceding Settlement Date (or, in the case of the initial payment of such fee,
from the date hereof) to such Monthly Settlement Date equal to, in respect of
each Bank Purchaser, (i) a rate per annum equal 0.125%, multiplied by (ii) an
amount equal to (A) the average daily Commitment of such Bank Purchaser during
such period minus (B) the average daily outstanding Investment of such Bank
Purchaser during such period. The Commitment Fee shall be calculated on the
basis of a year of 360 days for actual days elapsed, and shall be payable by
the Seller from sources other than Collections allocable to the Bank Purchasers.
-37-
<PAGE> 45
SECTION 5.2.4. Collection Agent Fee. A Collection Agent Fee
equal to 1.0% per annum, which fee shall be remitted by the Administrative Agent
(for the account of the Bank Purchasers) to the Collection Agent in arrears on
each Settlement Date. If Interface or the Seller is acting as the Collection
Agent, the Collection Agent shall retain an amount equal to the Collection Agent
Fee (in full satisfaction of the payment of such fee to the Collection Agent)
out of amounts required to be remitted by the Collection Agent in accordance
with Section 7.2.2(b).
SECTION 5.3. Legal Fees and Other Expenses. In addition to all
other amounts payable by the Seller under this Agreement, the Seller agrees to
pay, by no later than 30 days after presentation of a bill, (i) the actual and
reasonable fees and expenses of counsel for the Administrative Agent in
connection with the negotiation, preparation, execution, amendment and
enforcement of the Sale Documents and advice with respect to the rights and
remedies of the Administrative Agent and the Bank Purchasers thereunder, (ii)
all other actual and reasonable out-of-pocket costs and expenses incurred by the
Administrative Agent in connection with the administration of the Sale Documents
(including periodic auditing of the Transaction Parties in connection with the
transactions contemplated in the Sale Documents), and (iii) from and after the
occurrence of an Event of Termination, the actual and reasonable fees and
expenses of counsel for each Bank Purchaser in connection with the enforcement
of the Sale Documents and advice with respect to the rights and remedies of such
Bank Purchaser thereunder.
SECTION 5.4. Interest on Unpaid Amounts. To the extent that
the Seller or Collection Agent fails to pay when due (without regard to any
grace period therefor permitted under Section 12.1) to the Administrative Agent
or any Bank Purchaser any fee, expense or other amount payable hereunder or
under any Sale Document, interest shall be due and payable on such unpaid
amount, for each day until paid in full, at the rate of one and one-half
percent (1.5%) in excess of the Base Rate. Changes in the rate payable hereunder
shall be effective oneach date on which a change in the Base Rate occurs.
-38-
<PAGE> 46
ARTICLE VI: PURCHASE PROCEDURES
SECTION 6.1. Types of Purchases. The three types of Purchases
which can be made under this Agreement are the Initial Purchase, an Incremental
Purchase and a Reinvestment Purchase. The aggregate amount of the Initial
Purchase and each Incremental Purchase made by the Bank Purchasers at the same
time shall be not less than $4,000,000 or an integral multiple of $100,000 in
excess thereof.
SECTION 6.2. Notice Requirements.
(a) In the case of the Initial Purchase or an Incremental
Purchase, the Seller will give the Administrative Agent three Business Days'
prior written notice of its offer to sell Ownership Interests in Receivables to
the Bank Purchasers. The notice will be in the form of Exhibit A, and will
include the amount of the aggregate new Investment requested and the Business
Day on which the Purchase will be made. The Administrative Agent shall, promptly
following its receipt of any such notice, notify the Bank Purchasers thereof.
(b) The Seller may elect to have Reinvestment Purchases cease
by notifying the Administrative Agent to such effect. Such notice shall be given
by no later than 1:00 P.M. (New York City time) on the third Business Day
preceding the date on which the Reinvestment Purchase was contemplated to be
made. The notice will be in the form of Exhibit B, and will specify (i) the date
on which Reinvestment Purchases shall cease and (ii) the amount to which the
Investment shall be reduced before Reinvestment Purchases will recommence. The
Administrative Agent shall, promptly following its receipt of any such notice,
notify the Bank Purchasers thereof.
(c) Upon notice to the Administrative Agent in the form of
Exhibit C (by no later than 1:00 P.M. (New York City time) on the third Business
Day preceding a Settlement Date), the Seller may, on such Settlement Date,
reduce the dollar amount of the aggregate Investment hereunder in addition to
the reduction which would take place by the application of Collections in the
amount determined in accordance with the provisions of Section 6.2(b) above by
paying to the Administrative Agent, for the
-39-
<PAGE> 47
ratable distribution thereof to the Bank Purchasers, by 3:00 P.M. (New York City
time) on the Settlement Date, the dollar amount by which the aggregate
Investment is to be reduced, after giving effect to the application of
Collections received and applied to the reduction of the aggregate Investment on
such Settlement Date.
SECTION 6.3. Selection of Tranche Periods and Discount Rates.
(a) The Investment with respect to each Ownership Interest shall at all times be
allocated to one or more Tranche Periods, each of which Tranche Periods shall
have an associated Discount Rate. In any notice issued under Section 6.2(a) and
requesting the Initial Purchase or any Incremental Purchase, the Seller shall
specify the initial Tranche Period or Periods for the Investment then being
requested and a Discount Rate for each such Tranche Period. Thereafter, the
Seller shall by 11:00 a.m. (New York City time):
(i) at least three Business Days prior to the
expiration of any then existing Tranche Period, in the event that the
Adjusted LIBO Rate is being requested as the Discount Rate for the next
following Tranche Period,
(ii) at least two Business Days prior to the
expiration of any then existing Tranche Period, in the event that the
Fixed CD Rate is being requested as the Discount Rate for the next
following Tranche Period and
(iii) at least one Business Day prior to the
expiration of any then existing Tranche Period, in the event that the
Base Rate is being requested as the Discount Rate for the next
following Tranche Period,
give the Administrative Agent irrevocable notice of the duration of the Tranche
Period that shall commence on the expiration of the then applicable existing
Tranche Period and the Discount Rate for the Investment allocated to such
Tranche Period. In the event that the Seller shall for any reason fail to
provide notice to the Administrative Agent prior to 11:00 a.m. (New York City
time) one Business Day prior to the expiration of any then existing Tranche
Period, the Tranche Period commencing upon such
-40-
<PAGE> 48
expiration shall have a duration of 3 Business Days and the Discount Rate with
respect thereto shall be the Base Rate.
(b) Each Tranche Period shall have allocated to it Investment
from each Bank Purchaser in an amount corresponding to the respective Pro Rata
Share of such Bank Purchaser. In the case of any Tranche Period in respect of
which the Adjusted LIBO Rate or the Fixed CD Rate shall apply, the aggregate
Investment of all Bank Purchasers allocated thereto shall be an amount not less
than $4,000,000 or an integral multiple of $100,000 in excess thereof.
(c) So long as any Event of Termination (or other event which,
with the giving of notice or passage of time or both, would constitute an Event
of Termination) shall have occurred and be continuing, the Seller may only
select the Base Rate as the Discount Rate for all new Tranche Periods.
(d) In the event that the Administrative Agent shall have
determined (which determination shall be made in good faith and, absent manifest
error, shall be final, conclusive and binding upon all parties) that, on any
date for determining the Adjusted LIBO Rate or the Fixed CD Rate for any Tranche
Period, by reason of any changes arising after the date of this Agreement
affecting the London interbank market or the United States secondary certificate
of deposit market, as the case may be, or the Administrative Agent's position in
such markets, adequate and fair means do not exist for ascertaining such rate on
the basis provided for in the definition of Adjusted LIBO Rate or Fixed CD Rate,
as the case may be, then, and in any such event, the Administrative Agent shall
forthwith give notice (by telephone confirmed in writing) to the Seller and the
Bank Purchasers of such determination and a summary of the basis for such deter
mination. Until the Administrative Agent notifies the Seller that the
circumstances giving rise to the suspension described herein no longer exist,
the right of the Seller hereunder to select or continue to use the Adjusted LIBO
Rate or the Fixed CD Rate (as the case may be) as the Discount Rate for current
or future Tranche Periods shall be suspended and the Base Rate instead shall be
used as the Discount Rate for such current or future Tranche Periods.
-41-
<PAGE> 49
(e) If any Bank Purchaser shall advise the Administrative
Agent that at any time, because of any circumstances described in clause (x) or
(y) of Section 11.3(a) or any other circumstances beyond such Bank Purchaser's
reasonable control arising after the date of this Agreement and affecting such
Bank Purchaser or the London interbank market or the United States secondary
certificate of deposit market or such Bank Purchaser's position in such markets,
the Adjusted LIBO Rate or Fixed CD Rate (as the case may be) as determined by
the Administrative Agent will not adequately and fairly reflect the cost to such
Lender of funding its portion of the aggregate Investment allocated to any
Tranche Period at the Adjusted LIBO Rate or the Fixed CD Rate (as the case may
be), then, and in any such event: (i) the Administrative Agent shall forthwith
give notice (by telephone confirmed in writing) to the Seller and the other Bank
Purchasers of such advice; and (ii) the Seller's right to allocate any portion
of such Bank Purchaser's Investment to any Tranche Period at the Adjusted LIBO
Rate or the Fixed CD Rate (as the case may be) shall be immediately suspended
and such Bank Purchaser's Investment thereafter shall be allocated to an
unaffected type of Discount Rate, and if any affected Tranche Period is then
outstanding, the Seller shall immediately allocate the affected portion of such
Bank Purchaser's Investment to a replacement Tranche Period which has an
unaffected type of Discount Rate and which ends on the date on which the
affected Tranche Period would have expired; provided that if more than one Bank
Purchaser is so affected any time, then all affected Bank Purchasers must be
treated the same pursuant to this paragraph.
(f) In the event that any Bank Purchaser shall have determined
(which determination shall be made in good faith and, absent manifest error,
shall be final, conclusive and binding upon all parties) at any time that the
funding of its Pro Rata Share of the aggregate Investment allocated to any
Tranche Period at the Adjusted LIBO Rate has become unlawful or inconsistent
with the compliance by such Bank Purchaser in good faith with any applicable
law, government rule, regulation, guideline or order (whether or not having the
force of law and whether or not failure to comply therewith would be unlawful),
then, in any such event, such Bank Purchaser shall give prompt notice (by
telephone confirmed in writing) to the Seller and to the Administrative Agent of
such determination and a summary of the basis for such
-42-
<PAGE> 50
determination (which notice the Administrative Agent shall promptly transmit to
the other Bank Purchasers). Upon the giving of the notice to the Seller referred
to in this paragraph, the Seller's right to allocate any portion of such Bank
Purchaser's Investment to any Tranche Period at the Adjusted LIBO Rate shall be
immediately suspended and such Bank Purchaser's Investment thereafter shall be
allocated to Tranche Periods which have the Fixed CD Rate or the Base Rate as
their Discount Rates, and if any affected Tranche Period is then outstanding,
the Seller shall immediately allocate the affected portion of such Bank
Purchaser's Investment to a replacement Tranche Period which has either the
Fixed CD Rate or the Base Rate as its Discount Rate and which ends on the date
on which the affected Tranche Period would have expired; provided that if more
than one Bank Purchaser is so affected at any time, then all affected Bank
Purchasers must be treated the same pursuant to this paragraph.
SECTION 6.4. Conditions Precedent to Initial Purchase.
The following conditions must be satisfied before the Bank
Purchasers shall make the Initial Purchase:
(a) Conditions Precedent to Amendment of Parallel
Sale Agreement. Each of the conditions precedent to the effectiveness
of that certain Amendment to the Parallel Sale Agreement dated as of
the date hereof among the Seller, Interface, SPARC and CIBC, as
"servicing agent," will have been satisfied.
(b) Termination of Earlier Sale Agreement. The
Administrative Agent shall have received evidence satisfactory to it
that the commitments and obligations of the Seller, the "Agents" and
"Bank Purchasers" under the Earlier Sale Agreement shall have been (or,
immediately following the making of the Initial Purchase hereunder,
shall be) terminated and that all liens, security interests, ownership
interests, claims and encumbrances arising thereunder upon or with
respect to the Receivables, the Related Rights and the Collections
shall have been (or, immediately following the making of the Initial
Purchase hereunder, shall be) released.
-43-
<PAGE> 51
(c) Absence of Liens. The Administrative Agent will
have received evidence acceptable to it (including Uniform Commercial
Code search reports) that all Receivables and all proceeds thereof are
free and clear of liens, security interests, claims and encumbrances,
except for Permitted Liens.
(d) Financing Statements. The Administrative Agent
will have received acknowledgment copies of UCC-1 financing statements,
and all other documents reasonably requested by the Administrative
Agent, to perfect, evidence and protect (i) the Ownership Interest of
the Bank Purchasers in the Receivables, and (ii) the Seller's ownership
interest in the Receivables purchased by it from the Originators.
(e) Lock-Box Agreements. The Administrative Agent
will have received original Lock-Box Agreements in the form of Exhibit
E executed by the appropriate Transaction Parties and each of the
Lock-Box Banks.
(f) Receivables Activity Report and Calculation of
Ownership Interests. The Administrative Agent will have received (i) a
Receivables Activity Report covering (A) the fiscal month ending most
recently prior to the date on which this Agreement is executed and (B)
the period thereafter to the date that is two days prior to the date on
which the initial Purchase hereunder is proposed to occur, and (ii) a
report setting forth the calculation of each Bank Purchaser's Ownership
Interest upon giving effect to the Initial Purchase.
(g) Resolutions. The Administrative Agent will
have received:
(i) a certificate of the Seller's secretary
or assistant secretary attesting to: (A) resolutions of the
Seller's Board of Directors authorizing the execution by the
Seller of the Sale Documents to be executed by the Seller; (B)
the names and signatures of the officers of the Seller
authorized to execute the Sale Documents to be executed by the
Seller; and (C)
-44-
<PAGE> 52
the completeness and correctness of the attached articles or
certificate of incorporation (certified by the appropriate
Secretary of State) and by-laws of the Seller; and
(ii) a certificate of the secretary or
assistant secretary of each of Interface and each Originator
attesting to: (A) resolutions of such Transaction Party's
Board of Directors (or a duly authorized committee thereof)
authorizing the execution by such Transaction Party of the
Sale Documents to be executed by it; (B) the names and
signatures of the officers of such Transaction Party
authorized to execute the Sale Documents to be executed by it;
and (C) the completeness and correctness of the attached
articles or certificate of incorporation (certified by the
appropriate Secretary of State) and by-laws of such
Transaction Party.
(h) Legal Opinion of Seller's Counsel. The
Administrative Agent will have received opinions from counsel for the
Transaction Parties, substantially in the respective forms attached
hereto as Exhibit G, and covering such matters as (i) that the
transfers under each Transfer Agreement constitute "true sales", (ii)
that the Seller should not be substantively consolidated with Interface
or any other Transaction Party in any bankruptcy or insolvency
proceeding involving the Seller, Interface or such Transaction Party,
(iii) general corporate matters relating to the execution, delivery and
performance by the Transaction Parties of the Sale Documents and (iv)
the perfection of the Ownership Interest of each Bank Purchaser,
together with such other matters as the Administrative Agent or any
Bank Purchaser may reasonably request.
(i) Good Standing Certificates. With respect to each
of the following Persons, the Administrative Agent will have received a
certificate of recent date issued by the Secretary of State of the
State of such Person's jurisdiction of incorporation as to the legal
existence and good standing of such Person: Intek, Intek Marketing,
Prince Street, Guilford Marketing and Toltec.
-45-
<PAGE> 53
(j) Subordinated Note. The Administrative Agent will
have received a copy of the Subordinated Note, which note shall provide
for the subordination of the indebtedness evidenced thereby to the
obligations and liabilities of the Seller hereunder on such terms as
shall be satisfactory to the Bank Purchasers and the Administrative
Agent.
(k) Transfer Agreements. The Administrative Agent
shall have received (i) an executed Transfer Agreement between the
Seller and each Originator (other than Guilford Marketing and Intek
Marketing), respectively and (ii) a Consent and Acknowledgment executed
by the Seller and each Originator.
(l) Assumption Agreements. The Administrative Agent
shall have received an executed Assumption Agreement in the form
attached hereto as Exhibit J among (i) the Seller, Guilford and
Guilford Marketing and (ii) the Seller, Intek and Intek Marketing.
SECTION 6.5. Condition Precedent to all Incremental Purchases.
Before any Bank Purchaser will make an Incremental Purchase, the Administrative
Agent will have received a Receivables Activity Report covering the period from
the date on which the last such report was delivered under Section 7.4 to the
Business Day preceding the date of such Incremental Purchase.
SECTION 6.6. Conditions Precedent to All Purchases. The
following conditions must be satisfied before any Bank Purchaser will make any
Purchase:
(a) Representations and Covenants. On and as of the
date of such Purchase (i) the representations of the Seller, Interface
and the Collection Agent in Article IX shall be true and correct in all
material respects with the same effect as if made on such date, (ii)
the Seller, Interface and the Collection Agent shall be in compliance
with the covenants set forth in this Agreement, (iii) the
representations of each Originator set forth in the applicable Transfer
Agreement and the Consent and Acknowledgment shall be true and correct
in all material respects with the same effect as if made on such date
and
-46-
<PAGE> 54
(iv) each Originator shall be in compliance with the covenants set
forth in each of the Sale Documents executed by it. No Event of
Termination or event which, with the passage of time or the giving of
notice or both, would constitute an Event of Termination shall have
occurred and then be continuing.
(b) Other Documents. Each Transfer Agreement and
the related Consent and Acknowledgment shall be in full force and
effect in respect of all Persons then named as parties thereto
(including, as applicable, after giving effect to any Assumption
Agreement), and the Administrative Agent and the Bank Purchasers will
have received such additional opinions, certificates and agreements as
the Administrative Agent or any Bank Purchaser shall have reasonably
requested.
ARTICLE VII: SETTLEMENT PROCEDURES
SECTION 7.1. Settlement Dates. Each of the following shall
constitute a Settlement Date:
(a) each Monthly Settlement Date;
(b) during any Reinvestment Suspension Period, the first
Business Day of each week;
(c) following the occurrence of an Event of Termination, each
day designated as a Settlement Date by the Administrative Agent;
(d) each Business Day on which any Bank Purchaser's Investment
is reduced in accordance with Section 6.2(c);
(e) any date on which a reduction in the aggregate Investment
of the Bank Purchasers is required to prevent the Aggregate Ownership Interest
from exceeding the Maximum Ownership
Interest;
-47-
<PAGE> 55
(f) each date on which any payment due to any Bank Purchaser
or Agent from the Seller under Article XI has not been made; and
(g) the last day of each Tranche Period.
SECTION 7.2. Application of Collections. The Collection Agent
will apply the Collections as provided in Sections 7.2.1 and 7.2.2, as
applicable.
SECTION 7.2.1. Application of Collections on Days That Are Not
Settlement Dates.
(a) The Collection Agent will, on any Business Day (other than
a Settlement Date), from Collections received on such day:
(i) first, remit to the Seller or its designee (for
the account of the Seller and any interests that
may then exist under the Parallel Sale Agreement)
an aggregate amount equal to the product of (1) 100%
minus the Bank Group Ownership Interest and (2) total
Collections; and
(ii) second, pay to the Seller for a Reinvestment Purchase
an amount equal to the product of (1) the Bank Group
Ownership Interest and (2) an amount equal to (A)
total Collections less (B) the aggregate amount,
calculated in reference to each Tranche Period,
respectively, necessary to cause the total amount
then set aside in accordance with this paragraph (ii)
in respect of each Tranche Period to be equal to the
Accrued Finance Charges in respect of such Tranche
Period for the period from the beginning of such
Tranche Period through the date of such
determination. That portion of the Collections
described in subparagraph (ii)(B) in respect of
Accrued Finance Charges for each Tranche Period shall
be set aside and held in trust by the Collection
Agent for the benefit of the Bank Purchasers until,
in the case of each Tranche
-48-
<PAGE> 56
Period, the last day of such Tranche Period and
disbursement in accordance with Section 7.2.2(b)
below.
(b) Notwithstanding paragraph (ii) of subsection (a) above, if
Reinvestment Purchases have ceased in accordance with Section 6.2(b), the
Collection Agent will set aside and hold in trust for the benefit of the Bank
Purchasers prior to application as provided in Section 7.2.2 the amount which
would otherwise have been paid to the Seller pursuant to paragraph (ii) of
subsection (a) above.
SECTION 7.2.2. Application of Collections on Settlement Dates.
The Collection Agent will, by 11:00 A.M. (New York City time) on each Settlement
Date:
(a) first, remit to the Seller or its designee (for the
account of the Seller and any interests that may then
exist under the Parallel Sale Agreement) an amount
equal to the product of (i) 100% minus the Bank Group
Ownership Interest and (ii) total Collections; and
(b) second, from the amounts set aside in accordance with
Section 7.2.1(a)(ii) or 7.2.1(b) above with respect
to any such Tranche Period (as supplemented, to the
extent necessary, by amounts available from the Bank
Group Ownership Interest in the Collections), pay to
the Administrative Agent, for the account of each
Bank Purchaser in respect of each Tranche Period then
ending, an amount equal to the Accrued Finance
Charges for such Tranche Period; and
(c) third, from the remaining Bank Group Ownership
Interest in the Collections,
(i) set aside and hold in trust, for the benefit
of each Bank Purchaser in respect of each
Tranche Period that is not then ending, an
amount necessary to cause the total amount
then set aside for such Tranche Period in
accordance with Section 7.2.1(a)(ii) to be
-49-
<PAGE> 57
equal to the Accrued Finance Charges in
respect of such Tranche Period for the
period from the beginning of such Tranche
Period through such Settlement Date, and
(ii) then,
(A) if a Reinvestment Suspension Period
shall then be in effect, all
remaining Collections will be paid
to the Bank Purchasers as a return
of Investment; or
(B) if a Reinvestment Suspension Period
shall not then be in effect, all
remaining Collections shall be paid
to the Seller for Reinvestment
Purchases.
SECTION 7.3. Adjustments due to Dilution, Etc. If on any day,
with respect to any Receivable in which any Bank Purchaser has an Ownership
Interest, (i) the representation and warranty contained in Section 9.1(f) is no
longer true, (ii) the outstanding balance thereof is reduced, adjusted or
cancelled as a result of defective, rejected or returned merchandise or services
or in connection with a claim, dispute or offset asserted against such
Receivable by an Obligor, (iii) the Seller, the Collection Agent or any
Originator shall otherwise amend, modify or waive any term or condition of such
Receivable or (iv) the Seller, the Collection Agent or any Originator shall
otherwise suffer any Dilution to occur, then in each such case (x) the Seller
shall be deemed to have received on such day a Collection of the outstanding
balance (before giving effect to the related dilution event) of such Receivable
and (y) the Ownership Interest of each Bank Purchaser shall thereupon be
automatically adjusted by decreasing "ER" in the denominator of the fraction
described in Section 3.1(a) by the amount of such deemed Collection.
SECTION 7.4. Receivables Activity Report. The Collection Agent
will provide the Administrative Agent (in sufficient copies for distribution to
each Bank Purchaser) with a Receivables Activity Report covering the most
recently completed Tranche Period no later than 15 days following each Monthly
-50-
<PAGE> 58
Settlement Date; provided that, the Administrative Agent may at any time
request, and the Collection Agent shall thereafter provide, a Receivables
Activity Report (i) on a weekly basis during any Reinvestment Suspension Period,
and (ii) promptly following each Settlement Date if an Event of Termination
shall have occurred and then be continuing.
SECTION 7.5. Payments Generally. Notwithstanding anything
herein to the contrary, no reduction in Investment shall be considered effected,
and no amount of Purchase Discount, Purchase Premium, Collection Agent Fee or
other amount due hereunder shall be considered paid by any distribution to the
extent that at any time all or a portion of such distribution is rescinded or
must otherwise be returned for any reason.
ARTICLE VIII: ADMINISTRATIVE AGENT AND COLLECTION AGENT
SECTION 8.1. Appointment of Administrative Agent. (a) Each
Bank Purchaser hereby appoints and authorizes CIBC as its Administrative Agent
to take such action as agent on behalf of such Bank Purchaser and to exercise
such powers under this Agreement and any of the other Sale Documents as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with such powers as are reasonably incidental thereto. The Administrative Agent
is responsible for fulfilling all duties expressly assigned to it in this
Agreement or any of the other Sale Documents and shall serve as nominee "secured
party", for the benefit of each of the Bank Purchasers and the Administrative
Agent hereunder, on all Uniform Commercial Code and similar filings and related
collateral documentation. Each Bank Purchaser has granted to the Administrative
Agent the authority to take all actions necessary to assure the Seller's
compliance with the terms of this Agreement and to take all actions required or
permitted to be performed by such Bank Purchaser under this Agreement. The
Administrative Agent may, prior to taking any action hereunder or exercising any
discretion hereunder, request instructions from the Majority Bank Purchasers
(or, if applicable, all Bank Purchasers) with respect thereto and shall be
entitled to refrain from taking such action or exercising such discretion until
it shall have received instructions from such Bank Purchasers, and the
Administrative Agent shall not incur any
-51-
<PAGE> 59
liability to any Person by reason of so refraining. As to any matters not
expressly provided for by this Agreement, the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be fully
protected in so acting or refraining from acting upon the instructions of the
Majority Bank Purchasers and such instructions shall be binding upon all Bank
Purchasers. Without limiting the generality of the foregoing, no Person shall
have any right of action whatsoever against the Administrative Agent as a result
of the Administrative Agent acting or refraining from acting hereunder in
accordance with the instructions of the Majority Bank Purchasers (or, where the
context expressly requires, all Bank Purchasers). The Administrative Agent shall
not be required to take any action hereunder or in connection herewith which
exposes the Administrative Agent to personal liability or which is contrary to
this Agreement or applicable law. The Administrative Agent agrees to give to
each Bank Purchaser prompt notice of each notice given to it by the Seller, the
Collection Agent or Interface pursuant to the terms of this Agreement.
(b) Neither the Administrative Agent, nor any of its
directors, officers, agents or employees, shall be liable for any action taken
or omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, (i) the Administrative Agent may
treat the payee in respect of any Ownership Interest as the holder thereof until
it receives advice satisfactory to it that such Ownership Interest has been
assigned to another payee; (ii) the Administrative Agent may consult with legal
counsel (including counsel for the Seller or Interface), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (iii) the Administrative Agent
does not make any warranty or representation to any Bank Purchaser, nor shall it
be responsible to any Bank Purchaser for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement; (iv) the Administrative Agent shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or any other Sale Document on the
-52-
<PAGE> 60
part of the Seller or the Collection Agent or to inspect the property (including
the books and records) of the Seller; (v) the Administrative Agent shall not be
responsible to any Bank Purchaser for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Sale Document or any other instrument or document furnished pursuant hereto or
in connection herewith; and (vi) the Administrative Agent shall not incur any
liability under or in respect of this Agreement or any other Sale Document by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopier, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
(c) With respect to its Commitment, the Investment made by it
and the Ownership Interest held by it, the Bank Purchaser that is acting as
Administrative Agent hereunder shall have the same rights and powers under this
Agreement as any other Bank Purchaser and may exercise the same as though it
were not the Administrative Agent; and the term "Bank Purchaser" and "Bank
Purchasers" shall, unless otherwise expressly indicated, include the Person that
is acting as Administrative Agent in its individual capacity. The Bank Purchaser
that is then acting as the Administrative Agent hereunder, and its affiliates,
may accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with, the Seller, Interface or any of
their subsidiaries, all as if such Person were not the Administrative Agent and
without any duty to account therefor to the Bank Purchasers.
(d) Each Bank Purchaser acknowledges that it has,
independently and without reliance upon either the Administrative Agent or any
other Bank Purchaser and based on such documents and information as it has
deemed appropriate, made its own purchase analysis and decision to enter into
this Agreement. Each Bank Purchaser also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other
Bank Purchaser and based on such documents and information as it shall deem
appropriate at the time, continue to make its own decisions in taking or not
taking action under this Agreement.
-53-
<PAGE> 61
(e) The Bank Purchasers agree to indemnify the Administrative
Agent (to the extent not reimbursed by the Seller) according to the Bank
Purchasers' respective Pro Rata Shares from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or any other Sale Document or any
action taken or omitted by the Administrative Agent under this Agreement,
provided that no Bank Purchaser shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each Bank
Purchaser agrees to reimburse the Administrative Agent promptly upon demand for
its Pro Rata Share of any out-of-pocket expenses (including counsel fees)
incurred by the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, to the
extent that the Administrative Agent is not reimbursed for such expenses by the
Seller.
(f) The Administrative Agent may resign at any time by giving
written notice thereof to the Bank Purchasers and the Seller and may be removed
at any time with or without cause by the Majority Bank Purchasers. Upon any such
resignation or removal, the Majority Bank Purchasers shall have the right to
appoint a successor for the Administrative Agent. If no successor Administrative
Agent shall have been so appointed by the Majority Bank Purchasers, and shall
have accepted such appointment, within 30 days after the retiring Administrative
Agent's giving of notice of resignation or the Majority Bank Purchasers' removal
of the retiring Administrative Agent, then the retiring Administrative Agent
may, on behalf of the Bank Purchasers, appoint a successor Administrative Agent,
which shall be a commercial bank organized under the laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least $50,000,000. Upon the acceptance of any appointment as the
Administrative Agent hereunder by a
-54-
<PAGE> 62
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 8.1 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was the
Administrative Agent under this Agreement.
SECTION 8.2. Appointment of Collection Agent.
(a) The Bank Purchasers severally and collectively appoint
Interface as their Collection Agent and the Collection Agent accepts such
appointment. The Collection Agent shall be responsible for collecting the
Receivables, tracking, holding and remitting the Collections and fulfilling all
other duties expressly assigned to it in this Agreement. The Collection Agent
shall hold all documents, instruments and records relating to the Receivables
for the benefit of the Bank Purchasers and the Administrative Agent, to the
extent of their respective interests therein. Interface may delegate its duties
under this Agreement as Collection Agent in respect of any Receivables to the
Originator of such Receivables and, to the extent such delegation occurs,
references to the Collection Agent shall be deemed to include references to such
Originator. The delegation by Interface of its duties as Collection Agent shall
not relieve Interface of any of its obligations as Collection Agent hereunder.
(b) The Collection Agent shall, on each day on which
Collections are received by it, set aside and hold in trust for the Bank
Purchasers, segregated from other funds of the Collection Agent, the Bank
Purchasers' share of such Collections.
(c) The Bank Purchasers severally and collectively grant the
Collection Agent the authority necessary to carry out its duties under this
Agreement for so long as it is acting as Collection Agent.
-55-
<PAGE> 63
(d) The Bank Purchasers severally and collectively grant, to
the extent each Bank Purchaser has authority to make such grant, to the
Collection Agent, for so long as it is acting in that capacity, an irrevocable
power of attorney to endorse all drafts, checks and other forms of payment made
out in any Transaction Party's name and to settle, adjust and forgive any
Receivable, subject to the provisions of Section 10.3(b) hereof. Upon any
replacement of the Collection Agent, such power of attorney in favor of the
replaced Collection Agent will terminate and have no further force or effect.
(e) The Collection Agent shall exercise reasonable care in the
performance of its duties under this Agreement and shall use the same degree of
care and skill which it applies to its own property. If and to the extent that
any Originator is performing functions of the Collection Agent, Interface agrees
to cause such Originator to exercise substantially the same degree of care and
skill which Interface is required to apply hereunder.
SECTION 8.2.1. Replacement of Collection Agent; Notification
of Obligors.
(a) At any time following the occurrence of an Event of
Termination, the Administrative Agent, if directed to do so by the Majority Bank
Purchasers, may remove Interface (or any successor thereto in such capacity) as
the Collection Agent (whereupon all authority delegated by Interface (or such
successor) to any Originator or any other Person in respect of the
responsibilities of the Collection Agent shall immediately terminate), appoint a
new Collection Agent, take control of the Lock-Boxes (by delivering to the
Lock-Box Banks notice in substantially the form of Exhibit D), notify Obligors
of the Bank Group Ownership Interest in the Receivables and exercise all other
incidences of ownership in the Receivables.
(b) If Interface is removed as Collection Agent, Interface and
the Seller shall (i) transfer to the Administrative Agent or any successor
servicer designated by the Administrative Agent all records, correspondence and
documents relating to the collection, administration or monitoring of the
Receivables that may from time to time be requested by the Administrative Agent
or such successor and (ii) permit such Persons to have access to,
-56-
<PAGE> 64
and to copy, all software used by Interface or the Seller in the collection,
administration or monitoring of the Receivables. Interface and the Seller each
hereby grant to the Bank Purchasers and the Administrative Agent, for use by any
Collection Agent that may be designated hereunder following the removal of
Interface as Collection Agent, a non-exclusive license to use all computer
software now or hereafter being utilized by it in connection with the
collection, administration or monitoring of the Receivables; provided that use
by any such successor Collection Agent of such computer software shall be
limited to that reasonably necessary to collect, administer or monitor the
Receivables. Such license shall expire upon the later to occur of the reduction
to zero of the Bank Group Ownership Interest and the termination of this
Agreement. In the case of software that is licensed by, or otherwise made
available to, Interface or the Seller from or by any third party, Interface or
the Seller, as applicable, shall have obtained such consents and otherwise taken
all actions necessary in order to enable any Collection Agent hereunder to
succeed to all rights of Interface and the Seller to the quiet use and enjoyment
of such software for the purpose of discharging its obligations under or in
connection with the Sale Documents.
ARTICLE IX: REPRESENTATIONS AND WARRANTIES
SECTION 9.1. Representations and Warranties of the Seller and
the Collection Agent. The Seller makes, and where applicable the Collection
Agent (with respect to itself) makes, the following representations and
warranties to the Bank Purchasers and the Administrative Agent on the date
hereof and on the date of each Purchase hereunder:
(a) Each of the Seller and the Collection Agent is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and is duly qualified in good
standing as a foreign corporation in each jurisdiction where the failure to be
so qualified could materially adversely affect its ability to perform its
obligations hereunder.
(b) The execution, delivery and performance by the Seller and
the Collection Agent of the Sale Documents, and the
-57-
<PAGE> 65
Seller's use of the proceeds of the Purchases, are within the Seller's and the
Collection Agent's respective corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) the Seller's or the Collection
Agent's respective charters or by-laws or (ii) law or any contractual
restriction binding on or affecting the Seller or the Collection Agent, and do
not result in or require the creation of any lien (other than pursuant hereto)
upon or with respect to any of its properties; and no transaction contemplated
hereby requires compliance with any bulk sales act or similar law.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for (i) the due execution, delivery and performance by the Seller or
the Collection Agent of the Sale Documents, (ii) the perfection, or the exercise
by the Bank Purchasers and the Administrative Agent, of their respective rights
and remedies under the Sale Documents, or (iii) the perfection, or the exercise
by the Seller, of the Seller's rights and remedies under any Transfer Agreement
or the related Consent and Acknowledgment, except in each case for the filing of
the financing statements referred to in Section 6.4.4.
(d) Each Sale Document is (or, when executed and delivered by
each Transaction Party that is named as party thereto, will be) the legal, valid
and binding obligation of each Transaction Party that is named as party thereto
(whether originally or upon and as a result of the effectiveness of any
Assumption Agreement), enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws or by general principles of equity.
(e) There is no pending or threatened action or proceeding
affecting the Seller or the Collection Agent or any of their respective
subsidiaries before any court, governmental agency or arbitrator which may
materially adversely affect (i) the financial condition or operations of the
Seller or (ii) the ability of the Seller or the Collection Agent to perform its
obligations under the Sale Documents, or which could affect the legality,
validity or enforceability of any Sale Document or of the Ownership Interest of
any Bank Purchaser.
-58-
<PAGE> 66
(f) The Seller is the legal and beneficial owner of the
Receivables free and clear of any lien, security interest, claim or encumbrance,
except Permitted Liens; upon each Purchase, each Bank Purchaser will acquire a
valid and perfected first priority ownership interest (or, if applicable as
contemplated in Section 13.7 or Section 13.8, a valid and perfected first
priority security interest) in the Receivables then existing or thereafter
arising and in the Related Rights and the Collections with respect thereto, free
and clear of any lien, security interest, claim or encumbrance, except Permitted
Liens.
(g) The information provided by the Seller to the Collection
Agent for use in each Receivables Activity Report prepared under Section 7.4 and
all information and Sale Documents furnished or to be furnished at any time by
the Seller or the Collection Agent to the Administrative Agent or any Bank
Purchaser in connection with this Agreement is or will be accurate in all
material respects as of its date, and no such document will contain any untrue
statement of a material fact or will omit to state a material fact.
(h) Each Receivables Activity Report prepared by the
Collection Agent under Section 7.4 will be accurate in all material respects as
of its date, and no such document will contain any untrue statement of a
material fact or will omit to state a material fact.
(i) The chief place of business and chief executive office of
each Transaction Party and the office where each Transaction Party keeps its
records concerning the Receivables are located at the respective addresses
specified on Schedule D hereto.
(j) A complete and accurate list of the names and addresses of
the Lock-Box Banks, together with the account numbers of the Lock-Boxes, is set
forth in Schedule C hereto (with such additions after the date hereof of other
Lock-Box Banks and/or with such other Lock-Boxes as have been notified to the
Administrative Agent and in respect of which, in each case, a Lock-Box Agreement
in the form of Exhibit E shall have been duly executed by each of the
appropriate Transaction Party and such Lock-Box Bank).
-59-
<PAGE> 67
(k) The balance sheets of the Collection Agent and its
subsidiaries as at December 31, 1994, and the related statements of income and
retained earnings of the Collection Agent and its subsidiaries for the fiscal
year then ended, copies of which have been furnished to the Administrative
Agent, fairly present the financial condition of the Collection Agent and its
subsidiaries as at such date and the results of the operations of the Collection
Agent and its subsidiaries for the period ended on such date, all in accordance
with generally accepted accounting principles consistently applied, and since
December 31, 1994, there has been no material adverse change in such condition
or operations. The Seller further represents that since December 31, 1994, there
has been no material adverse change in the collectibility of the Receivables
taken as a whole.
(l) The Seller is treating the conveyance of each Ownership
Interest in the Receivables, the Related Rights and the Collections under this
Agreement as a sale for purposes of generally accepted accounting principles.
(m) The Seller does not sponsor, maintain or contribute to any
Plan. Each Plan is in compliance with all of the applicable material provisions
of ERISA and each Plan intended to be qualified under Section 401(a) of the Code
is so qualified. No Plan has incurred an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the Code) whether
or not waived. Neither the Collection Agent nor any ERISA Affiliate (i) has
incurred or expects to incur any liability under Title IV of ERISA, with respect
to any Plan, which could give rise to a lien in favor of the PBGC, other than
liability for the payment of premiums, all of which have been timely paid when
due in accordance with Section 4007 of ERISA, (ii) has incurred or expects to
incur any withdrawal liability, within the meaning of Section 4201 of ERISA,
(iii) is subject to any lien under Section 412(n) of the Code or Sections 302(f)
or 4068 of ERISA or arising out of any action brought under Sections 4070 or
4301 of ERISA, or (iv) is required to provide security to a Plan under Section
401(a)(29) of the Code. The PBGC has not instituted proceedings to terminate any
Plan or to appoint a trustee or administrator of any such Plan and no
circumstances exist that constitute grounds under Section 4042 of ERISA to
commence any such proceedings.
-60-
<PAGE> 68
(n) Prior to each transfer pursuant to any Transfer Agreement,
the applicable Originator thereunder shall be the legal and beneficial owner of
the Receivables sold by it to the Seller thereunder, free and clear of any lien,
security interest or encumbrance, and such Transfer Agreement is effective to,
and shall, transfer to the Seller (and the Seller shall acquire) from such
Originator all right, title and interest of such Originator in each such
Receivable, and all Related Rights and Collections with respect thereto, free
and clear of any lien, security interest or encumbrance.
(o) With respect to each Receivable sold or purported to be
sold by an Originator under any Transfer Agreement, the Seller shall have given
to such Originator at the time of such sale reasonably equivalent value in
consideration of the transfer of such Receivable, and each such transfer shall
not have been made for or on account of an antecedent debt owed by such
Originator to the Seller and no such transfer is or may be voidable under any
Section of the Bankruptcy Code. Each Originator under a Transfer Agreement is
treating the conveyance of receivables thereunder as a sale for purposes of
generally accepted accounting principles.
(p) Except as described in Schedule E, no Transaction Party
has any trade name, fictitious name, assumed name or "doing business as" name.
(q) Neither the Seller nor any other Transaction Party is (i)
an "investment company" within the meaning of the Investment Company Act of
1940, as amended from time to time, or any successor statute, or (ii) a "holding
company" or a "subsidiary company" or an "affiliate" of a "holding company"
within the meaning of the Public Utility Holding Company Act of 1935, as amended
from time to time, or any successor statute. Neither the Seller nor any other
Transaction Party owns, controls, operates or manages real estate fixtures or
personal property in connection with or to facilitate the production,
generation, transmission, delivery or furnishing of electricity for light, heat
or power, for public use except where electricity is generated on or distributed
by the producer through private property alone solely for its own use or the use
of its tenants and not for sale to others.
-61-
<PAGE> 69
(r) The Seller and each Originator, both prior to and after
giving effect to the Initial Purchase hereunder, and after giving effect to each
Purchase, as well as each transfer under any Transfer Agreement, (i) is not
"insolvent" (as such term is defined in ss.101(31)(A) of the Bankruptcy Code);
(ii) is able to pay its debts as they become due; and (iii) does not have
unreasonably small capital for the business in which it is engaged or for any
business or transaction in which it is about to engage.
(s) All Obligors have been instructed to remit payments for
Receivables to a Lock-Box in respect of which a Lock-Box Agreement in the form
of Exhibit E has been duly executed and delivered.
(t) A true, accurate and complete copy of the Credit and
Collection Policy of each Originator as of the date of this Agreement is
attached hereto in Schedule B, and in each case such Credit and Collection
Policy has not been amended, restated, supplemented or otherwise modified since
such respective date without the prior written consent of the Majority Bank
Purchasers and the Administrative Agent.
(u) All of the outstanding capital stock of the Seller and
each Originator is directly or indirectly owned of record by Interface, all of
which capital stock is fully paid and nonassessable.
(v) At all times from and after the earlier to occur of the
Initial Purchase hereunder and the "Initial Purchase" under the Parallel Sale
Agreement, the Seller has a net worth, as determined in accordance with
generally accepted accounting principles, in an amount not less than three
percent (3%) of the outstanding balance of the Receivables Pool.
SECTION 9.2. Representations and Warranties of Interface. In
support of the obligations of Interface under Section 10.4, and the other
covenants of Interface set forth in Section 10.5, Interface makes, with respect
to itself, the following representations and warranties to the Bank Purchasers
on the date hereof and on the date of each Purchase hereunder:
-62-
<PAGE> 70
(a) It is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation and is duly qualified in good standing as a
foreign corporation in each jurisdiction where the failure to be so qualified
could materially adversely affect its ability to perform its obligations
hereunder.
(b) The execution, delivery and performance by Interface of
this Agreement are within the Interface's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (i)
Interface's charter or by-laws or (ii) law or any contractual restriction
binding on or affecting Interface.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by Interface of this
Agreement.
(d) This Agreement, when executed and delivered by Interface,
will be the legal, valid and binding obligation of Interface, enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or other similar laws or by general principles
of equity.
(e) There is no pending or threatened action or proceeding
affecting Interface or any of its subsidiaries before any court, governmental
agency or arbitrator which may materially adversely affect its ability to
perform its obligations under this Agreement, or which could affect the
legality, validity or enforceability of this Agreement as against Interface.
(f) Interface is not (i) an "investment company" within the
meaning of the Investment Company Act of 1940, as amended from time to time, or
any successor statute, or (ii) a "holding company" or a "subsidiary company" or
an "affiliate" of a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended from time to time, or any successor
statute. Interface does not own, control, operate or manage real estate fixtures
or personal property in connection with or to facilitate the production,
generation, transmission,
-63-
<PAGE> 71
delivery or furnishing of electricity for light, heat or power, for public use
except where electricity is generated on or distributed by the producer through
private property alone solely for its own use or the use of its tenants and not
for sale to others.
ARTICLE X: COVENANTS
SECTION 10.1. Affirmative Covenants of the Seller and the
Collection Agent. Until the Bank Group Ownership Interest is reduced to zero as
described in Section 3.1(c) and no further Purchases are to be made, the Seller
will, and the Collection Agent (with respect to itself) will, unless the
Majority Bank Purchasers have otherwise consented in writing:
(a) Comply with all applicable laws, rules, regulations and
orders with respect to it, its business and properties and all Receivables, the
Related Rights and Collections the failure to comply with which may materially
adversely affect its financial condition or operations, or its ability to
perform its obligations under the Sale Documents, or which may affect the
legality, validity or enforceability of any Sale Document or of any Ownership
Interest.
(b) Maintain its corporate existence in the jurisdic tion of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the failure to be so qualified
could materially adversely affect its ability to perform its obligations
hereunder.
(c) At any reasonable time, upon prior notice to such Person,
permit any Bank Purchaser or Agent or their respective agents or representatives
to visit and inspect any of its properties, to examine its books of account and
other records and files relating to Receivables (including, without limitation,
computer tapes and disks) and to discuss its affairs, business, finances and
accounts with its officers and employees.
(d) Maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate records
evidencing Receivables in the event of the
-64-
<PAGE> 72
destruction of the originals thereof), and keep and maintain all records and
other information, reasonably necessary, or in any material respect advisable,
for the collection of Receivables (including, without limitation, records
reasonably adequate to permit the daily identification of Receivables and all
Collections and adjustments to Receivables).
(e) At its expense timely and fully perform and comply with
all material provisions and covenants required to be observed by the Seller
under the contracts related to the Receivables.
(f) Keep its place of business or chief executive office (if
it has more than one place of business) and the office where it keeps the
originals of its records concerning the Receivables at the address therefor
listed in Schedule D or, upon 30 days' prior written notice to the
Administrative Agent, at any other location in a jurisdiction where all UCC
financing or continuation statements, or amendments thereto, and such other
instruments and documents, that may be necessary or desirable, or that the
Administrative Agent may reasonably request, to perfect, protect or evidence the
Ownership Interest of each Bank Purchaser, have been filed.
(g) Comply in all material respects with the applicable Credit
and Collection Policy in regard to each Receivable and any contract related to
such Receivable.
(h) Instruct all Obligors to cause all Collections to be
deposited directly into a Lock-Box.
(i) File and maintain in effect all filings, and take all such
other actions, as may be necessary to protect the validity and perfection of (i)
the Ownership Interests of the Bank Purchasers and (ii) the ownership interest
of each Originator under a Transfer Agreement in the receivables purportedly
transferred thereunder.
(j) Cause each Plan to comply in all material respects with
all applicable provisions of ERISA.
(k) Treat the conveyance of each Ownership Interest
-65-
<PAGE> 73
in the Receivables, the Related Rights and the Collections under this Agreement
as a sale for purposes of generally accepted accounting principles.
(l) In the case of the Seller, at all times from and after the
earlier to occur of the Initial Purchase hereunder and the "Initial Purchase"
under the Parallel Sale Agreement, have a net worth, as determined in accordance
with generally accepted accounting principles, in an amount not less than three
percent (3%) of the outstanding balance of the Receivables Pool at such time.
(m) In the case of the Seller, give to each transferor under
each Transfer Agreement to which it is a party reasonably equivalent value in
consideration of the transfer of each Receivable thereunder.
(n) In the case of the Seller, require each transferor under a
Transfer Agreement to hold in trust and promptly turn over to the Collection
Agent any Collections received by such transferor on the Seller's behalf.
(o) In the case of the Seller, assign to the Bank Purchasers,
consistent with the Consent and Acknowledgment, all rights of the Seller under
each Transfer Agreement and the Seller agrees that (i) the Bank Purchasers shall
be a third party beneficiary of the Seller's rights under such Transfer
Agreement, (ii) the Seller will enforce its rights as transferee under such
Transfer Agreement on behalf of the Bank Purchasers and (iii) the Bank
Purchasers shall be entitled to enforce such rights against the applicable
transferor as if the Bank Purchasers had been party to such Transfer Agreement.
SECTION 10.2. Reporting Requirements of the Seller and the
Collection Agent. Until the Bank Group Ownership Interest is reduced to zero as
described in Section 3.1(c) and no further Purchases are to be made, the Seller
and the Collection Agent will, unless the Majority Bank Purchasers shall
otherwise consent in writing, furnish to the Administrative Agent (or, in the
case of clause (e) below, assist the Collection Agent in furnishing to the
Administrative Agent) (in sufficient copies for distribution by the
Administrative Agent to the Bank Purchasers):
-66-
<PAGE> 74
(a) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of Interface,
balance sheets of Interface and its subsidiaries as of the end of such quarter
and statements of income and retained earnings of Interface and its subsidiaries
for the period commencing at the end of the previous fiscal year and ending with
the end of such quarter, certified by the chief financial officer of Interface
and prepared on a consolidated and a "line of business" basis;
(b) as soon as available and in any event within 120 days
after the end of each fiscal year of Interface, a copy of the annual report for
such year for Interface and its subsidiaries, containing audited financial
statements for such year certified in a manner acceptable to the Administrative
Agent by BDO Seidman or other independent public accountants acceptable to the
Administrative Agent and prepared on a consolidated and a "line of business"
basis;
(c) promptly after the sending or filing thereof, copies of
all reports which Interface sends to the holders, as such, of any of its
securities (as a class), and copies of all regular or periodic reports
(including all reports filed on Form 10-K, 10-Q and 8-K and all other reports
required to be filed under Section 13 or Section 15(d) of the Exchange Act) and
all registration statements (without exhibits) which Interface or any subsidiary
files with the Securities and Exchange Commission or any national securities
exchange;
(d) (i) promptly and in any event within 30 Business Days
after Interface or any ERISA Affiliate knows or has reason to know that a
"reportable event" (as defined in Section 4043 of ERISA) has occurred with
respect to any Plan, a statement of the chief financial officer of Interface
setting forth details as to such reportable event and the action that Interface
or an ERISA Affiliate proposes to take with respect thereto, together with a
copy of the notice of such reportable event, if any, given to the PBGC, the
Internal Revenue Service or the Department of Labor; (ii) promptly and in any
event within 10 Business Days after receipt thereof, a copy of any notice
Interface or any ERISA Affiliate may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or to appoint a trustee to
-67-
<PAGE> 75
administer any such Plan; (iii) promptly and in any event within 10 Business
Days after a filing with the PBGC pursuant to Section 412(n) of the Code of a
notice of failure to make a required installment or other payment with respect
to a Plan, a statement of the chief financial officer of Interface setting forth
details as to such failure and the action that Interface or an ERISA Affiliate
proposes to take with respect thereto, together with a copy of such notice given
to the PBGC; and (iv) promptly and in any event within 30 Business Days after
receipt thereof by Interface or any ERISA Affiliate from the sponsor of a
multiemployer plan (as defined in Section 3(37) of ERISA), a copy of each notice
received by Interface or any ERISA Affiliate concerning the imposition of
withdrawal liability or a determination that a multiemployer plan is, or is
expected to be, terminated or reorganized;
(e) the Receivables Activity Report as required under Section
7.4;
(f) forthwith upon the occurrence of any of the following,
notice of (i) the occurrence of any Event of Termination, (ii) any change in the
credit rating assigned by S&P or Moody's to any indebtedness of any Transaction
Party, and (iii) any change in any Credit and Collection Policy; and
(g) such other information, documents, records or reports
respecting the Receivables or the condition or operations, financial or
otherwise, of the Seller, the Collection Agent, the Originators or any of their
respective subsidiaries as any Bank Purchaser or the Administrative Agent may
from time to time reasonably request.
SECTION 10.3. Negative Covenants of the Seller and the
Collection Agent. Until the Bank Group Ownership Interest is reduced to zero as
described in Section 3.1(c) and no further Purchases are to be made, neither the
Seller nor the Collection Agent will, unless the Majority Bank Purchasers
otherwise consent in writing:
(a) Except as provided herein, sell, assign (by operation of
law or otherwise) or otherwise dispose of, or create or suffer to exist any
security interest, lien or encumbrance
-68-
<PAGE> 76
(other than any Permitted Lien) upon or with respect to, (i) in the case of the
Seller, any of its assets, properties or interests in property, including,
without limitation, any of the Receivables, the Related Rights, the Collections,
or any Lock-Box, or assign any right to receive income in respect thereof, and
(ii) in the case of the Collection Agent, any of the Receivables, the Related
Rights, the Collections or any Lock-Box, or assign any right to receive income
in respect thereof.
(b) Amend or otherwise modify the terms of any Receivable that
is (or shall have been at any time) an Eligible Receivable, or amend, modify or
waive any term or condition of any contract related thereto, except in a manner
consistent with the applicable Credit and Collection Policy and other ordinary
course practices in effect on the date hereof.
(c) Make any change in the character of the business of the
Seller, any material change in the character of the business of the Collection
Agent, or any change in any Credit and Collection Policy which change in any of
the foregoing cases would be reasonably likely to materially impair the
collectibility of any Receivable.
(d) Add or terminate any bank as a Lock-Box Bank from those
listed on Schedule C hereto, or make any change in its instructions to Obligors
regarding payments to be made on any Receivable or payments to be made to any
Lock-Box Bank, unless the Administrative Agent shall have received notice of
such addition, termination or change and, with respect to the addition of any
Lock-Box Bank, shall have received a Lock-Box Bank Agreement in substantially
the form of Exhibit E executed by the Seller, the applicable Originator, and
such Lock-Box Bank.
(e) Deposit or otherwise credit, or cause or permit to be so
deposited or credited, to any Lock-Box cash or cash proceeds other than
Collections or other proceeds of Receivables; provided, it is understood that
from time to time an obligor may mistakenly cause a remittance that is not a
Collection to be directed to a Lock-Box, and in such case the Seller shall,
promptly following its becoming aware of such mistake, so advise the Collection
Agent.
-69-
<PAGE> 77
(f) (i) In the case of the Seller or the Collection Agent,
permit any accumulated funding deficiency (as defined in Section 302 of ERISA or
Section 412 of the Code) to exist with respect to any Plan, whether or not
waived, (ii) fail, or permit any ERISA Affiliate to fail, to pay any required
installment or any other payment required under Section 412 of the Code with
respect to any Plan on or before the due date for such installment or other
payment, (iii) terminate, or permit any ERISA Affiliate to terminate, any Plan
which would result in any liability of the Collection Agent or any ERISA
Affiliate under Title IV of ERISA, (iv) take any action or fail to take any
action, or permit any ERISA Affiliate to take any action or fail to take any
action, with respect to any multiemployer plan (as defined in Section 3(37) of
ERISA) that will result in withdrawal liability of the Seller or any ERISA
Affiliate, or (v) amend, or permit any ERISA Affiliate to amend, a Plan
resulting in an increase in liabilities such that the Seller or any ERISA
Affiliate is required to provide security to such Plan under Section 401(a)(29)
of the Code.
(g) In the case of the Seller, (i) enter into or be a party to
any agreement or instrument other than this Agreement, the other Sale Documents
and the Subordinated Note, and such other agreements ("Operating Agreements") in
the ordinary course of its limited business affairs as shall be necessary to
effect the purposes of Section 10.4, (ii) amend, modify or waive any provision
in any Sale Document, the Subordinated Note or (if any Affiliate of the Seller
shall be party thereto) any Operating Agreement, or give any approval or consent
of permission provided for in any thereof; provided that, in the case of the
Parallel Sale Agreement, the Seller may agree to amend or modify such agreement
without the prior written consent of any party hereto to the extent that such
amendment or modification (x) corresponds and conforms to an amendment then
being made to this Agreement, (y) relates to any reduction of the pricing
applicable to the Seller thereunder or (z) permits or consents to the assignment
by any financial institution party thereto of all or any portion of its interest
thereunder, or (iii) unless thirty (30) days' prior written notice thereof shall
have been given by the Seller to the Administrative Agent, amend, modify or
waive any provision in any other Operating Agreement; provided that, upon any
such notice, the Administrative Agent may require that, prior to giving effect
-70-
<PAGE> 78
to any such amendment, modification or waiver, the Seller shall have provided to
the Bank Purchasers and the Administrative Agent (x) an opinion of counsel
affirming that such action shall not adversely affect the conclusions set forth
in the opinion required to be delivered under Section 6.4(h)(ii) and (y) a
certificate of a senior officer of the Seller certifying that, after giving
effect to such action, no Event of Termination shall have occurred and then be
continuing.
(h) In the case of the Seller, engage in any business or
enterprise or enter into any transaction other than as contemplated by this
Agreement and the other Sale Documents.
(i) Amend the Certificate of Incorporation or By-Laws of the
Seller.
(j) In the case of the Seller, create, incur, guarantee,
assume or suffer to exist any indebtedness or other liabilities, whether direct
or contingent, other than (i) as a result of the indorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business, (ii) the incurrence of obligations under this Agreement, the
Parallel Sale Agreement, the Subordinated Note and the Transfer Agreements,
(iii) the incurrence of operating expenses in the ordinary course of business of
the type otherwise contemplated in this Agreement and (iv) the issuance of a
guaranty in favor of the transferees of interests in receivables originated by
Interface Europe Ltd. and transferred to such transferees by a special purpose
corporation ("UKSPC"), provided that such guaranty (A) is issued
contemporaneously with the issuance by the UKSPC of a guaranty in favor of the
Bank Purchasers and SPARC, (B) may not be drawn upon at any time prior to the
reduction to zero of the Bank Group Ownership Interest and the termination of
this Agreement, and (C) is limited in the amount of guaranteed obligations and
subordinated on terms and conditions satisfactory to the Administrative Agent.
(k) In the case of the Seller, merge or consolidate with any
other Person, or purchase, lease or otherwise acquire all or substantially all
of the property or assets of any Person.
-71-
<PAGE> 79
(l) In the case of the Seller, permit the principal amount
evidenced by the Subordinated Note to exceed at any time an amount equal to the
sum of (i) the Reserve at such time, (ii) the "Reserve" then in effect under the
Parallel Sale Agreement, and (iii) the aggregate face amount of all Receivables
then outstanding that are neither Defaulted Receivables nor Eligible
Receivables.
SECTION 10.4. Covenants of the Seller and Interface Relating
to Separate Legal Identity. The Seller and Interface hereby acknowledge that the
Bank Purchasers are entering into the transactions contemplated by this
Agreement in reliance upon the Seller's identity as a separate legal entity from
Interface, each Originator and each Originator Entity (as defined below).
Therefore, from and after the date of execution and delivery of this Agreement
and so long as this Agreement is in effect, the Seller and Interface shall take
all reasonable steps including, without limitation, all steps that the
Administrative Agent may from time to time reasonably request to maintain the
Seller's identity as a separate legal entity and to make it manifest to third
parties that the Seller is an entity with assets and liabilities distinct from
those of Interface, each Originator and any Affiliates (other than the Seller)
thereof (each of Interface, each Originator and each of their respective
Affiliates (other than the Seller) shall be referred to herein as an "Originator
Entity"), and not just a division of any Originator Entity. Without limiting the
generality of the foregoing and in addition to and consistent with the covenant
set forth in Section 10.1(b) above, the Seller shall (and Interface shall take
all actions necessary to permit or enable the Seller to):
(i) conduct its own business in its own name and require that
all full-time employees of the Seller identify themselves as such and
not as employees of any Originator Entity (including, without
limitation, by means of providing such employees with business or
identification cards identifying such employees as the Seller's
employees);
(ii) compensate all employees, consultants and agents
directly, from the Seller's bank accounts, for services provided to the
Seller by such employees, consultants and
-72-
<PAGE> 80
agents and, to the extent any employee, consultant or agent of the
Seller is also an employee, consultant or agent of any Originator
Entity, allocate the compensation of such employee, consultant or agent
between the Seller and such Originator Entity on a basis which reflects
the services rendered to the Seller and such Originator Entity;
(iii) clearly identify its offices (by signage or otherwise)
as its offices, and all such offices will occupy space that is separate
and distinct from any space occupied by any Originator Entity even if
such office space is leased or subleased from, or is on or near
premises occupied by any Originator Entity;
(iv) have a separate telephone number, which will be answered
only in its name and separate checks in its own name;
(v) conduct all transactions with any Originator Entity
strictly on an arm's-length basis, allocate all overhead expenses
(including, without limitation, telephone and other utility charges)
for items shared between the Seller and any Originator Entity on the
basis of actual use to the extent practicable and, to the extent such
allocation is not practicable, on a basis reasonably related to actual
use;
(vi) at all times have at least one member of its Board of
Directors who is not (A) a director, officer or employee of any
Originator Entity, (B) a person related to any officer or director of
any Originator Entity, (C) a holder (directly or indirectly) of more
than 5% of any voting securities of any Originator Entity, or (D) a
person related to a holder (directly or indirectly) of more than 5% of
any voting securities of any Originator Entity;
(vii) observe all corporate formalities as a distinct entity,
and ensure that all corporate actions are duly authorized by unanimous
vote of its Board of Directors;
(viii) maintain the Seller's books and records separate from
those of any Originator Entity;
-73-
<PAGE> 81
(ix) prepare its financial statements separately from those
of other Originator Entities and insure that any consolidated financial
statements of any Originator Entity that include the Seller have
detailed notes clearly stating that the Seller is a separate corporate
entity and that its assets will be available first and foremost to
satisfy the claims of its creditors;
(x) except as herein specifically otherwise provided, not
commingle funds or other assets of the Seller with those of any
Originator Entity and not maintain bank accounts or other depository
accounts to which any Originator Entity is an account party, into which
any Originator Entity makes deposits or from which any Originator
Entity has the power to make withdrawals;
(xi) not permit any Originator Entity to pay any of the
Seller's operating expenses (except pursuant to allocation arrangements
that comply with the requirements of subparagraph (v) above; and
(xii) take such other actions as are necessary on its part to
ensure that the facts and assumptions set forth in the opinion letter
of even date herewith issued by Kilpatrick & Cody relating to
substantive consolidation, or set forth in any certificate relied upon
by Kilpatrick & Cody in issuing such opinion letter, remain true and
correct in all material respects at all times.
SECTION 10.5. Covenants of Interface. Until the Bank Group
Ownership Interest is reduced to zero as described in Section 3.1(c) and no
further Purchases are to be made, Interface, in support of its obligations set
forth in Section 10.4, will, unless the Majority Bank Purchasers have otherwise
consented in writing:
(a) Comply with all applicable laws, rules, regulations and
orders with respect to it, its business and properties, the failure to comply
with which may materially adversely affect its ability to perform its
obligations under this Agreement, or which may affect the legality, validity or
enforceability of this Agreement as against Interface.
-74-
<PAGE> 82
(b) Maintain its corporate existence in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the failure to be so qualified
could materially adversely affect its ability to perform its obligations
hereunder.
(c) At any reasonable time, upon prior notice to Interface,
permit any Bank Purchaser or the Administrative Agent or their respective agents
or representatives to visit and inspect any of its properties, to examine its
books of account and other records and files relating to this Agreement
(including, without limitation, computer tapes and disks) and to discuss its
affairs, business, finances and accounts with its officers and employees.
(d) Forthwith upon the occurrence thereof, provide notice to
the Administrative Agent of the occurrence of any Event of Termination relating
to the performance by Interface of its obligations under this Agreement.
(e) Not amend the Certificate of Incorporation or By-Laws of
the Seller.
(f) Not permit the principal amount evidenced by Subordinated
Note to exceed at any time an amount equal to the sum of (i) the Reserve at such
time, (ii) the "Reserve" then in effect under the Parallel Sale Agreement, and
(iii) the aggregate face amount of all Receivables then outstanding that are
neither Defaulted Receivables nor Eligible Receivables.
ARTICLE XI: INDEMNIFICATIONS; INCREASED COSTS
SECTION 11.1. Indemnification by the Seller of the Bank
Purchasers, etc. Without limiting any other rights which the Bank Purchasers,
the Administrative Agent and their respective officers, directors, employees,
agents and Affiliates may have hereunder or under applicable law, the Seller
hereby indemnifies such parties and holds them harmless from and against any and
all damages, losses, claims, liabilities and related costs and expenses
(including attorneys' fees and disbursements) incurred by any of them arising
out of or resulting from this
-75-
<PAGE> 83
Agreement or the purchase by any Bank Purchaser of any Ownership Interest in
Receivables, including, without limitation:
(a) the reliance by the Administrative Agent or any Bank
Purchaser on any representation or warranty made by the Seller, Interface or any
Originator (or any of their respective officers) under or in connection with
this Agreement or any Sale Document, which was incorrect when made (it being
understood that the Administrative Agent and each Bank Purchaser shall, for
purposes of this Section 11.1, be entitled to rely on the truth, accuracy and
completeness of each representation and warranty made under this Agreement at
the time of each Purchase, without regard to any qualifying language in the
limited context of a condition precedent to the effect that any representation
or warranty shall be true and correct "in all material respects" or words of
like import);
(b) the failure by the Seller, Interface or the Collection
Agent (or any Person to whom the Collection Agent may have delegated any of its
duties or responsibilities as Collection Agent) to comply with any covenant set
forth in this Agreement (including, without limitation, any covenant relating to
the payment, remittance or deposit of any amount hereunder) or the failure by
any party to any Transfer Agreement to comply with any obligation or covenant on
its part to be performed thereunder or under the related Consent and
Acknowledgment;
(c) the failure to vest and maintain in any Bank Purchaser, or
to transfer to any Bank Purchaser, legal and equitable title to, and ownership
of, an undivided percentage ownership interest (to the extent of such Bank
Purchaser's Ownership Interest) in the Receivables, free and clear of any
security interest, lien, claim or encumbrance;
(d) the transfer by the Seller of an undivided percentage
ownership interest in any Receivables other than the Ownership Interest
hereunder and the "Ownership Interest" under the Parallel Sale Agreement;
(e) the Seller's or any Originator's use of proceeds
of the Purchases;
-76-
<PAGE> 84
(f) the failure by the Seller or the Collection Agent timely
to file financing statements or other similar instruments or documents under the
Uniform Commercial Code (or other applicable law relating to the transfer of
interests in the Receivables) of any applicable jurisdiction or other applicable
laws with respect to any Receivables, whether at the time of a Purchase or
otherwise;
(g) the return or transfer by the Collection Agent of any
portion of Collections to the Seller or any other person for any reason
whatsoever, other than as authorized in Section 7.2.1 or 7.2.2;
(h) any dispute, claim, offset or defense of any obligor to
the payment of any Receivable (including a defense based on such Receivable's or
the related contract's not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms but excluding any
discharge (as distinguished from avoidance) in bankruptcy or any similar
insolvency proceeding of any Obligor due to the financial inability of such
Obligor to pay its debts as they mature), or any other claim resulting from the
sale, use, operation or ownership of or defects in or breaches of warranties
with respect to, the merchandise or services relating to such Receivable or the
furnishing or failure to furnish such merchandise or services;
(i) the Seller's or any Originator's failure to pay when due
any taxes (including sales, excise or personal property taxes) payable by such
Person in connection with the Receivables;
(j) the commingling of Collections with other funds of the
Seller, the Collection Agent or any Originator Entity;
(k) the failure by the Seller, the Collection Agent or any
Originator to comply with any applicable law, rule or regulation with respect to
any Receivable, or the nonconformity of any Receivable with any such applicable
law, rule or regulation;
(l) the failure to vest all right, title and interest in the
Seller in the Receivables purchased by the Seller from any
-77-
<PAGE> 85
Originator under a Transfer Agreement, in each case free and clear of any
security interest, lien, claim or encumbrance;
(m) any failure of the Seller to give reasonably equivalent
value to any Originator under any Transfer Agreement in consideration of the
transfer by such Originator to the Seller of any Receivables, or any attempt by
any Person to void any such transfer under statutory provisions or common law or
equitable action, including, without limitation, any provision of the Bankruptcy
Code; or
(n) any information provided by the Seller, Interface, any
Originator or the Collection Agent or any Sale Document furnished to any Bank
Purchaser or the Administrative Agent in connection with this Agreement which
shall have been incorrect in any respect or which shall have omitted any
material fact.
Notwithstanding anything herein to the contrary, however, the Seller shall not
be obligated under this Section 11.1 to indemnify any Person against or hold any
Person harmless from any damage, loss, claim, liability, cost or expense to the
extent that the same arises out of or results from (i) such Person's own gross
negligence or wilful misconduct, (ii) the negligence or wilful misconduct of the
Collection Agent (if other than Interface or any Affiliate thereof), or (iii)
the fact that any Receivable proves to be uncollectible (unless the Seller is
otherwise expressly liable therefor under the terms of this Agreement or any
other Sale Document). If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Seller hereby agrees to make the maximum
contribution to the payment of the amounts indemnified against in this Section
which is permissible under applicable law. To the extent that any claim arises
against the Seller under this Section 11.1 in respect of any action taken or
omitted to be taken by the Collection Agent in its capacity as Collection Agent,
the Collection Agent agrees that (i) it shall be jointly and severally liable to
the Bank Purchasers and the Administrative Agent in respect of such claim and
(ii) the Seller shall have a corresponding claim against the Collection Agent
for any payments made by the Seller to any indemnified party hereunder.
-78-
<PAGE> 86
SECTION 11.2. Indemnification Due to Failure to Consummate
Purchase or Certain Reductions in Investment. Each notice of an offer to sell
given by the Seller in accordance with Section 6.2(a) and each notice of
election to reduce the Investment given by the Seller in accordance with Section
6.2(c) shall be irrevocable and binding on the Seller. The Seller shall
indemnify each Bank Purchaser against any loss, cost or expense incurred by such
Bank Purchaser as a result of (i) any failure to fulfill, on or before the date
specified in any notice given pursuant to Section 6.2(a), the applicable
conditions precedent for the making of the related Purchase, (ii) any failure of
the Seller to make the reduction in the aggregate Investment contemplated in any
notice given pursuant to Section 6.2(c) to the extent and on the date specified
in such notice, or (iii) any remittance by the Seller or the Collection Agent of
any Collections for application as a reduction of the aggregate Investment on
any date other than a Settlement Date or on any Settlement Date to the extent
such remittance exceeds the aggregate Investment allocated to Tranche Periods
ending on such Settlement Date, in each such case including, without limitation,
any loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Bank Purchaser to fund or maintain the affected or proposed Purchase or
Investment; provided, however, that in each such case the Seller's indemnity
obligations under this sentence shall apply only if and to the extent the
affected or proposed Purchase or Investment relates to a Tranche Period having
the Adjusted LIBO Rate or the Fixed CD Rate as its Discount Rate.
SECTION 11.3. Increased Costs; Capital Adequacy. (a) If, by
reason of (x) after the date hereof, the introduction of or any change
(including, without limitation, any change by way of imposition or increase of
reserve requirements) in or in the interpretation or administration of any law,
rule or regulation, or (y) the compliance with any guideline, request or
directive from any central bank or other governmental authority or quasi-
governmental authority exercising control over banks or financial institutions
generally (whether or not having the force of law):
(i) any Bank Purchaser shall be subject to any tax, duty or
other charge or withholding with respect to its
-79-
<PAGE> 87
Investment hereunder or its obligation to make Purchases hereunder or
on or with respect to the Receivables or its Ownership Interest
hereunder, or the basis of taxation of payments to any Bank Purchaser
of any amount hereunder or its obligation to make Purchases hereunder
shall have changed (except for changes in the tax on the overall net
income of such Bank Purchaser imposed by the jurisdiction in which such
Bank Purchaser's principal executive office or applicable Purchasing
Office is located); or
(ii) any reserve (including, without limitation, any imposed
by the Board of Governors of the Federal Reserve System), assessment,
insurance charge, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by, any
Bank Purchaser shall be imposed or deemed applicable or any other
condition affecting its Investment hereunder or its obligation to make
Purchases shall be imposed on any Bank Purchaser, its applicable
Purchasing Office or the London interbank market or the United States
secondary certificate of deposit market;
and as a result thereof there shall be any increase in the cost to such Bank
Purchaser of agreeing to make or making Purchases hereunder, or funding or
maintaining its Investment hereunder (except to the extent already included in
the determination of the applicable Fixed CD Rate or Adjusted LIBO Rate, if
applicable), or there shall be a reduction in the amount received or receivable
by such Bank Purchaser, then the Seller shall from time to time, upon written
notice from and demand by such Bank Purchaser to the Seller, pay to the
Administrative Agent for the account of such Bank Purchaser, within five
Business Days after the date of such notice and demand, additional amounts
sufficient to indemnify such Bank Purchaser against such increased cost;
provided, however, that the Seller's indemnity obligations, under this Section
shall apply only if and to the extent the affected Purchase or Investment
relates to a Tranche Period having the Adjusted LIBO Rate or the Fixed CD Rate
as its Discount Rate. A certificate as to the amount of such increased cost,
submitted to the Seller by such Bank Purchaser in good faith and accompanied by
a statement prepared by such Bank Purchaser describing in reasonable detail the
basis for and calculation of such increased
-80-
<PAGE> 88
cost, shall, except for manifest error, be final, conclusive and binding for all
purposes.
(b) Without limiting any other provision of this Agreement, in
the event that any Bank Purchaser shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy not currently in effect or fully applicable as of the
date hereof, or any change therein or in the interpretation or application
thereof, or compliance by such Bank Purchaser with any request or directive
regarding capital adequacy not currently in effect or fully applicable as of the
date hereof (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) from a central bank or governmental
authority or body having jurisdiction, does or shall have the effect or reducing
the rate of return on such Bank Purchaser's capital as a consequence of its
obligations hereunder to a level below that which such Bank Purchaser could have
achieved but for such law, treaty, rule, regulation, guideline or order, or such
change or compliance (taking into consideration such Bank Purchaser's policies
with respect to capital adequacy) by an amount deemed by such Bank Purchaser to
be material, then within ten Business Days after written notice and demand by
such Bank Purchaser (with copies thereof to the Administrative Agent), the
Seller shall from time to time pay to such Bank Purchaser additional amounts
sufficient to compensate such Bank Purchaser for such reduction. Each
certificate as to the amount payable under this Section 11.3(b) (which
certificate shall set forth the basis for requesting such amounts in reasonable
detail), submitted to the Seller by any Bank Purchaser in good faith, shall,
absent manifest error, be final, conclusive and binding for all purposes.
SECTION 11.4. Notices. Each Bank Purchaser agrees to notify
the Seller and the Administrative Agent upon its knowledge of a claim for which
it intends to seek indemnification under Section 11.1 or reimbursement under
Section 11.2 or 11.3 from the Seller. The Seller agrees to assist the parties
indemnified under Section 11.1, to the extent requested by them, in any action,
suit or proceeding brought by or against them in connection with the
indemnification granted herein.
-81-
<PAGE> 89
SECTION 11.5. Purchasing Offices.
(a) Each Bank Purchaser agrees that, if requested by the
Seller, it will use reasonable efforts (subject to overall policy considerations
of such Bank Purchaser) to designate an alternate Purchasing Office with respect
to any of its Purchases or Investments affected by the matters or circumstances
described in Section 6.3(e), Section 6.3(f) or Section 11.3 to reduce the
liability of the Seller or to avoid the results provided thereunder, so long as
such designation is not disadvantageous to such Bank Purchaser as determined by
such Bank Purchaser, which determination, if made in good faith, shall be
conclusive and binding on all parties hereto. Nothing in this Section 11.15
shall affect or postpone any of the obligations of the Seller or any right of
any Bank Purchaser provided hereunder.
(b) If any Bank Purchaser that is organized under the laws of
a jurisdiction other than the United States of America or any state or other
political subdivision thereof (including the District of Columbia) issues a
public announcement with respect to the closing of its offices in the United
States such that any withholdings or deductions and additional payments with
respect to Taxes may be required to be made by the Seller thereafter pursuant to
(and as the term "Taxes" is defined in) Section 13.3, such Bank Purchaser shall
use reasonable efforts to furnish the Seller and the Collection Agent notice
thereof as soon as practical thereafter; provided, however, that no delay or
failure to furnish such notice shall in any event release or discharge the
Seller from its obligations to such Bank Purchaser pursuant to Section 13.3 or
otherwise result in any liability of such Bank Purchaser.
SECTION 11.6. Limitations on Certain Payment Obligations.
(a) Each Bank Purchaser or the Administrative Agent (as the
case may be) shall make written demand on the Seller for indemnification of
compensation on account of any Taxes pursuant to (and as such term is defined
in) Section 13.3 no later than 90 days after the earlier of (i) the date on
which such Person makes payment of such Taxes and (ii) the date on which the
relevant
-82-
<PAGE> 90
taxing authority or other governmental authority makes written demand
upon such Person for payment of such Taxes.
(b) Each Bank Purchaser or the Administrative Agent (as the
case may be) shall make written demand on the Seller for indemnification or
compensation pursuant to Section 11.2 no later than 90 days after the event
giving rise to indemnification or compensation occurs.
(c) Each Bank Purchaser or the Administrative Agent (as the
case may be) shall make written demand on the Seller for indemnification or
compensation pursuant to Section 11.3 no later than 90 days after such Person
receives actual notice or obtains actual knowledge of the promulgation of the
relevant law, rule, order or interpretation or occurrence of any other event
giving rise to a claim pursuant to such section.
(d) In the event that any Bank Purchaser or the Administrative
Agent (as the case may be) fails to give the Seller notice within the applicable
time limitation described in paragraph (a) or (b) above (as the case may be),
the Seller shall not have any obligation to pay such claim for compensation or
indemnification. In the event that any Bank Purchaser or the Administrative
Agent fails to give the Seller notice within the time limitation prescribed in
paragraph (c) above, the Seller shall not have any obligation to pay any amount
with respect to claims accruing prior to the 90th day preceding such written
demand.
ARTICLE XII: EVENTS OF TERMINATION
SECTION 12.1. Events of Termination. Each of the
following shall constitute an "Event of Termination":
(a) The Collection Agent (if Interface or any of its
Affiliates) shall fail to (i) perform or observe any term, covenant or agreement
hereunder (other than as referred to in clause (ii) of this Section 12.1(a)) and
such failure shall remain unremedied for three Business Days or (ii) make any
payment or deposit to be made by it hereunder when due (and, in the case of any
failure to make a timely payment or deposit solely by reason of any mechanical
delay in or malfunction of the
-83-
<PAGE> 91
Fedwire system, such failure shall remain unremedied for one Business Day); or
(b) The Seller shall fail to (i) make any payment when due
under Section 3.3, Section 7.3 or otherwise hereunder (and, in the case of any
failure to make a timely payment solely by reason of any mechanical delay in or
malfunction of the Fedwire system, such failure shall remain unremedied for one
Business Day) or (ii) perform or observe any term, covenant or agreement
contained in Section 10.1(f) or (l) or Section 10.3(a), (g)(ii), (i), (j), (k)
or (l); or
(c) Any representation or warranty or statement made by the
Seller or any other Transaction Party (or any of their respective officers)
under or in connection with this Agreement or any other Sale Document shall
prove to have been incorrect in any material respect when made (other than any
representation or warranty made by an Originator under Section 5(f) of any
Transfer Agreement which is subsequently cured in accordance with the terms of
the proviso set forth therein); or
(d) The Seller, Interface, the Collection Agent or any other
Transaction Party shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement or any other Sale Document on its part to
be performed or observed and any such failure shall remain unremedied for 10
days after any Transaction Party first becoming aware of such failure; or
(e) Any Purchase shall for any reason (other than pursuant to
the terms hereof) cease to create, or any Ownership Interest shall for any
reason cease to be, a valid and perfected first priority undivided percentage
ownership or security interest to the extent contemplated herein in each
Receivable, and in the Related Rights and Collections with respect thereto; or
(f) The Seller, Interface, the Collection Agent or any
Originator shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Seller, Interface, the Collection Agent or any
Originator
-84-
<PAGE> 92
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property; or the Seller,
Interface, the Collection Agent or any Originator shall take any corporate
action to authorize any of the actions set forth above in this clause (f); or
(g) The aggregate outstanding balance of Receivables that are
more than 60 days past due (from the respective due dates thereof) shall at any
time exceed an amount equal to 11% of the aggregate outstanding balance of all
Receivables at such time; or
(h) The aggregate outstanding balance of Defaulted Receivables
during any monthly period shall at any time exceed an amount equal to 0.75% of
the aggregate outstanding balance of all Receivables as of the last day of such
period; or
(i) The aggregate Dilutions during any monthly period shall at
any time exceed an amount equal to 6.0% of the aggregate outstanding balance of
Eligible Receivables as of the last day of such period; or
(j) The "Portfolio Turnover" (as required to be set forth in,
and as computed in accordance with, any Receivables Activity Report) shall at
any time exceed 90 days; or
(k) (i) Any "Event of Default" shall occur under (and
as defined in) the Interface Credit Agreement; or
(ii) Interface shall fail to pay any principal of or
premium or interest on any indebtedness for borrowed money which is
outstanding in a principal amount of at least $2,500,000 in the
aggregate when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such
-85-
<PAGE> 93
indebtedness; or any other event shall occur or default condition shall
exist under any agreement or instrument relating to any such
indebtedness and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or default condition is to accelerate, or to permit the
acceleration of, the maturity of such indebtedness; or any such
indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment),
redeemed, purchased or defeased, or an offer to prepay, redeem,
purchase or defease such indebtedness shall be required to be made, in
each case prior to the stated maturity thereof or the scheduled due
date therefor; or
(iii) the Seller shall fail to pay any principal of or
or premium or interest on the Subordinated Note or on any other
indebtedness for borrowed money when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise but, in the case of the indebtedness evidenced by
the Subordinated Note, other than by reason of the operation of the
subordination provisions therein), and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such indebtedness; or any other event shall
occur or default condition shall exist under any agreement or
instrument relating to any such indebtedness and shall continue after
the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or default condition is to
accelerate, or to permit the acceleration of, the maturity of such
indebtedness; or any such indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), redeemed, purchased or defeased, or an offer to
prepay, redeem, purchase or defease such indebtedness shall be required
to be made, in each case prior to the stated maturity thereof or the
scheduled due date therefor; or
(l) any "Event of Termination" shall occur under, and as
defined in, the Parallel Sale Agreement; or
-86-
<PAGE> 94
(m) The senior, long-term, unsecured, non-credit enhanced debt
of Interface shall at any time have a credit rating by S&P of less than BB- or a
credit rating by Moody's of less than Ba3 or, in the event that neither S&P nor
Moody's shall then be rating such debt, the imputed equivalent of such ratings
as determined by the Administrative Agent; or
(n) (i) So long as the holders of Interface's Class B common
stock are entitled to elect a majority of Interface's board of directors, the
Existing Shareholder Group shall at any time fail to be the "beneficial owners"
(as defined in Rule 13d-3 under the Exchange Act) of a majority of the issued
and outstanding shares of Interface's Class B common stock; or (ii) at any time
during which the holders of Interface's Class B common stock have ceased to be
entitled to elect a majority of Interface's board of Directors (A) any "person"
or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act), other than the Existing Shareholder Group, shall become the "beneficial
owner(s)" (as defined in said Rule 13d-3) of sufficient shares of the then
outstanding common stock of Interface entitled to vote for members of
Interface's board of directors so as to possess effective control (as such term
is defined in the second sentence of the definition of "Affiliate" in Article I)
of Interface, or (B) during any period of twenty-four (24) consecutive calendar
months, individuals who at the beginning of such period constituted Interface's
board of directors (together with any new directors whose election by
Interface's board of directors or whose nomination for election by Interface's
shareholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the directors then in office; or (iii)
any event or condition shall occur or exist which, pursuant to the terms of any
Change in Control Provision, requires or permits the holder(s) of Interface
Control Debt to require that such Interface Control Debt be redeemed,
repurchased, defeased, prepaid or repaid, in whole or in part, or the maturity
of such Interface Control Debt to be accelerated in any respect; provided,
however, that no Event of Termination hereunder shall be deemed to exist upon
the occurrence of any event or condition described in the foregoing clauses
-87-
<PAGE> 95
(i), (ii) or (iii) of this subsection (n) until ninety (90) days after the first
occurrence or existence of such event or condition; or
(o) Interface shall at any time cease to own and hold, or
cease to control all voting rights in respect of, all of the issued and
outstanding capital stock of the Seller; or
(p) Interface shall for any reason (other than the removal
thereof by the Bank Purchasers in accordance with the terms of this Agreement)
cease to be or to serve as Collection Agent hereunder.
SECTION 12.2. Remedies. Upon the occurrence of any Event of
Termination, (a) the Administrative Agent may at any time (and, upon the
direction at any time of the Majority Bank Purchasers, the Administrative Agent
shall) declare the Commitment Termination Date to have occurred, whereupon the
commitment of each Bank Purchaser to make any further Purchases of any type
hereunder shall terminate without further notice to or demand upon the Seller or
any other Person, all of which are hereby waived by the Seller; provided that
upon the occurrence of any of the events described in clause (f) in respect of
the Seller or the Collection Agent, the Commitment Termination Date shall
thereupon automatically occur without notice, and the commitment of each Bank
Purchaser to make further Purchases of any type hereunder shall thereupon
terminate automatically; and (b) the Administrative Agent, upon the direction of
the Majority Bank Purchasers, may (i) remove the Person then acting as
Collection Agent hereunder from its rights and responsibilities as Collection
Agent and may designate any other Person (including, without limitation, the
Administrative Agent or any Bank Purchaser) to be Collection Agent hereunder,
(ii) take control of the Lock-Boxes (by delivering to the Lock-Box Banks notice
in substantially the form of Exhibit D), and (iii) notify Obligors of the Bank
Group Ownership Interest in the Receivables. The Bank Purchasers and the
Administrative Agent shall have, in addition to all other rights and remedies
under this Agreement or otherwise, all other rights and remedies provided under
the Uniform Commercial Code of the applicable jurisdiction and other applicable
laws, which rights shall be cumulative.
-88-
<PAGE> 96
ARTICLE XIII: MISCELLANEOUS
SECTION 13.1. Amendments, Etc. No amendment or waiver of, or
consent to the Seller's, Interface's or the Collection Agent's departure from,
any provision of this Agreement shall be effective unless it is in writing in
accordance with this Section 13.1, and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it was given. The Seller, the Collection Agent and the Administrative
Agent, at the direction of the Majority Bank Purchasers, may enter into written
modifications or waivers of any provisions of this Agreement; provided, however,
that no such modification or waiver shall:
(i) without the consent of each affected Bank Purchaser, (a)
extend the Commitment Termination Date or the date of any payment or
deposit of Collections by the Seller or the Collection Agent, (b)
reduce the rate or extend the time of payment of any amount due under
Article V or Article VII (or any component thereof), (c) reduce any fee
payable to the Administrative Agent for the benefit of the Bank
Purchasers, (d) except as expressly contemplated herein, change the
amount of the Investment, Pro Rata Share or Commitment of any Bank
Purchaser, (e) amend, modify or waive any provision of the definition
of "Majority Bank Purchasers" or this Section 13.1, (f) consent to or
permit the assignment or transfer by the Seller or the Collection Agent
of any of its rights or obligations under this Agreement, (g) change
the definition of "Dilution Reserve," "Eligible Receivable," "Loss
Reserve Ratio," "Ownership Interest," "Reserve" or "Yield Reserve," or
(h) amend or modify any defined term (or any defined term used directly
or indirectly in such defined term) used in clauses (a) through (h)
above in a manner which would circumvent the intention of the
restrictions set forth in such clauses; or
(ii) without the written consent of the then Administrative
Agent, amend, modify or waive any provision of this Agreement if the
effect thereof is to affect the rights or duties of the Administrative
Agent.
-89-
<PAGE> 97
Notwithstanding the foregoing, the Administrative Agent may, without the consent
of the Bank Purchasers or the Majority Bank Purchasers, enter into amendments,
consents or waivers with the Seller and the Collection Agent that are, in the
judgment of the Administrative Agent, ministerial or administrative in nature.
Any modification or waiver made in accordance with this Section 13.1 shall apply
to each of the Bank Purchasers equally and shall be binding upon the Seller, the
Collection Agent, the Bank Purchasers and the Administrative Agent.
SECTION 13.2. Notices, Etc. All notices and other
communications provided for hereunder shall, unless otherwise stated herein, be
in writing (including facsimile, telegraphic, telex or cable communication) and
shall be given to the applicable party at its address or applicable facsimile,
telegraphic, telex or cable number or address set forth on the signature pages
hereto or such other address or number as shall be designated by such party in a
written notice to the other parties hereto. Each such notice or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first-class postage prepaid, addressed as
aforesaid, (iii) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section and the appropriate confirmation is
received, or (iv) if given by any other means (including, without limitation, by
air courier), when delivered or received at the address specified in this
Section, except that notices and communications to the Administrative Agent
pursuant to Section 6.2, Section 7.4 and Section 10.2(f) shall only be effective
when received by the Administrative Agent.
SECTION 13.3. Payments Net of Taxes.
(a) All payments by the Seller payable under this Agreement
shall be made free and clear of and without deduction for any present or future
income, stamp or other taxes, fees, levies, imposts, deductions, duties,
withholdings or other charges imposed by any taxing authority, and all
liabilities with respect thereto, excluding, in the case of each Bank Purchaser,
taxes imposed on or measured by its net income, and franchise
-90-
<PAGE> 98
taxes and branch profit taxes, imposed on it (i) by the jurisdiction under the
laws of which such Bank Purchaser is organized or any political subdivision
thereof and, in the case of each Bank Purchaser, taxes imposed on or measured by
its net income, and franchise taxes and branch profit taxes imposed on it, by
the jurisdiction of such Bank Purchaser's appropriate Purchasing Office or any
political subdivision thereof, and (ii) by a jurisdiction in which any payments
are to be made by the Seller hereunder, other than the United States of America,
the United Kingdom, or The Netherlands, or any political subdivision of any
thereof, and that would not have been imposed but for the existence of a
connection between such Bank Purchaser and the jurisdiction imposing such taxes
(other than a connection arising as a result of this Agreement or the
transactions contemplated by this Agreement), except in the case of taxes
described in this clause (ii) to the extent such taxes are imposed as a result
of a change in the law or regulations of any jurisdiction or any applicable
treaty or regulations or in the official interpretation of any such law, treaty
or regulations by any governmental authority charged with the interpretation or
administration thereof after the date of this Agreement (all such excluded net
income taxes, franchise taxes and branch profit taxes being herein collectively
referred to as the "Excluded Taxes"; all such non-excluded taxes, fees, levies,
imposts, deductions, duties, withholdings or other charges or liabilities being
herein collectively referred to as "Taxes"). If the Seller shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder to any
Bank Purchaser or the Administrative Agent, (x) the sum so payable shall be
increased by such amount (the "Gross-up Amount") as may be necessary so that
after making all required deductions (including deductions with respect to Taxes
owed by such Bank Purchaser or the Administrative Agent (as the case may be) on
any Gross-up Amount payable under this Section 13.3) such Bank Purchaser or the
Administrative Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (y) the Seller shall make
such deductions and (z) the Seller shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
-91-
<PAGE> 99
(b) The Seller will indemnify each Bank Purchaser and the
Administrative Agent for the full amount of Taxes (together with any Taxes or
Excluded Taxes owed by such Bank Purchaser or the Administrative Agent (as the
case may be) applicable to any Gross-up Amount or on the indemnification
payments made by the Seller under this Section 13.3(b), but without duplication
thereof), and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Excluded Taxes
were correctly or legally asserted so as to compensate such Bank Purchaser or
the Administrative Agent (as the case may be) for any loss, cost, expense or
liability incurred as a consequence of any such Taxes. Payment pursuant to such
indemnification shall be made within ten (10) Business Days from the date such
Bank Purchaser or the Administrative Agent makes written demand therefor on the
Seller.
(c) Within thirty (30) days after the date of the Seller's
payment of Taxes, the Seller will furnish the relevant Bank Purchaser, at its
appropriate Purchasing Office, with the original or a certified copy of a
receipt evidencing payment thereof.
(d) Each Bank Purchaser that is a foreign Person (that is, a
Person other than a United States Person as defined in the Internal Revenue Code
of 1986, as amended) hereby agrees that:
(i) Such Bank Purchaser shall, prior to the time it becomes a
Bank Purchaser hereunder, deliver to the Seller: (x)
for each Purchasing Office of such Bank Purchaser located
in the United States of America three (3) accurate and
complete signed originals of Internal Revenue Service
Form 4224 or any successor thereto ("Form 4224"), and/or
(y) for each Purchasing Office of such Bank Purchaser
located outside the United States of America, three (3)
accurate and complete signed originals of Internal
Revenue service form 1001 or any successor thereto ("Form
1001"); in each case indicating that such Bank Purchaser,
on the date of delivery thereof, is entitled to receive
payments for the account of such Purchasing Office
-92-
<PAGE> 100
under this Agreement free from withholding of
United States federal income tax; provided, that
if the Form 4224 or Form 1001, as the case may be,
supplied by a Bank Purchaser fails to establish a
complete exemption from United States withholding
tax as of the date such Bank Purchaser becomes a
Bank Purchaser, such Bank Purchaser shall, within
15 days after a written request from the Seller
deliver to the requesting party the forms or other
documents necessary to establish a complete
exemption from United States withholding tax as of
such date;
(ii) If at any time such Bank Purchaser changes its
Purchasing Office or selects an additional
Purchasing Office, it shall, at the same time or
reasonably promptly thereafter (but only to the
extent the forms previously delivered by it
hereunder are no longer effective) deliver to the
Seller in replacement for the forms previously
delivered by it hereunder: (x) for each changed or
additional Purchasing Office located in the United
States of America, three (3) accurate and complete
signed originals of Form 4224; or (y) otherwise,
three (3) accurate and complete signed originals
of Form 1001; in each case indicating that such
Bank Purchaser is on the date of delivery thereof
entitled to receive payments for the account of
such changed or additional Purchasing Office under
this Agreement free from withholding of United
States Federal income tax.
(e) In addition to the documents to be furnished pursuant to
Section 13.3(d) above, each Bank Purchaser shall, promptly upon the reasonable
request of the Seller to that effect, deliver to the requesting party such other
accurate and complete forms or similar documentation as such Bank Purchaser is
legally able to provide and as may be required from time to time by any
applicable law, treaty, rule or regulation of any jurisdiction in order to
establish such Bank Purchaser's tax status for withholding purposes or as may
otherwise be appropriate to eliminate or minimize any Taxes on payments under
-93-
<PAGE> 101
this Agreement. Each Bank Purchaser furnishing forms to the Seller or Interface
pursuant to the requirements of Section 13.3(d) or this subsection (e), shall
furnish copies of such forms to the Administrative Agent at the same time
delivery of such forms is made to the Seller.
(f) The Seller shall not be required to pay any amounts
pursuant to Section 13.3(a) or (b) above to any Bank Purchaser for the account
of any Purchasing Office of such Bank Purchaser in respect of any United States
withholding taxes payable hereunder (and the Seller, if required by law to do
so, shall be entitled to withhold such amounts and pay such amount to the United
States government) if the obligation to pay such amounts would not have arisen
but for a failure by such Bank Purchaser to comply with its obligations under
Section 13.3(d), and if such Bank Purchaser shall not be entitled to exemption
from deduction or withholding of United States Federal income tax in respect of
the payment of such sum by the Seller hereunder for the account of such
Purchasing Office for, in each such case, any reason other than a change in
United States law or regulations or any applicable tax treaty or regulations or
in the official interpretation of any such law, treaty or regulations by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of law) after the date such Bank Purchaser
became a Bank Purchaser hereunder.
(g) Within sixty (60) days of the written request of the
Seller, each Bank Purchaser shall execute and deliver such certificates, forms
and other documents, which can be reasonably furnished consistent with the facts
and which are reasonably necessary to assist the Seller in applying for refunds
of Taxes remitted by the Seller hereunder.
(h) Each Bank Purchaser shall use reasonable efforts to avoid
or minimize any amounts which might otherwise be payable by the Seller pursuant
to this Section 13.3, except to the extent that a Bank Purchaser determines that
such efforts would be disadvantageous to such Bank Purchaser, as determined by
such Bank Purchaser and which determination, if made in good faith, shall be
binding and conclusive on all parties hereto.
-94-
<PAGE> 102
(i) To the extent that the payment of any Bank Purchaser's
Taxes by the Seller hereunder gives rise from time to time to a Tax Benefit (as
hereinafter defined) to such Bank Purchaser in any jurisdiction other than the
jurisdiction which imposed such Taxes, such Bank Purchaser shall pay to the
Seller the amount of each such Tax Benefit so recognized or received. The amount
of each Tax Benefit and, therefore, payment to the Seller will be determined
from time to time by the relevant Bank Purchaser in its sole discretion, which
determination shall be binding and conclusive on all parties hereto. Each such
payment will be due and payable by such Bank Purchaser to the Seller within a
reasonable time after the filing of the income tax return in which such Tax
Benefit is recognized or, in the case of any tax refund, after the refund is
received; provided, however, if at any time thereafter such Bank Purchaser is
required to rescind such Tax Benefit or such Tax Benefit is otherwise disallowed
or nullified, the Seller shall promptly, after notice thereof from such Bank
Purchaser, repay to such Bank Purchaser the amount of such Tax Benefit
previously paid to it and rescinded, disallowed or nullified. For purposes of
this subsection, the term "Tax Benefit" shall mean the amount by which any Bank
Purchaser's income tax liability for the taxable period in question is reduced
below that which would have been payable had the Seller not been required to pay
the Bank Purchaser's Taxes. In case of any dispute with respect to the amount of
any payment due by any Bank Purchaser to the Seller under this subsection (i),
the Seller shall not have any right to any offset or withholding with respect to
future payments due to such Bank Purchaser under this Agreement.
(j) Without prejudice to the survival of any other agreements
of the parties hereunder, the agreements and obligations of the Seller and the
Bank Purchasers contained in this Section 13.3 shall survive the termination of
this Agreement and the payment in full of the Investments and all other amounts
owing by the Seller to the Bank Purchasers or the Administrative Agent
hereunder.
SECTION 13.4. No Waiver; Remedies. No failure on the part of
the Administrative Agent or any Bank Purchaser to exercise, and no delay in
exercising, any right hereunder or under any Sale Document shall operate as a
waiver thereof; nor
-95-
<PAGE> 103
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
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 13.5. Binding Effect; Assignability; Continuing
Obligation. (a) This Agreement shall be binding upon and inure to the benefit of
the Seller, Interface, each Bank Purchaser, the Administrative Agent and their
respective successors and assigns, except that neither the Seller nor Interface
shall have the right to assign any interest herein without the prior written
consent of the Majority Bank Purchasers and the Administrative Agent.
(b) Each Bank Purchaser may assign all or any portion of its
interests, rights and obligations under this Agreement (including all or a
portion of any of its Commitment, its Investment and its Ownership Interest at
the time held by it); provided, however, that in the case of any proposed
assignment by a Bank Purchaser of its Commitment or Investment hereunder, the
Administrative Agent, Interface and the Seller must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld).
(c) Each Bank Purchaser may, without the consent of the
Seller, Interface or the Administrative Agent, sell participations to one or
more banks or other entities in all or a portion of its rights and obligations
under this Agreement (including all or a portion of its Commitment, its
Investment or its Ownership Interest); provided, however, that (i) no Bank
Purchaser may sell a participation in its Commitment (after giving effect to any
permitted assignment hereof) in an amount in excess of fifty percent (50%) of
such aggregate Commitment, except that no such maximum amount shall be
applicable to any such participation sold at any time there exists an Event of
Termination hereunder, (ii) such Bank Purchaser's obligations
under this Agreement shall remain unchanged, (iii) such Bank Purchaser shall
remain solely responsible to the other parties hereto for the performance of
such obligations, and (iv) the participating bank or other entity shall not be
entitled to the benefit (except through its selling Bank Purchaser) of the cost
protection provisions contained in Section 11.3 of this
-96-
<PAGE> 104
Agreement, and (v) the Seller and the Administrative Agent and other Bank
Purchasers shall continue to deal solely and directly with such Bank Purchaser
in connection with such Bank Purchaser's rights and obligations under this
Agreement and the other Sale Documents, and such Bank Purchaser shall retain the
sole right to enforce the obligations of the Seller and Interface relating to
its Investment and Ownership Interest, and to approve any amendment,
modification or waiver of any provisions of this Agreement.
(d) Any Bank Purchaser or participant may, in connection with
the assignment or participation or proposed assignment or participation,
pursuant to this Section, disclose to the assignee or participant or proposed
assignee or participant any information relating to the Seller, Interface or the
other Consolidated Companies furnished to such Bank Purchaser by or on behalf of
the Seller, Interface or any other Consolidated Company; provided that, prior to
any such disclosure of information designated by the Seller or Interface as
confidential, the Bank Purchaser proposing to make such assignment or sell such
participation shall obtain from such prospective assignee or participant an
agreement whereby such prospective assignee or participant shall agree to
preserve the confidentiality of such confidential information consistent with
the provisions of Section 8.05 of the Interface Credit Agreement.
(e) Any Bank Purchaser may at any time assign all or any
portion of its rights in this Agreement to a Federal Reserve Bank; provided that
no such assignment shall release the Bank Purchaser from any of its obligations
hereunder.
(f) If (i) any Taxes referred to in Section 13.3 have been
levied or imposed so as to require withholding or deductions by the Seller or
Interface (as the case may be) and payment by the Seller or Interface (as the
case may be) of additional amounts to any Bank Purchaser or the Administrative
Agent as a result thereof, (ii) any Bank Purchaser or the Administrative Agent
shall make demand for payment of any material additional amounts as compensation
for its increased costs or for its reduced rate of return pursuant to Section
11.3 hereof, or (iii) any Bank Purchaser shall decline to consent to a
modification or waiver of the terms of this Agreement or any
-97-
<PAGE> 105
other Sale Document requested by the Seller, then and in such event, upon
request from the Seller delivered to such Bank Purchaser and the Administrative
Agent, such Bank Purchaser shall assign, in accordance with the provisions of
Section 13.5(b), all of its rights and obligations under this Agreement and the
other Sale Documents to such assignee as may be selected by the Seller and may
be acceptable to the Administrative Agent, in consideration for the payment by
such assignee to the affected Bank Purchaser of the amount of the outstanding
Investment together with all Accrued Finance Charges thereon owing to such Bank
Purchaser through the date of such assignment, and the assumption of the
affected Bank Purchaser's commitment hereunder, together with any and all other
amounts owing to such Bank Purchaser under any provisions of this Agreement or
the other Sale Documents accrued to the date of such assignment.
(g) This Agreement shall create and constitute the continuing
obligation of the parties hereto in accordance with its terms, and shall remain
in full force and effect until such time as the Ownership Interest of each Bank
Purchaser is reduced to zero as described in Section 3.1(c) and no further
Purchases are committed to be made hereunder, at which time this Agreement shall
terminate; provided, however, that rights and remedies of each Bank Purchaser
and the Administrative Agent under Article XI and Section 5.3 and the provisions
of Section 13.12 shall survive any termination of this Agreement.
Notwithstanding the foregoing, to the extent that the Seller or the Collection
Agent makes a payment, deposit or remittance to any Bank Purchaser or the
Administrative Agent, or any Bank Purchaser or the Administrative Agent receives
any proceeds of the Receivables or Collections, which payment, deposit,
remittance or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to the Seller
or the Collection Agent, or any other Person, or their respective estates,
trustees, receivers or any other Person, under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such payment
the obligation or part thereof which has been paid, reduced or satisfied by such
amount (and the corresponding Ownership Interest) shall be reinstated and
continued in full force and effect as of the time immediately preceding such
initial payment,
-98-
<PAGE> 106
reduction or satisfaction and this Agreement shall continue in full force and
effect with respect thereto.
SECTION 13.6. Governing Law. THIS AGREEMENT AND THE
SALE DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 13.7. Security Interest. The Seller hereby grants to
the Administrative Agent, for the benefit of the Bank Purchasers, a continuing
security interest in the Seller's right, title and interest in and to the
Receivables and Collections to secure the obligations of the Seller to the Bank
Purchasers hereunder, which security interest shall continue in effect until
termination of this Agreement (and be subject to reinstatement) in accordance
with Section 13.5.
SECTION 13.8. Construction of the Agreement. The parties
hereto intend that the conveyance of Ownership Interests in Receivables by the
Seller to the Bank Purchasers shall be treated as sales for all purposes. If,
despite such intention, a determination is made that such transactions shall not
be treated as sales, then this Agreement shall be interpreted to constitute a
security agreement and the transactions effected hereby shall be deemed to
constitute secured loans by the Bank Purchasers to the Seller under applicable
law. For such purpose, the Seller hereby grants to the Administrative Agent, for
the benefit of the Bank Purchasers, a continuing security interest in the
Receivables and Collections to secure the repayment of the Investment of each
Bank Purchaser and the payment and performance of the obligations of the Seller
to each Bank Purchaser hereunder.
SECTION 13.9. Confidentiality. Each of the Administrative
Agent and each Bank Purchaser agrees to maintain the confidentiality of any
information regarding the Seller or Interface obtained in accordance with the
terms of this Agreement which is not publicly available, but the Administrative
Agent or such Bank Purchaser may reveal such information (a) to applicable
rating agencies, liquidity providers and credit providers, (b) as necessary or
appropriate in connection with the administration or enforcement of this
Agreement or the funding of Purchases under this Agreement, (c) as required by
law, government regulation,
-99-
<PAGE> 107
court proceeding or subpoena or (d) to bank regulatory agencies and examiners.
SECTION 13.10. Agent Determinations on Concentration Limits.
The Administrative Agent is granted certain authority hereunder to reduce the
Special Concentration Limit or Standard Concentration Limit for any Obligor
(each such reduction being a "Redesignation"). Any act of Redesignation by the
Administrative Agent shall be based upon a determination by the Administrative
Agent or the Majority Bank Purchasers that either (i) in the exercise of its or
their reasonable credit judgment, such Redesignation is appropriate, based upon
such factors as the Administrative Agent has, or the Majority Bank Purchasers
have, determined to be relevant, including, without limitation, any of the
following factors: any change in, or change in the credit analysis as to, the
nature, business, prospects, condition (financial or other), operations,
properties or management of an Obligor or the Seller or the applicable
Originator; any lack of sufficient and reliable information with respect to any
of the foregoing; any change in, or change in the credit analysis as to, the
credit or collateral support for any Receivable or any class of Receivables; the
aggregate portfolio exposure of the Administrative Agent or any Bank Purchaser
to such Obligors or Receivables of such type; or any change in the credit or
collection policy of the Seller or the applicable Originator, or (ii) compliance
with any law or regulation or any guideline, directive or request from any
central bank or other governmental authority (whether or not having the force of
law), or that compliance with any guideline, directive or request of any rating
agency, requires such Redesignation.
SECTION 13.11. Not a Joint Venture. Nothing contained in this
Agreement or in any other Sale Document, and no action taken by any Bank
Purchaser, the Administrative Agent or the Collection Agent pursuant hereto or
thereto, shall be deemed to constitute the Seller (or any other Transaction
Party) and the Bank Purchasers a partnership, association, joint venture or
other entity.
SECTION 13.12. Execution in Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which
-100-
<PAGE> 108
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 13.13. Submission to Jurisdiction, Appointment
of Agent to Accept Service of Process.
(a) THE SELLER, INTERFACE AND THE COLLECTION AGENT HEREBY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE
SOUTHERN DISTRICT OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE
SELLER, INTERFACE AND THE COLLECTION AGENT IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH PROCEEDING AND ANY CLAIM
THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(b) Each of the Seller, Interface and the Collection Agent has
irrevocably appointed CT Corporation as its agent to receive, accept and
acknowledge for and on its behalf, service of any and all legal process,
summons, notices and documents which may be served in any such proceeding
brought in any such court which may be made on such agent. If for any reason
such agent shall cease to be available to act as such, each of the Seller,
Interface and the Collection Agent agrees to designate a new agent in The City
of New York the terms and for the purposes of this Section 13.13 satisfactory to
the Purchaser.
SECTION 13.14. Change in Accounting Principles, Fiscal Year or
Tax Laws. If (i) any preparation of the financial statements referred to in
Section 10.2 hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) result in a material change in the
method of calculation of financial covenants, standards or terms found in this
Agreement, (ii) if there is any change in Interface's fiscal quarter of fiscal
year, or (iii) there is a material change in federal tax laws which materially
affects the Seller's ability to comply with the financial covenants, standards
or terms found in this Agreement, the parties agree to enter into negotiations
in order to amend
-101-
<PAGE> 109
such provisions so as to equitably reflect such changes with the desired result
that the criteria for evaluating financial condition shall be the same after
such changes as if such changes had not been made. Unless and until such
provisions have been so amended, the provision of this Agreement shall govern.
-102-
<PAGE> 110
IN WITNESS WHEREOF, the parties have caused this Agreement to
be signed by their duly authorized officers as of the date set forth on the
cover page of this Agreement.
INTERFACE SECURITIZATION CORPORATION,
as Seller
By /s/ Daniel T. Hendrix
---------------------------------
Name: Daniel T. Hendrix
Title: Senior Vice President & Treasurer
Address: 100 Chastain Center Boulevard
Suite 165
Kennesaw, Georgia 30144
Facsimile: (770) 319-0070
INTERFACE, INC., individually and as
initial Collection Agent
By /s/ Daniel T. Hendrix
---------------------------------
Name: Daniel T. Hendrix
Title: Senior Vice President & Treasurer
Address: 2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
Facsimile: (770) 319-0070
-103-
<PAGE> 111
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent
By /s/ Barbara Duberstein
-----------------------------------
Name: Barbara Duberstein
Title: Authorized Signatory
425 Lexington Avenue
New York, New York
Attn: Bryan Wickware
Telecopy: (212) 856-3866
Commitment BANK PURCHASER
$47,500,000 CANADIAN IMPERIAL BANK OF COMMERCE
By /s/
-----------------------------------
Name:
Title:
425 Lexington Avenue
New York, New York
Attn: Bryan Wickware
Telecopy: (212) 856-3866
-104-
<PAGE> 1
EXHIBIT 13
INTERFACE, INC. 1996 FINANCIAL REPORT
<PAGE> 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
32
The Company's revenues are derived from sales of commercial floorcovering
products (primarily modular and broadloom carpet), interior fabrics, and
specialty products. Sales of commercial floorcovering products and interior
fabrics accounted for approximately 80% and 15%, respectively, of total net
sales for fiscal 1996. The Company's 1996 revenues were $1 billion as compared
to $802 million in fiscal 1995. The revenue increase of 25% is primarily the
result of certain initiatives discussed below.
HISTORICAL OPERATING TRENDS
The Company pioneered the introduction of the modular carpet concept in the
United States in 1973. Following its initial public offering in 1983, the
Company's sales grew at an annual compound rate of 34.1% from 1983 to 1990,
with sales increasing from $80 million to $623 million. The Company's growth
during this period was fueled by diversification from the new construction
market into the renovation market and other market segments, global expansion
into the United Kingdom and Western Europe, Asia and Australia (including the
1988 strategic acquisition of Heuga Holding B.V., now known as Interface Europe
B.V.), and diversification into interior fabrics with the acquisition of
Guilford Industries, Inc. (now known as Interface Interior Fabrics, Inc.) in
December 1986.
The period from 1991 to 1994, however, was characterized by (i) weak demand for
all floorcovering products in domestic and international commercial markets,
(ii) poor worldwide economic conditions highlighted by an economic recession in
Europe, (iii) increased competition, particularly in the U.S. modular carpet
market, and (iv) a shift in demand away from the Company's fusion bonded carpet
products towards tufted carpet products. During this period, the Company's
operating results initially declined from peak levels that had been achieved in
fiscal 1990.
The adverse conditions of the 1991 to 1994 period tested the Company's
resiliency, and the Company responded with initiatives that enabled it to
achieve (after the 1991 decline in sales of 6.7%) sales and operating income
increases totaling 24.7% and 33.9%, respectively, for the three-year period.
The Company during this period implemented strict cost control measures and
diversified and expanded its product offerings to include (through internal
production changes) tufted modular carpet products that had increased in
popularity and (through the strategic acquisitions of Bentley Mills in June
1993 and Prince Street in March 1994) high style, designer-oriented commercial
broadloom carpet products. The Company also made strategic acquisitions to
diversify and strengthen its position in other commercial interiors markets,
including the acquisition of the Stevens Linen fabrics product line in 1993. In
late 1993, the Company began implementation of the product design and
development process and reengineering program for its U.S. modular
floorcovering business that led to the Company's "mass customization" and
"war-on-waste" initiatives.
In 1995, the Company significantly enhanced its strategic position in the
domestic interior fabrics market with the acquisitions of Toltec Fabrics, Inc.
and the Intek division of Springs Industries.
In 1996, the Company implemented a nationwide initiative to form a new
distribution network, operating under the name Re:Source Americas.
Pursuant to this initiative, the Company acquired and invested in 20
strategically located commercial floorcovering dealers, and formed preferred
distributorship alliances with 59 select dealers throughout the United States.
The Company also acquired Renovisions, Inc., a provider of specialized carpet
replacement services. In addition, the Company continued to expand its specialty
products operations by acquiring C-Tec, Inc. (now known as Interface
Architectural Resources, Inc.), the second largest manufacturer of raised/access
flooring systems in the United States. These initiatives have assisted the
Company in achieving substantial growth in both sales and operating income,
particularly in 1996 when the Company achieved sales and operating income
increases of 24.9% and 27.9%, respectively, over 1995.
During 1996, the Company derived approximately 35% of its sales from operations
outside the United States. The Company believes that the geographic diversity
of its sales reduces its dependence on any particular region and represents a
significant competitive advantage. To better support its global marketing
operations, the Company has manufacturing facilities in strategic locations
around the world. An additional result of this strategy is that the Company's
foreign currency risk is reduced somewhat because certain revenues are derived
from products manufactured at facilities which incur their operating costs in
the same foreign currency.
<PAGE> 3
33
RESULTS OF OPERATIONS
For fiscal 1996, the Company reported the highest net sales and net income in
the Company's history. This was achieved through sales growth in all divisions
(floorcoverings, interior fabrics, and specialty products), the formation of
the Re:Source Americas network, the acquisitions of Renovisions and C-Tec in
February 1996, and the acquisitions of Toltec Fabrics in June 1995, and Intek
in December 1995. The sales growth of 24.9% in 1996 was achieved despite the
weakening of the currencies of certain key markets compared to the U.S. dollar,
the Company's reporting currency.
During 1996, the Company experienced a decrease in cost of sales as a
percentage of sales due to the reduction of manufacturing costs in the
Company's carpet operations (particularly the U.S. carpet tile manufacturing
facility) as the Company benefited from its make-to-order ("mass
customization") production strategy and "war-on-waste" initiative, leading to
increased manufacturing efficiencies and an attendant shift in product mix to
higher margin products. The Company's interior fabrics business also decreased
manufacturing costs as a result of improved manufacturing efficiencies
associated with a similar waste reduction program and the Company's new
state-of-the-art yarn manufacturing facility in Guilford, Maine. These factors
more than offset the impact of raw material price increases experienced in the
company's operations.
The Company's capital expenditures program will continue to focus on (i) new
and expanded manufacturing facilities worldwide and (ii) product innovation and
development, which has been designed to address the market requirement for
increased product flexibility while also reducing product cost through
simplification.
The following table shows, as a percentage of net sales,
certain items included in the Company's consolidated statements of income.
<TABLE>
<CAPTION>
Fiscal Year Ended
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of sales 68.3 68.8 69.5
-----------------------------------------------
Gross profit on sales 31.7 31.2 30.5
Selling general and
administrative expense 23.8 23.6 23.5
-----------------------------------------------
Operating income 7.9 7.6 7.0
Other expense, net 3.5 3.7 3.5
-----------------------------------------------
Income before taxes
and extraordinary item 4.4 3.9 3.5
Taxes on income 1.8 1.4 1.2
-----------------------------------------------
Income before
extraordinary item 2.6 2.5 2.3
Extraordinary loss on
early extinguishment of
debt (net of tax) 0.0 0.4 0.0
-----------------------------------------------
Net income 2.6 2.1 2.3
Preferred dividends 0.1 0.2 0.3
Net income applicable to
common shareholders 2.5% 1.9% 2.0%
- ------------------------------------------------------------------------------------------
</TABLE>
FISCAL 1996 COMPARED WITH FISCAL 1995
The Company's net sales increased $200 million (24.9%) compared with 1995. The
increase was attributable to (i) increased sales volume in the
Company's floorcovering operations in the United States associated in part with
the acquisitions of the commercial floorcovering dealers in the Company's
Re:Source Americas network, (ii) increased sales volume in the Company's
floorcovering operations in Continental Europe and Australia; (iii) increased
sales volume in the Company's interior fabrics operations associated with the
acquisitions of Toltec and Intek in June and December 1995, respectively, and
(iv) increased sales volume in the Company's specialty products division
associated with the C-Tec acquisition in February, 1996. These increases were
offset somewhat by a weakening of certain key currencies (particularly the
British pound sterling, Dutch guilder and Japanese yen) against the U.S.
dollar, the Company's reporting currency.
Cost of sales decreased as a percentage of sales to 68.3% in 1996
compared with 68.8% in 1995. The Company recognized a decrease in manufacturing
costs in its floorcoverings operations as a result of further benefits obtained
from the Company's mass customization production strategy and its "war-on-waste"
initiative, which have continued to provide manufacturing efficiencies as well
as a shift to higher
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
34
margin products. In addition, the Company achieved improved pricing in
its floorcovering operations. These benefits were somewhat offset by the
acquisitions of Toltec, Intek, C-Tec, and the commercial floorcovering dealers
comprising the Company's new distribution network, which historically had higher
cost of sales than the Company.
Selling, general and administrative expenses, as a percentage of net sales,
increased to 23.8% in 1996 compared with 23.5% in 1995. The increase was due
primarily to (i) administrative expenses associated with building an
infrastructure to manage the Re:Source Americas network, (ii) increased
marketing and sampling expenses in the Company's floorcovering operations
associated with the introduction of new products as the Company moved to
implement a mass customization strategy in its European and Asia Pacific
operations, and continued to implement such strategy in its U.S. operations,
and (iii) the acquisitions of Toltec and Intek, which historically had higher
SG&A ratios than the Company. The increase was somewhat offset by the
acquisitions of the commercial floorcovering dealers comprising the Company's
new distribution network, which historically had lower SG&A ratios than the
Company.
Other expense increased $5.4 million in fiscal 1996, due, primarily, to an
increase in the Company's interest expense associated with: (i) an increase in
bank debt incurred as a result of the Company's acquisitions, and (ii) higher
interest rates associated with the Company's redemption of its 8% Convertible
Subordinated Debentures in December 1995 and the issuance of $125 million in
aggregate principal amount of 9.5% Senior Subordinated Notes in November 1995.
The effective tax rate was 39.2% for fiscal 1996, compared to 35.8% in fiscal
1995. The increase in the effective income tax rate was due primarily to the
elimination of valuation allowances associated with the Company's Dutch and
Australian operations in 1995, which did not occur in 1996. This increase was
offset by the effect of the increase in the Company's income before taxes in
proportion to the amortization of the Company's non-deductible goodwill.
As a result of the aforementioned factors, the Company's net income before
extraordinary items increased 29.8% to $26.4 million for fiscal 1996, compared
to $20.3 million for fiscal 1995.
FISCAL 1995 COMPARED WITH FISCAL 1994
In fiscal 1995, the Company's net sales increased $77 million (10.6%) compared
with fiscal 1994. The increase was primarily attributable to (i)
increased sales volume in the Company's floorcoverings operations in the United
States, Southeast Asia and Greater China, (ii) continued improvement in unit
volume in the Company's interior fabrics and chemical operations, (iii) sales
generated by Toltec, which was acquired in June 1995, and (iv) the strengthening
of certain key currencies (particularly the British pound sterling, Dutch
guilder and Japanese yen) against the U.S. dollar, the Company's reporting
currency. These increases were offset somewhat by a decrease in floorcoverings
sales volume in Australia, Japan and certain markets within Europe.
Cost of sales decreased as a percentage of net sales to 68.8% in 1995 compared
with 69.5% in 1994. The decrease was due primarily to (i) a reduction of
manufacturing costs in the Company's carpet operations (particularly the U.S.
carpet tile manufacturing facility) as the Company implemented its mass
customization program and "war-on-waste" initiative, (ii) the weakening of the
U.S. dollar against certain key currencies, which lowered the cost of U.S.
produced goods sold in export markets, and (iii) decreased manufacturing costs
in the Company's interior fabrics business as a result of improved
manufacturing efficiencies achieved mainly through waste reduction efforts.
These benefits were somewhat offset by raw material price increases in the
interior fabrics and chemical operations, and the acquisitions of Prince Street
and Toltec, which, historically, had higher cost of sales ratios than the
Company.
Selling, general and administrative expenses, as a percentage of net sales,
remained constant in fiscal 1995 as compared to fiscal 1994. Selling, general
and administrative expenses did not decrease with the increase in volume due
primarily to the increase in design and sampling costs associated with the mass
customization initiative for which the full impact of the increased sales had
not yet been realized.
Other expense increased $4.8 million in fiscal 1995, due, by in large, to an
increase in the Company's interest expense associated with an increase in bank
debt and higher interest rates.
The effective income tax rate was 35.8% for fiscal 1995,
<PAGE> 5
35
compared to 36.0% in fiscal 1994. The decrease in the effective income
tax rate was due primarily to (i) the elimination of certain valuation
allowances associated with the Company's Dutch and Australian operations and
(ii) the effect of the increase in the Company's income before taxes in
proportion to the amortization of the Company's non-deductible goodwill. This
decrease was offset by an increase in 1995, as compared to 1994, in foreign and
U.S. tax effects attributable to foreign operations.
Income before extraordinary items increased 23.6% to $20.3 million for fiscal
1995, compared to $16.5 million for fiscal 1994, due to the factors discussed
above. The Company recognized an extraordinary charge of $3.5 million (net of
applicable taxes) in the fourth quarter of fiscal 1995. The charge was
attributed to the early extinguishment of the Company's Convertible
Subordinated Debentures which were redeemed in December 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash over the last three fiscal years have
been funds provided by operating activities and proceeds from additional
long-term debt. In 1996, operating activities generated $55.0 million of cash
compared with $76.5 million and $33.4 million in 1995 and 1994, respectively.
The reduction in 1996 operating cash flows compared with 1995 was caused
primarily by an increase in accounts receivable, subsequent to the Company's
sale of $33.9 million of domestic receivables under a securitization program in
1995.
The primary uses of cash during the three fiscal years ended December 29, 1996
have been (i) additions to property and equipment at the Company's
manufacturing facilities, (ii) acquisitions of businesses, and (iii) cash
dividends. For the three years ended 1996, the aggregate additions to property
and equipment required cash outlays of $99.9 million, while the acquisitions of
businesses required $59.1 million, and dividends required $18.8 million.
Management believes these capital investments will result in an expanded market
presence and improved efficiency in the Company's production and distribution.
The Company amended its existing revolving credit and term loan
facilities and its accounts receivable securitization facility in 1996. The
amendments, among other things, (i) increased the existing domestic revolving
credit facility by $50 million to fund the implementation of the Company's new
distribution network, (ii) provided for additional domestic subsidiaries to be
included in the accounts receivable securitization facility, (iii) allowed for
an internal corporate reorganization involving the Company and certain of its
subsidiaries, and (iv) provided certain pricing and administrative
enhancements.
The Company, in connection with its acquisitions, issued 2,732,505 shares of
Class A Common Stock in 1996. In addition, in December 1996, the Company
notified its holders of Series A Cumulative Convertible Preferred Stock that it
intended to redeem up to $10 million of the approximately $19.8 million (face
value) Series A Preferred Stock then outstanding. As a result of this notice,
subsequent to year end, the Series A preferred shareholders, with one
exception, notified the Company of their intent to convert all of their shares
of Series A Preferred Stock into an aggregate of approximately 1,360,000 shares
of the Company's Class A Common Stock.
At the end of fiscal 1996, the Company estimated capital expenditure
requirements of approximately $36 million for 1997, and had purchase
commitments of $17.5 million. Management believes that the cash provided by
operations and long-term borrowing arrangements will provide adequate funds for
current commitments and other requirements in the foreseeable future.
The Company recognized a $6.6 million decrease in its foreign currency
translation adjustment account during 1996, because of the weakening of the
Dutch guilder, British pound sterling and Japanese yen against the U.S. dollar.
The Company utilizes foreign hedging contracts in order to match anticipated
cash flows from foreign operations with local currency debt obligations. The
Company employs a variety of off-balance sheet financial instruments to reduce
its exposure to adverse fluctuations in interest and foreign
currency exchange rates, including foreign currency swap agreements and foreign
currency exchange contracts. At December 29, 1996, the Company had
approximately $40.1 million (notional amount) of foreign currency hedge
contracts outstanding, consisting principally of currency swap contracts. These
contracts serve to hedge firmly committed Dutch guilder and Japanese yen
currency revenues. At December 29, 1996, the Company utilized interest rate
swap agreements to effectively convert approxi-
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
36
mately $73 million of variable rate debt to fixed rate debt. At
December 29, 1996, the weighted average rate on borrowings was 6.9%. The
interest rate swap agreements have maturity dates ranging from nine to 24
months.
IMPACT OF INFLATION
Petroleum-based products comprise approximately 90% of the cost of raw
materials used by the Company in manufacturing. The Company historically has
been able to offset at least some portion of increases in the cost of such
petroleum-based products with finished product price increases. During 1996,
the Company experienced raw material price increases in the interior fabrics
and chemical operations which could not be entirely offset with finished
product price increases. Management cannot predict with certainty the extent to
which it will be able to pass through any future cost increases.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets being Disposed of," which provides
guidance on how and when impairment losses are recognized on certain long-lived
assets. This statement requires that long-lived assets and certain identifiable
intangibles and goodwill be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable, and that the asset be reported at the lower of carrying amount, or
fair value less cost to sell. This Statement, which was adopted by the Company
during 1996, did not have a material impact on operating results.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which the Company also adopted in 1996. SFAS No. 123 requires
companies to estimate the value of all stock-based compensation using a
recognized pricing model. Companies have the option of recognizing this value
as an expense or disclosing its effects on net income and earnings per share in
the notes to their financial statements. The company has recognized this value
by disclosing its effects in the notes to its financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Standard provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
This Standard is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The adoption
of this Standard is not expected to impact Interface's consolidated financial
statements.
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share." The new
Standard simplifies the standards for computing earnings per share and requires
presentation of two new amounts, basic and diluted earnings per share. The
Company will be required to retroactively adopt this standard when it reports
its operating results for the quarter and year ended December 1997. When the
Company presents this information, it expects to report the restated amounts
for 1996 and 1995 as shown in the following table.
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------
<S> <C> <C>
Basic earnings per share:
Income before
extraordinary item $1.23 $1.02
Net income 1.23 .83
Diluted earnings per share:
Income before
extraordinary item 1.22 1.02
Net income 1.22 .83
- ----------------------------------------
</TABLE>
SECURITIES LITIGATION REFORM ACT
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Except for the historical information contained herein, the matters
discussed in this annual report are forward-looking statements that involve
risk and uncertainties, including but not limited to (i) economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices, and (ii) other factors discussed in the
Company's filings with the Securities and Exchange Commission.
<PAGE> 7
Interface Inc. and Subsidiaries
Consolidated Statements of Income
37
<TABLE>
<CAPTION>
Fiscal Year Ended
(in thousands, except share data) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,002,076 $802,066 $725,283
Cost of sales 684,455 551,643 504,098
------------------------------
Gross profit on sales 317,621 250,423 221,185
Selling, general and administrative expenses 238,932 188,880 170,375
------------------------------
Operating income 78,689 61,543 50,810
------------------------------
Other expense
Interest expense 32,772 26,753 24,094
Other 2,490 3,114 1,003
------------------------------
Total other expense 35,262 29,867 25,097
------------------------------
Income before taxes on income and extraordinary item 43,427 31,676 25,713
Taxes on income 17,032 11,336 9,257
------------------------------
Income before extraordinary item 26,395 20,340 16,456
Extraordinary loss (net of tax) -- 3,512 --
------------------------------
Net income 26,395 16,828 16,456
Preferred stock dividends 1,678 1,750 1,750
------------------------------
Net income applicable to common shareholders $ 24,717 $ 15,078 $ 14,706
------------------------------
Primary earnings per common share
Income before extraordinary item $ 1.23 $ 1.02 $ 0.82
Extraordinary loss (net of tax) -- 0.19 --
------------------------------
Net income $ 1.23 $ 0.83 $ 0.82
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
Interface Inc. and Subsidiaries
Consolidated Balance Sheets
38
<TABLE>
<CAPTION>
(in thousands, except share data) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 8,762 $ 8,750
Accounts receivable 167,817 111,386
Inventories 146,678 134,504
Prepaid expenses 22,986 15,748
Deferred income taxes 7,057 3,998
-------------------
Total current assets 353,300 274,386
Property and equipment 208,791 183,299
Miscellaneous 51,385 37,841
Excess of cost over net assets acquired 249,070 218,825
-------------------
$862,546 $714,351
-------------------
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 14,918 $ 8,546
Accounts payable 74,960 55,101
Accrued expenses 70,919 50,148
Current maturities of long-term debt 2,919 1,560
-------------------
TOTAL CURRENT LIABILITIES 163,716 115,355
Long-term debt, less current maturities 254,353 199,022
Senior subordinated notes 125,000 125,000
Deferred income taxes 23,484 18,060
-------------------
TOTAL LIABILITIES 566,553 457,437
Minority interest 3,125 --
Redeemable preferred stock 19,750 25,000
Common stock 2,536 2,203
Additional paid-in capital 124,557 96,863
Retained earnings 166,828 147,039
Foreign currency translation adjustment (3,057) 3,555
Treasury stock, 3,600,000 Class A shares, at cost (17,746) (17,746)
-------------------
$862,546 $714,351
- --------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
Interface Inc. and Subsidiaries
Consolidated Statements of Cash Flow
39
<TABLE>
<CAPTION>
Fiscal Year Ended
(in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 26,395 $ 16,828 $ 16,456
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 35,305 28,944 28,180
Extraordinary loss on early extinguishment
of debt (net of tax) -- 3,512 --
Deferred income taxes 5,438 1,431 (1,994)
Working capital changes
Accounts receivable (17,465) 25,978 (2,788)
Inventories (2,199) 5,979 (6,849)
Prepaid expenses and other (6,870) 8 (1,671)
Accounts payable and accrued expenses 14,419 (6,132) 2,061
---------------------------------------
$ 55,023 $ 76,548 $ 33,395
---------------------------------------
INVESTING ACTIVITIES
Capital expenditures (36,436) (42,123) (21,315)
Acquisitions of businesses (30,151) (27,554) (1,409)
Changes in escrowed and restricted funds -- 2,663 1,352
Other (11,425) (5,145) (5,030)
---------------------------------------
$ (78,012) $ (72,159) $(26,402)
---------------------------------------
FINANCING ACTIVITIES
Borrowings on long-term debt 154,224 61,471 --
Principal repayments on long-term debt (107,561) (73,406) --
Proceeds from issuance of subordinated notes -- 121,543 --
Extinguishment of convertible subordinated debentures -- (106,419) --
Borrowing under lines of credit 24,410 12,620 75,011
Repayments of lines of credit (44,512) (10,655) (75,233)
Proceeds from issuance of common stock 2,916 984 678
Dividends paid (6,606) (6,132) (6,073)
Other -- -- (2,026)
---------------------------------------
$ 22,871 $ 6 $ (7,643)
---------------------------------------
Net cash provided by (used for) operating,
investing, and financing activities (118) 4,395 (650)
Effect of exchange rate changes on cash 130 (34) 365
---------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) 12 4,361 (285)
Balance, beginning of year 8,750 4,389 4,674
---------------------------------------
Balance, end of year $ 8,762 $ 8,750 $ 4,389
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
40
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Interface, Inc. is a recognized leader in the worldwide
commercial interiors market, offering floorcoverings, fabrics, specialty
chemicals and interior architectural products. The Company manufactures modular
carpet under the Interface, Bentley and Heuga brands and, through its Bentley
Mills and Prince Street subsidiaries participates in the high quality,
designer-oriented segment of the broadloom carpet market, and now provides
specialized carpet replacement, installation, and maintenance services. The
Company also produces interior fabrics and upholstery products, which it markets
under the Guilford of Maine, Stevens Linen, Toltec, and Intek brands. In
addition, the Company provides chemicals used in various rubber and plastic
products; licenses Intersept(R), a proprietary antimicrobial used in a host of
interior finishes; sponsors the Envirosense(R) Consortium in its mission to
address workplace environmental issues; and markets low-profile and multiple
plenum raised/access flooring systems under the C-Tec, Intercell and
Interstitial Systems brands.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Interface, Inc.
("the Company") and its subsidiaries. All material intercompany accounts and
transactions are eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from these estimates.
INVENTORIES
Inventories are valued at the lower of cost (standards which approximate actual
cost on a first-in, first-out basis) or market. Inventories include the cost of
raw materials, labor and manufacturing overhead. The Company makes provisions
for obsolete or slow moving inventories as necessary to properly reflect
inventory value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using the
straight-line method over the following estimated useful lives: buildings and
improvements--ten to fifty years; furniture and equipment--three to twelve
years. Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. The
Company capitalized net interest costs of approximately $0.1 million and $1.4
million for the years ended 1996 and 1995, respectively. Depreciation expense
amounted to approximately $25.0 million, $18.2 million and $20.8 million for
the years ended 1996, 1995 and 1994, respectively.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired is the excess of the purchase
price over the fair value of net assets acquired in business combinations
accounted for as purchases. Excess of cost over net assets acquired is amortized
on a straight-line basis over the periods benefitted, principally twenty-five to
forty years. Accumulated amortization amounted to approximately $43.5 million
and $33.2 million at December 29, 1996 and December 31, 1995, respectively.
The Company's operational policy for the assessment and measurement of
any impairment in the value of excess of cost over net assets acquired which is
other than temporary is to evaluate the recoverability and remaining life and
determine whether it should be completely or partially written off or the
amortization period accelerated. The Company will recognize an impairment if
undiscounted estimated future operating cash flows of the acquired business are
determined to be less than the carrying amount. The amount of impairment, if
any, is measured based on projected discounted future operating cash flows using
a discount rate reflecting the Company's average cost of funds.
<PAGE> 11
41
TAXES ON INCOME
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in tax laws or rates. The effect on deferred tax
assets and liabilities of a change in tax rates will be recognized as income or
expense in the period that includes the enactment date.
EARNINGS PER COMMON SHARE AND DIVIDENDS
Earnings per common share are computed by dividing net income applicable to
common shareholders by the combined weighted average number of shares of Class
A and Class B Common Stock outstanding during each year. The redeemable Series
A Preferred Stock is not considered to be a common stock equivalent because at
the date of issuance, the stated dividend rate was greater than 66 2/3% of the
then current average Aa corporate bond yield. In computing primary earnings per
share, the preferred stock dividend reduces income applicable to common
shareholders. Primary earnings per share are based upon 20,060,347 shares,
18,254,965 shares and 18,012,722 shares for the years ended 1996, 1995 and
1994, respectively. Fully diluted earnings per share have not been presented
because the differences are insignificant during 1996 and were antidilutive
during 1995 and 1994. For the purposes of computing earnings per common share
and dividends paid per common share, the Company is treating as treasury stock
(and therefore not outstanding) the shares that are owned by a wholly owned
subsidiary (3,600,000 Class A shares recorded at cost).
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share." The new
Standard simplifies the standards for computing earnings per share and requires
presentation of two new amounts, basic and diluted earnings per share. The
Company will be required to retroactively adopt this standard when it reports
its operating results for the quarter and year ended December 1997. When the
Company presents this information, it expects to report the following restated
amounts for 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended
- -----------------------------------------------------
1996 1995
- -----------------------------------------------------
<S> <C> <C>
Basic earnings per share:
Income before
extraordinary item $1.23 $1.02
Net income 1.23 .83
Diluted earnings per share:
Income before
extraordinary item 1.22 1.02
Net income 1.22 .83
=====================================================
</TABLE>
REVENUE RECOGNITION
Revenue is generally recognized on the sale of products or services when
the products are shipped or the services performed, all significant contractual
obligations have been satisfied, and the collection of the resulting receivable
is reasonably assured. Revenues and estimated profits on long-term performance
contracts are recognized under the percentage of completion method of accounting
using the cost-to-cost methodology. Profit estimates are revised periodically
based upon changes in facts. Any losses identified on contracts are recognized
immediately.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents, short-term investments and short-term
debt approximate cost due to the short period of time to maturity. Fair values
of long-term debt, swaps, forward currency contracts and currency options are
based on quoted market prices or pricing models using current market rates.
TRANSLATION OF FOREIGN CURRENCIES
The financial position and results of operations of the Company's foreign
subsidiaries are measured generally using local currencies as the functional
currency. Assets and liabilities of these subsidiaries are translated into U.S.
dollars at the exchange rate in effect at each year end. Income and expense
items are translated at average exchange rates for the year. The resulting
translation adjustments are recorded in the foreign currency translation
adjustment account. In the event of a divestiture of a foreign subsidiary, the
related foreign currency translation results are reversed from equity to
income. Foreign currency exchange gains and losses are included in income.
However, amounts are not material in any year.
<PAGE> 12
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
42
DERIVATIVES
The Company uses various financial instruments, including derivative
financial instruments, for purposes other than trading. The Company does not
enter into derivative financial instruments for speculative purposes.
Derivatives, used as a part of the Company's risk management strategy, are
designated at inception as hedges, and are measured for effectiveness both at
inception and on an ongoing basis. Gains and losses on hedges of existing assets
or liabilities are included in the carrying amounts of those assets or
liabilities and are ultimately recognized in income as part of those carrying
amounts. Gains or losses related to qualifying hedges of firm commitments or
anticipated transactions also are deferred and are recognized in income or as
adjustments of carrying amounts when the hedged transaction occurs.
FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest December 31. All
references herein to "1996", "1995", and "1994" mean the fiscal years ended
December 29, 1996, December 31, 1995 and January 1, 1995, respectively, each
comprising 52 weeks. Quarterly financial results are based upon a 13 week
reporting period.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
NOTE 2 BUSINESS ACQUISITIONS
During 1996, the Company acquired 100% of the outstanding capital stock of
fifteen floorcovering contractors: Earl W. Bentley Operating Co., Inc., based
in Oklahoma; Quaker City International, Inc., based in Pennsylvania; Superior
Holding Inc., based in Texas; Landry's Commercial Flooring Co., Inc., based in
Oregon; Reiser Associates, Inc., based in Texas; Southern Contract Systems,
Inc. based in Georgia; A & F Installations, Inc., based in New Jersey; ParCom,
Inc., based in Virginia; Congress Flooring Corp., based in Massachusetts;
Flooring Consultants, Inc., based in Arizona; B. Shehadi & Sons, Inc., based in
New Jersey; Lasher/White Carpet Co., Inc., based in New York; Oldtown Carpet
Center, Inc., based in North Carolina; Architectural Floors, a division of
Continental Office Furniture Corp., based in Ohio; and Floor Concepts, Inc.,
based in Maryland. These contractors are engaged primarily in the installation
of commercial floorcoverings. As consideration, the Company issued 2,674,906
shares of Class A Common Stock valued at approximately $19.3 million, $0.8
million in 7% notes and $23.0 million in cash. All transactions have been
accounted for as purchases, and accordingly, the results of operations of the
acquired companies since their acquisition dates have been included within the
consolidated financial statements. The excess of the purchase price over the
fair value of the net assets acquired was approximately $33.9 million and is
being amortized over 25 years.
The following unaudited pro forma information presents the consolidated results
of operations of the Company as if the acquisitions described above had
occurred at the beginning of 1995. The acquisitions described below would not
materially affect the pro forma financial information. The pro forma financial
information is not necessarily indicative of what would have occurred had the
acquisitions been made as of that date, nor is it indicative of future
results of operations. The pro forma amounts give effect to appropriate
adjustments for the fair value of the net assets acquired, amortization of the
excess of the purchase price over the net assets acquired, interest expense,
income taxes and the issuance of common stock.
<TABLE>
<CAPTION>
Year Ended
(in thousands, except share data) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,086,229 $988,655
Income before
extraordinary item 26,264 19,985
Net income applicable
to common shareholders 24,586 14,723
- --------------------------------------------------------------------------------------------------------
Primary earnings per common share:
Income before
extraordinary item $ 1.16 $ 0.87
Extraordinary loss on early
extinguishment of debt
(net of tax) -- 0.17
- --------------------------------------------------------------------------------------------------------
Net income $ 1.16 $ 0.70
========================================================================================================
</TABLE>
<PAGE> 13
43
Note 2 BUSINESS ACQUISITIONS (CONTINUED)
The fair values of the net assets acquired and liabilities assumed were as
follows:
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------------------------------
<S> <C>
Property and equipment $ 3,951
Inventories 10,213
Accounts receivable 35,428
Goodwill 33,882
Other assets 3,090
Accounts payable and accrued expenses (23,190)
Long-term debt (21,563)
--------
41,811
Value of stock and notes issued (20,160)
--------
Cash used for acquisitions $ 21,651
=======================================================================================================
</TABLE>
In February 1996, the Company acquired the outstanding common stock of
Renovisions, Inc., a nationwide installation services firm based in Georgia that
has pioneered a new method of carpet replacement, for approximately $4 million
in cash at closing and $1 million in guaranteed payments, due in February 1997.
The transaction was accounted for as a purchase, and accordingly, the results of
operations of Renovisions since the acquisition date have been included within
the consolidated financial statements. The excess of the purchase price over the
fair value of net assets acquired was approximately $4.3 million and is being
amortized over 25 years.
In February 1996, the Company acquired the outstanding common stock of
C-Tec, Inc., a Michigan based producer of raised/access flooring systems, for
approximately $8.8 million, which was comprised of $4.5 million in cash and $4.3
million in 6% subordinated convertible notes. The transaction was accounted for
as a purchase, and accordingly, the results of operations of C-Tec since the
acquisition date have been included within the consolidated financial
statements. The excess of the purchase price over the fair value of net assets
acquired was approximately $3.1 million and is being amortized over 25 years.
In December 1995, the Company acquired substantially all of the assets of the
Intek division of Spring Industries, a manufacturer of panel fabrics based in
Aberdeen, North Carolina, for approximately $13.9 million. The transaction was
accounted for as a purchase. The excess of the purchase price over the fair
value of the net assets was approximately $5.1 million and is being amortized
over 40 years. The results of operations of Intek have been included within the
consolidated financial statements since the acquisition date.
In June 1995, the Company acquired substantially all of the assets of Toltec
Fabrics, Inc. ("Toltec"), a manufacturer of panel fabrics based in North
Carolina, for approximately $13.3 million, which was comprised of $7.7 million
in cash and $5.6 million in notes. The transaction was accounted for as a
purchase. The excess of the purchase price over the fair value of the net
assets was approximately $6.9 million and is being amortized over 40 years. The
results of operations of Toltec have been included within the consolidated
financial statements since the acquisition date.
In March 1994, the Company acquired 100% of the outstanding capital
stock of Prince Street Technologies, Ltd., a manufacturer of broadloom carpet.
As consideration, the Company issued 674,953 shares of Class A Common Stock
valued at approximately $8.9 million. The transaction was accounted for as a
purchase. At the acquisition date, the fair value of the net liabilities of
Prince Street exceeded the fair value of the net assets by approximately $0.6
million. Accordingly, the excess of the purchase price ($9.3 million) over the
fair value of the net liabilities assumed was approximately $9.9 million and is
being amortized over 40 years. The results of the operations of Prince Street
since the acquisition date have been included within the consolidated financial
statements.
Note 3 CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands) 1996 1995
- ---------------------------------------------
Cash $8,762 $7,261
Cash equivalents --- 1,489
- ---------------------------------------------
$8,762 $8,750
=============================================
</TABLE>
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
Under the Company's cash management program, which provides for daily
replenishment of major bank accounts for check clearing requirements, checks in
transit are not con
<PAGE> 14
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
44
Note 3 CASH AND CASH EQUIVALENTS (CONTINUED)
sidered reductions of cash or accounts payable until presented to the
bank for payment. At December 29, 1996 and December 31, 1995, checks not yet
presented to the bank totaled approximately $12.3 and $7.7 million,
respectively. Cash payments for interest amounted to approximately $27.8
million, $27.9 million and $24.0 million for the years ended 1996, 1995 and
1994, respectively. Income tax payments amounted to approximately $9.8 million,
$8.2 million and $6.5 million for the years ended 1996, 1995 and 1994,
respectively.
NOTE 4 RECEIVABLES
The Company maintains an agreement with a financial institution to sell
a participating interest in a designated pool of commercial receivables, with
limited recourse, in amounts up to $65 million. The agreement relates to
specific operating subsidiaries of the Company. Under the agreement, a
participating interest in new receivables is sold as previous receivables are
collected. The participating interest is sold at a discount. The purchase
discount is the financial institution's commercial paper rate plus .45% and is
included in other expense in the accompanying consolidated statements of income.
At December 29, 1996, the rate was 6.084%. The Company acts as an agent for the
purchaser by performing record keeping and collection functions. The uncollected
receivables sold at December 29, 1996 and December 31, 1995 amounted to $31.7
million and $33.9 million, respectively. As of December 29, 1996 and December
31, 1995, the allowance for bad debts amounted to approximately $7.3 million and
$5.9 million, respectively, for all accounts receivable of the Company.
The Company has adopted credit policies and standards intended to reduce the
inherent risk associated with potential increases in its concentration of
credit risk due to increasing trade receivables from sales to owners and users
of commercial office facilities and with specifiers such as architects,
engineers and contracting firms. Management believes that credit risks are
further moderated by the diversity of its end customers and geographic sales
areas. Interface performs ongoing credit evaluations of its customers'
financial condition and requires collateral as deemed necessary.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Standard provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
This Standard is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The adoption
of this Standard is not expected to impact Interface's consolidated financial
statements.
Note 5 INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ------------------------------------------------
<S> <C> <C>
Finished goods $ 81,034 $ 76,407
Work-in-process 30,464 26,168
Raw materials 35,180 31,929
- ------------------------------------------------
$146,678 $134,504
================================================
</TABLE>
Note 6 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Land $ 13,038 $ 11,109
Buildings 98,706 82,189
Equipment 232,489 200,312
Construction-in-process 32,078 41,635
- --------------------------------------------------------------
376,311 335,245
Accumulated depreciation (167,520) (151,946)
- --------------------------------------------------------------
$ 208,791 $ 183,299
==============================================================
</TABLE>
The estimated cost to complete construction in progress for which the Company
was committed at December 29, 1996 was approximately $17.5 million.
Note 7 ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -------------------------------------------------------
<S> <C> <C>
Taxes $16,868 $10,130
Compensation 20,541 13,692
Interest 5,276 2,229
Other 28,234 24,097
- -------------------------------------------------------
$70,919 $50,148
- -------------------------------------------------------
</TABLE>
Note 8 LONG-TERM DEBT
Long-term debt, exclusive of the Company's 9.5% Senior
<PAGE> 15
45
Subordinated Notes due 2005 (see Note 9), consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ---------------------------------------------------
<S> <C> <C>
Secured term loan $50,000 $ 50,000
Revolving credit agreement 181,211 143,209
Other 26,061 7,373
- ---------------------------------------------------
Total long-term debt 257,272 200,582
Less current maturities (2,919) (1,560)
- ---------------------------------------------------
$254,353 $199,022
===================================================
</TABLE>
The Company maintains a revolving credit and secured term loan facility which
provides a maximum credit limit of $250 million. The facility is collateralized
by substantially all of the outstanding stock of the Company's operating
subsidiaries (except certain foreign subsidiaries, for which only 66% of the
outstanding stock is pledged). The $50 million term portion of the facility is
to be repaid in two equal installments of $25 million at December 29, 2000 and
December 31, 2001, plus accrued interest. The revolving credit facility
borrowings are due December 31, 2001, concurrent with the final installment of
the term portion. Interest is charged, at the Company's option, at a rate based
on either the bank's certificate of deposit rate or LIBOR, plus an applicable
margin of .35% to 1%, depending upon the Company's ability to meet certain
performance criteria; or the bank's prime lending rate (8.25% at December 29,
1996).
The agreements require prepayment from specified excess cash flows or proceeds
from certain asset sales and provide for restrictions which, among other
things, require maintenance of certain financial ratios, restrict encumbrance
of assets and limit the payment of dividends. At December 29, 1996,
approximately $25.8 million of the Company's retained earnings were
unrestricted and available for payment of dividends under the most restrictive
terms of the agreement. The Company considers the fair value of long-term debt
to approximate its current value.
Future maturities of long-term debt based on fixed payments (amounts could be
higher if excess cash flows or asset sales require prepayment of debt under the
credit agreements) are as follows:
<TABLE>
<CAPTION>
Fiscal Year (in thousands)
- -----------------------------------------------------
<S> <C>
1997 $ 2,919
1998 2,218
1999 1,963
2000 30,663
2001 --
Thereafter 219,509
- -----------------------------------------------------
$257,272
=====================================================
</TABLE>
Additionally, the Company maintains approximately $38 million in revolving
lines of credit through several of its subsidiaries. Interest is generally
charged at the prime lending rate or LIBOR. The weighted average interest rate
for 1996 was approximately 7.2%. Approximately $14.9 million and $8.5 million
was outstanding under these lines at December 29, 1996 and December 31, 1995,
respectively.
NOTE 9 SENIOR SUBORDINATED NOTES
In November 1995, the Company issued $125 million in 9.5% Senior Subordinated
Notes due 2005 (the "Notes"). Interest, which commenced on May 15, 1996, is
payable semi-annually on May 15 and November 15.
The Notes are guaranteed, jointly and severally, on an unsecured senior
subordinated basis, by each of the Company's principal domestic subsidiaries
(the "Guarantors"). The Guarantors include Interface Flooring Systems, Inc.,
Bentley Mills, Inc., Guilford of Maine, Inc., Prince Street Technologies, Inc.
and several other smaller domestic subsidiaries. (See Note 19 for Supplemental
Guarantor Condensed Consolidating Financial Statements.) The Notes are
redeemable for cash at any time on or after November 15, 2000 at the Company's
option and in whole or in part, initially at a redemption price equal to
104.75% of the principal amount, declining to 100% of the principal amount on
November 15, 2003, plus accrued interest thereon to the date fixed for
redemption. At December 29, 1996, the estimated fair value of the notes was
approximately $135.2 million.
NOTE 10 CONVERTIBLE SUBORDINATED DEBENTURES
The Company had $103.9 million aggregate principal amount of Convertible
Subordinated Debentures ("Debentures"). The Debentures were unsecured
obligations of the Company with interest, payable semi-annually, at 8%. They
were convertible into shares of the Company's
<PAGE> 16
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
46
NOTE 10 CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED)
Class A Common Stock at a conversion price of approximately $16.92 per
share. During 1995, approximately $101.5 million aggregate principal amount of
the Debentures were extinguished with the proceeds from the issuance of the
Company's 9.5% Senior Subordinated Notes (see Note 9). Approximately $2.5
million aggregate principal amount of the Debentures were extinguished with the
issuance of 145,034 shares of Class A Common Stock. This portion of
the extinguishment was a non-cash transaction and accordingly not included in
the statement of cash flows. The Company recorded an extraordinary loss of
approximately $3,512,000 ($0.19 per common share), net of income taxes of
approximately $2.2 million, consisting of redemption premiums and the write-off
of deferred financing costs, related to the early extinguishment of this debt.
NOTE 11 REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $1.00 par value
preferred stock and to fix the terms of such preferred stock without any vote
or action by the shareholders. The issuance of any series of preferred stock
may have an adverse effect on the rights of holders of common stock, and could
decrease the amount of earnings and assets available for distribution to
holders of common stock. In addition, any issuance of preferred stock could
have the effect of delaying, deferring or preventing a change in control of the
Company.
In conjunction with the acquisition of Bentley Mills in June 1993, the Company
issued 250,000 shares of Series A Cumulative Convertible Preferred Stock with a
face value of $100 per share. The Series A Preferred Stock was entitled to a 7%
annual cumulative cash dividend ($7.00 per preferred share) that was payable
quarterly. Series A Preferred Stock was non-voting, except as required by law
or in limited circumstances to protect its preferential rights. The Series A
Preferred Stock was convertible into shares of the Company's Class A Common
Stock at the rate of one share of Class A Common Stock for each $14.79 face
value thereof plus the amount of any accrued but unpaid dividends. During
September and November 1996, approximately $5.3 million (face value) Series A
Preferred Stock was converted into 358,493 shares of Class A Common Stock. In
December 1996, the Company notified its Series A preferred shareholders that it
intended to redeem up to $10 million of the approximately $19.7 million (face
value) Series A Preferred Stock then outstanding. As a result of this notice,
subsequent to year end, the Series A preferred shareholders, with one
exception, notified the Company of their intent to convert all of their shares
of Series A Preferred Stock into an aggregate of approximately 1,360,000 shares
of the Company's Class A Common Stock. During each of the years ended 1996 and
1995, the Company paid cash dividends of approximately $7.00 per preferred
share.
NOTE 12 COMMON STOCK AND STOCK OPTIONS
The Company is authorized to issue 40,000,000 shares of $.10 par value
Class A Common Stock and 40,000,000 shares of $.10 par value Class B Common
Stock. Class A and Class B Common Stock have identical voting rights except for
the election or removal of directors. Holders of Class B Common Stock are
entitled as a class to elect a majority of the Board of Directors. The Company's
Class A Common Stock is traded in the over-the-counter market under the symbol
IFSIA and is quoted on Nasdaq. The Company's Class B Common Stock is not
publicly traded. Class B Common Stock is convertible into Class A Common Stock
on a one-for-one basis. Both classes of Common Stock share in dividends
available to common shareholders (see Note 8 for discussion of restrictions on
the payment of dividends). Cash dividends on Common Stock were $.245 per share
for the year ended 1996 and $.24 per share for the years ended 1995 and 1994.
<PAGE> 17
47
NOTE 12 COMMON STOCK AND STOCK OPTIONS (CONTINUED)
The following table shows changes in common shareholders' equity.
<TABLE>
<CAPTION>
Foreign
Class A Class B Additional Currency
-------------- -------------- Paid-In Retained Translation
(in thousands) Shares Amount Shares Amount Capital Earnings Adjustment
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1994 17,918 $1,792 3,121 $312 $ 83,989 $125,960 $(12,423)
Net income -- -- -- -- -- 16,456 --
Conversion of common
stock 44 4 (44) (4) -- -- --
Issuance of common
stock 753 75 -- -- 9,461 -- --
Cash dividends paid -- -- -- -- -- (6,073) --
Foreign currency
translation
adjustment -- -- -- -- -- -- 12,287
-------------------------------------------------------------------
Balance at January 1, 1995 18,715 1,871 3,077 308 93,450 136,343 (136)
Net income 16,828
Conversion of common
stock 88 8 (88) (8) -- -- --
Issuance of common
stock 241 24 -- -- 3,413 -- --
Cash dividends paid -- -- -- -- -- (6,132) --
Foreign currency
translation
adjustment -- -- -- -- -- -- 3,691
-------------------------------------------------------------------
Balance at December 31, 1995 19,044 1,903 2,989 300 96,863 147,039 3,555
Net income -- -- -- -- -- 26,395 --
Conversion of common
stock 14 2 (14) (2) -- -- --
Issuance of common
stock 3,314 333 -- -- 27,694 -- --
Cash dividends paid -- -- -- -- -- (6,606) --
Foreign currency
translation
adjustment -- -- -- -- -- -- (6,612)
- -------------------------------------------------------------------------------------------------
Balance at December 29, 1996 22,372 $2,238 2,975 $298 $124,557 $166,828 $(3,057)
=================================================================================================
</TABLE>
<PAGE> 18
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
48
NOTE 12 COMMON STOCK AND STOCK OPTIONS (CONTINUED)
The Company has Key Employee Stock Option Plans ("the 1983 Plan" and "the 1993
Plan") and an Offshore Stock Option Plan ("Offshore Plan"), under which a
committee of the Board of Directors is authorized to grant key employees,
including officers, options to purchase the Company's Common Stock. Options are
exercisable for shares of Class A or Class B Common Stock at a price not less
than 100% of the fair market value on the date of grant. The options generally
become exercisable 20% per year over a five year period from the date of the
grant and the options generally expire ten years from the date of the grant. An
aggregate of 1,500,000 shares of Common Stock (Class A or Class B) have been
reserved for issuance under the 1993 Plan. No options are available to be
granted under the 1983 Plan. An aggregate of 830,674 shares of Class A Common
Stock have been reserved for issuance under the 1983 Plan. An aggregate of
1,000,000 shares of Common Stock (Class A or Class B) have been reserved for
issuance under the Offshore Plan.
The following tables summarize activity on stock options:
<TABLE>
<CAPTION>
number weighted average
of shares exercise price
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at
January 1, 1995, 1,808,000 $13.43
Granted 360,000 14.49
Exercised (96,000) 10.53
Forfeited or cancelled (125,000) 14.03
- -------------------------------------------------------------------------
Outstanding at
December 31, 1995 1,947,000 13.18
Granted 308,000 13.47
Exercised (224,000) 13.04
Forfeited or cancelled (112,000) 13.76
- -------------------------------------------------------------------------
Outstanding at
December 29, 1996 1,919,000 $13.30
=========================================================================
Options exercisable at
December 31, 1995 849,000 $13.45
December 29, 1996 821,000 13.35
=========================================================================
<CAPTION>
Weighted average fair value of options
granted during the year ended (in thousands)
- -------------------------------------------------------------------------
<S> <C>
December 31, 1995 $1,823
December 29, 1996 1,395
- -------------------------------------------------------------------------
</TABLE>
The weighted average remaining life of options outstanding at December 29, 1996
was 5.8 years. The range of exercise prices was $10.31-$16.50.
Interface has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option plans. Compensation expense was immaterial for 1996 and 1995. If
Interface had elected to recognize compensation cost based on the fair value at
the grant dates for options issued under the plans described above, consistent
with the method prescribed by SFAS No. 123, net income applicable to common
shareholders and earnings per share would have been changed to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Year Ended
(in thousands, except share data) 1996 1995
- ------------------------------------------------------
<S> <C> <C>
Net income applicable to
common shareholders
as reported $24,717 $15,078
pro forma 24,202 14,786
- ------------------------------------------------------
Earnings per share
as reported $ 1.23 $ 0.83
pro forma 1.21 0.81
- ------------------------------------------------------
</TABLE>
The fair value of stock options used to compute pro forma net income
applicable to common shareholders and earnings per share disclosures is the
estimated present value at grant date using the Black-Scholes option-pricing
model with the following weighted average assumptions for 1996 and 1995:
Dividend yield of .49% for both years; expected volatility of 30% for both
years; a risk free interest rate of 6.11% in 1996 and 6.53% in 1995; and an
expected option life of 4.92 years in 1996 and 4.38 years in 1995.
<PAGE> 19
49
Note 13 TAXES ON INCOME
Provisions for federal, foreign, and state income taxes in the consolidated
statements of income consisted of the following components:
<TABLE>
<CAPTION>
Year Ended
(in thousands) 1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 5,968 $ 5,331 $ 4,878
Foreign 3,284 5,844 4,660
State 2,418 1,592 1,713
- -----------------------------------------------------
11,670 12,767 11,251
=====================================================
Deferred (reduction):
Federal 818 1,495 (445)
Foreign 5,770 (1,189) (2,522)
State (1,226) (316) (875)
- -----------------------------------------------------
5,362 (10) (3,842)
=====================================================
Increase (decrease) in
valuation allowance -- (1421) 1848
- -----------------------------------------------------
$17,032 $11,336 $ 9,257
=====================================================
</TABLE>
Income before taxes on income consisted of the following:
<TABLE>
<CAPTION>
Year Ended
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
U.S. operations $17,186 $20,212 $18,072
Foreign operations 26,241 11,464 7,641
- ---------------------------------------------------------------------
$43,427 $31,676 $25,713
=====================================================================
</TABLE>
Deferred income taxes for the years ended December 29, 1996 and December 31,
1995, reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
The sources of the temporary differences and their effect on the net deferred
tax liability at December 29, 1996 and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -------------------------------------------------------------
ASSETS LIABILITIES Assets Liabilities
<S> <C> <C> <C> <C>
Basis difference
of property
and equipment $ -- $23,484 $ -- $19,607
Net operating
loss carry
forwards 3,212 -- 8,015 --
Other differences
in bases of
assets and
liabilities 7,051 -- 4,391 --
- -------------------------------------------------------------
$10,263 $23,484 $12,406 $19,607
=============================================================
</TABLE>
At December 29, 1996, the Company's foreign subsidiaries had approximately $2
million in net operating losses available for an unlimited carryforward period.
Additionally, the Company had approximately $57 million in state net operating
losses expiring at various times through 2011.
The effective tax rate on income before taxes differs from the United States
statutory rate. The following summary reconciles taxes at the United States
statutory rate with the effective rates:
<TABLE>
<CAPTION>
Year Ended
1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Taxes on income at U.S.
statutory rate 35.0% 35.0% 35.0%
Increase (reduction) in
taxes resulting from:
State income taxes, net of
federal benefit 1.8 2.6 2.2
Amortization of excess of cost
over net assets acquired
and related purchase
accounting adjustments 5.1 6.1 7.6
Foreign and U.S. tax effects
attributable to foreign
operations (2.1) (2.4) (10.0)
Valuation allowance -- (4.5) 2.2
Other (0.6) (1.0) (1.0)
- ----------------------------------------------------------
Taxes on income at
effective rates 39.2% 35.8% 36.0%
- ----------------------------------------------------------
</TABLE>
<PAGE> 20
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
50
Note 13 TAXES ON INCOME(CONTINUED)
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $67.5 million at December 29, 1996. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for United States
federal and state income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to both United States income taxes (subject to an adjustment for foreign
tax credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of unrecognized deferred United States income tax
liability is not practicable because of the complexities associated with its
hypothetical calculation. Withholding taxes of approximately $3.4 million would
be payable upon remittance of all previously unremitted earnings at December 29,
1996.
Note 14 HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL
INSTRUMENTS
The Company employs the use of derivative financial instruments for the
purpose of reducing its exposure to adverse fluctuations in interest and foreign
currency exchange rates. While these hedging instruments are subject to
fluctuations in value, such fluctuations are generally offset by the
fluctuations in values of the underlying exposures being hedged. The Company
does not hold or issue derivative financial instruments for trading purposes.
The Company monitors the use of derivative financial instruments through the use
of objective measurable systems, well-defined market and credit risk limits, and
timely reports to senior management according to prescribed guidelines. The
Company has established strict counterparty credit guidelines and only enters
into transactions with financial institutions of investment grade or better. As
a result, the Company considers the risk of counterparty default to be minimal.
INTEREST RATE MANAGEMENT
Management of the Company has developed and implemented a policy to maintain
the percentage of fixed and variable rate debt within certain parameters. The
Company enters into interest rate swap agreements, which maintain the
fixed/variable mix within these defined parameters. In these swaps, the Company
agrees to exchange, at specified intervals, the difference between fixed and
variable interest amounts calculated by reference to an agreed-upon notional
principal linked to LIBOR (London Interbank Offered Rate). Any differences paid
or received on interest rate swap agreements are recognized as adjustments to
interest expense over the life of each swap, thereby adjusting the effective
interest rate on the underlying obligation. At December 29, 1996 and December
31, 1995, the Company had utilized interest rate swap agreements to effectively
convert approximately $73 million of variable rate debt to fixed rate debt. The
weighted average rate on these borrowings was 6.9% at December 29, 1996.
FOREIGN CURRENCY EXCHANGE RATE MANAGEMENT
The purpose of the Company's foreign currency hedging activities is to reduce
the risk that the eventual local currency inflows resulting from sales to
foreign customers will be adversely affected by changes in exchange rates.
The Company enters into forward exchange and currency swap contracts to hedge
certain firm sales commitments denominated in foreign currencies. Net gains and
losses are deferred and recognized in income in the same period as the hedged
transaction. Net deferred gains/losses from hedging anticipated but not yet
firmly committed transactions were not material at December 29, 1996 and
December 31, 1995. The contracts served to hedge firmly committed Dutch
guilder, German mark, Japanese yen, French franc, British pound sterling, and
other foreign currency revenues. The contracts generally have maturity dates of
six to nine months. The interest rate and currency swap agreements have
maturity dates ranging from nine to twenty-four months.
The estimated fair values of derivatives used to hedge or modify the Company's
risks will fluctuate over time. These fair value amounts should not be viewed
in isolation, but rather in relation to the fair values of the underlying
hedged obligations and transactions and the overall reduction in the Company's
exposure to adverse fluctuations in interest and foreign exchange rates.
The notional amounts of the derivative financial instruments do not necessarily
represent amounts exchanged by the parties and, therefore, are not a direct
measure of the exposure of the Company through its use of derivatives. The
amounts exchanged are calculated on the basis of the notional amounts and the
other terms of the derivatives, which relate to interest rates or currency
exchange rates.
The notional amounts of the derivative financial instruments do not necessarily
represent amounts exchanged by the parties and, therefore, are not a direct
measure of the exposure of the Company through its use of derivatives. The
amounts exchanged are calculated on the basis of the notional amounts and the
other terms of the derivatives, which relate to interest rates or currency
exchange rates.
<PAGE> 21
51
The following table represents the aggregate notional amounts, fair values, and
maturities of the Company's derivative financial instruments. The liability
amounts shown within the table under foreign currency management represent
contracts under which the Company is required to deliver Japanese yen and Dutch
guilder currency at dates in the future.
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -----------------------------------------------------
NOTIONAL FAIR Notional Fair
AMOUNTS VALUES Amounts Values
<S> <C> <C> <C> <C>
Interest Rate
Management
Liabilities
Swap
agreement $73,000 $ (448) $73,000 $ (426)
Foreign Currency
Management
Liabilities
Forward
contracts -- -- 3,427 102
Swap
agreement 40,063 (3,864) 65,000 (7,328)
=====================================================
</TABLE>
Note 15 Commitments and Contingencies
The Company leases certain marketing locations, distribution facilities, and
equipment. At December 29, 1996 aggregate minimum rent commitments under
operating leases with initial or remaining terms of one year or more consisted
of the following:
<TABLE>
<CAPTION>
Fiscal year (in thousands)
- ------------------------------------
<S> <C>
1997 $11,154
1998 9,831
1999 7,293
2000 4,612
2001 1,597
Thereafter 1,754
- ------------------------------------
$36,241
====================================
</TABLE>
Rental expense amounted to approximately $9.4 million, $9.3 million and $11.8
million for the fiscal years ended 1996, 1995 and 1994, respectively.
In accordance with a Workers' Compensation self-insurance arrangement in the
State of Maine, the Company is required by state law to maintain a $4.4 million
irrevocable letter of credit.
NOTE 16 EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have trusteed defined benefit retirement plans
("Plans") which cover substantially all of their employees except those of
Guilford, which has a 401(k) retirement investment plan. The benefits are
generally based on years of service and the employee's average monthly
compensation. Pension expense was $1.3 million, $1.1 million and $0.8 million
for the years ended 1996, 1995 and 1994, respectively.
The ranges of assumptions used for the actuarial determinations reflect
the different economic environments within the various countries where the Plans
exist. In fiscal 1996, the weighted average rate of return on plan assets was
7.7% and the measurement of the projected benefit obligation was based on an
assumed weighted average discount rate of 7.8% and long-term rate of
compensation increases of 4.3%. In fiscal 1995, the assumed weighted average
rate of return on plan assets was 7.7% and the measurement of the projected
benefit obligation was based on an assumed weighted average discount rate of 8%
and long-term rate of compensation increases of 4.7%.
The Company has 401(k) retirement investment plans ("401(k) Plans"), which are
open to all U.S. employees with one or more years of service. Effective October
1, 1996, all existing 401(k) plans of the Company's subsidiaries were merged
into a new plan, "The Interface, Inc. Savings and Investment Plan and Trust."
The new 401(k) Plans call for Company contributions on a sliding scale based on
the level of the employee's contribution. Approximately 68% of eligible
employees were enrolled in the 401(k) Plans as of December 29, 1996. The
Company's contributions are funded monthly by payment to the 401(k) Plan
administrators. Company contributions totalled approximately $1.5 million, $0.6
million and $0.6 million for the years ended 1996, 1995 and 1994, respectively.
<PAGE> 22
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
52
Note 16 EMPLOYEE BENEFIT PLANS (CONTINUED)
The table presented below sets forth the funded status of the Company's
significant domestic and foreign defined benefit plans and amounts recognized
in the consolidated financial statements.
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily equity and
fixed income securities $72,951 $66,392
Actuarial present value of benefit obligations:
Vested benefits 59,558 52,339
Nonvested benefits 1,454 1,124
-----------------
Accumulated benefit obligation 61,012 53,463
Effect of projected future salary increases 6,007 4,082
-----------------
Projected benefit obligation 67,019 57,545
-----------------
Plan assets in excess of projected
benefit obligation 5,932 8,847
Unrecognized net gain from past experience
different from that assumed (7,165) (8,645)
Unrecognized prior service cost 327 362
Unrecognized net liability existing at the date of
initial application of SFAS 87 1,503 1,733
-----------------
Prepaid pension cost $ 597 $ 2,297
-----------------
Net pension cost included the following
components:
Service cost - benefits earned during
the period $ 1,928 $ 1,780
Interest cost on projected benefit obligation 4,893 4,315
Actual return on plan assets (6,124) (9,568)
Net amortization and deferral 642 4,611
-----------------
Net pension cost $ 1,339 $ 1,138
=====================================================================
</TABLE>
<PAGE> 23
53
Note 17 BUSINESS AND FOREIGN OPERATIONS
The Company operates predominantly in one industry segment. The Company
and its subsidiaries are engaged predominantly in the manufacture and sale of
commercial and institutional interior finishings. The Company's principal
markets are in the United States, Europe, Asia Pacific and Canada, with the
U.S. and Europe being the largest based on revenues. Financial information by
geographic area for the years ended 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to Unaffiliated Customers
United States $ 656,044 $440,715 $394,605
Americas, excluding the United States 22,030 23,165 22,325
Europe 257,243 267,116 246,376
Asia-Pacific 66,759 71,070 61,977
--------------------------------
Total $1,002,076 $802,066 $725,283
--------------------------------
Operating Income
United States $ 51,251 $ 40,608 $ 34,111
Americas, excluding the United States 1,519 1,170 522
Europe 30,815 26,046 20,707
Asia-Pacific 2,286 134 185
Corporate expenses (7,182) (6,415) (4,715)
--------------------------------
Total $ 78,689 $ 61,543 $ 50,810
--------------------------------
Identifiable Assets
United States $ 523,635 $366,128 $332,653
Americas, excluding the United States 11,985 8,313 7,951
Europe 273,094 290,486 304,894
Asia-Pacific 53,832 49,424 37,910
--------------------------------
Total $ 862,546 $714,351 $683,408
============================================================================
</TABLE>
<PAGE> 24
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
54
Note 18 QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
The following table sets forth, for the fiscal periods indicated,
selected consolidated financial data and information regarding the market price
per share of the Company's Class A Common Stock. The prices represent the
reported high and low closing sale prices.
<TABLE>
<CAPTION>
First Second Third Fourth
(in thousands, except share amounts) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
YEAR ENDED 1996
<S> <C> <C> <C> <C>
Net sales $205,017 $237,488 $275,041 $284,530
Gross profit 62,913 74,664 87,460 92,584
Net income 3,708 6,025 7,581 9,081
Net income applicable to common
shareholders 3,271 5,596 7,148 8,702
Primary earnings per common share 0.18 0.29 0.35 0.41
Share prices:
High 17 3/8 15 1/2 17 1/8 20 1/2
Low 12 11 5/8 13 7/16 16 1/8
Dividends per common share 0.06 0.06 0.06 0.065
- -------------------------------------------------------------------------------------------
Year Ended 1995
Net sales $191,327 $202,818 $203,269 $204,652
Gross profit 58,355 62,728 63,695 65,645
Income before extraordinary item 4,016 5,075 5,327 5,922
Net income 4,016 5,075 5,327 2,410
Net income applicable to common
shareholders 3,579 4,638 4,889 1,972
Primary earnings per common share before
extraordinary item 0.20 0.25 0.27 0.30
Primary earnings per common share 0.20 0.25 0.27 0.11
Share prices:
High 15 1/8 15 1/8 18 17 3/8
Low 11 5/8 11 7/8 12 1/4 15
Dividends per common share 0.06 0.06 0.06 0.06
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
55
Note 19 SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING
Financial Statements
<TABLE>
<CAPTION>
Interface, Inc. Consolidation
Guarantor Non-Guarantor (Parent and Elimination Consolidated
(in thousands) Subsidiaries Subsidiaries Corporation) Entries Totals
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1996
Net sales $738,812 399,499 - (136,235) $1,002,076
Cost of sales 524,584 296,105 - (136,235) 684,454
-----------------------------------------------------------------
Gross profit on sales 214,228 103,394 - - 317,622
Selling, general and administrative expenses 152,484 69,227 17,221 - 238,932
-----------------------------------------------------------------
Operating income 61,744 34,167 (17,221) - 78,690
Other expense (income)
Interest expense 8,679 5,263 18,830 - 32,272
Other 10,380 4,002 (11,891) - 2,491
-----------------------------------------------------------------
Total other expenses 19,059 9,265 6,939 - 35,263
-----------------------------------------------------------------
Income before taxes on income and
equity in income of subsidiaries 42,685 24,902 (24,160) - 43,427
Taxes on income 13,029 8,842 (4,839) - 17,032
Equity in income of subsidiaries - - 45,716 (45,716) -
-----------------------------------------------------------------
Income before extraordinary items 29,656 16,060 26,395 (45,716) 26,395
Extraordinary loss (net of tax) - - - - -
Net income 29,656 16,060 26,395 (45,716) 26,395
Preferred stock dividends - - 1,678 - 1,678
-----------------------------------------------------------------
Net income applicable to common
shareholders $ 29,656 $ 16,060 $ 24,717 $(45,716) $ 24,717
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
56
<TABLE>
<CAPTION>
Interface, Inc. Consolidation
Guarantor Non-Guarantor (Parent and Elimination Consolidated
(in thousands) Subsidiaries Subsidiaries Corporation) Entries Totals
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1995
Net sales $499,398 $411,462 $ 246 $(109,040) $802,066
Cost of sales 351,209 308,994 193 (108,753) 551,643
---------------------------------------------------------------------
Gross profit on sales 148,189 102,468 53 (287) 250,423
Selling, general and administrative expenses 98,372 77,242 13,266 - 188,880
---------------------------------------------------------------------
Operating income 49,817 25,226 (13,213) (287) 61,543
---------------------------------------------------------------------
Other expense (income)
Interest expense 6,609 8,766 11,378 - 26,753
Other 17,715 (7,817) 6,784) - 3,114
---------------------------------------------------------------------
Total other expenses 24,324 949 4,594 - 29,867
---------------------------------------------------------------------
Income before taxes on income and
equity in income of subsidiaries 25,493 24,277 (17,807) (287) 31,676
Taxes on income 13,957 4,343 (6,964) - 11,336
Equity in income of subsidiaries - - 31,470 (31,470) -
---------------------------------------------------------------------
Income before extraordinary items 11,536 19,934 20,627 (31,757) 20,340
Extraordinary loss (net of tax) - - 3,512 - 3,512
---------------------------------------------------------------------
Net income 11,536 19,934 17,115 (31,757) 16,828
Preferred stock dividends - - 1,750 - 1,750
---------------------------------------------------------------------
Net income applicable to common
shareholders $ 11,536 $ 19,934 $ 15,365 $ (31,757) $15,078
============================================================================================================================
</TABLE>
<PAGE> 27
57
<TABLE>
<CAPTION>
Interface, Inc. Consolidation
Guarantor Non-Guarantor (Parent and Elimination Consolidated
(in thousands) Subsidiaries Subsidiaries Corporation) Entries Totals
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1994
Net sales $434,580 $389,823 $ - $(99,120) $725,283
Cost of sales 310,493 292,394 - (98,789) 504,098
----------------------------------------------------------------------------------
Gross profit on sales 124,087 97,429 - (331) 221,185
Selling, general and administrative expenses 93,303 76,965 107 - 170,375
----------------------------------------------------------------------------------
Operating income 30,784 20,464 (107) (331) 50,810
----------------------------------------------------------------------------------
Other expense (income)
Interest expense 7,673 9,287 7,134 - 24,094
Other 2,468 3,205 (4,670) - 1,003
----------------------------------------------------------------------------------
Total other expenses 10,141 12,492 2,464 - 25,097
----------------------------------------------------------------------------------
Income before taxes on income and
equity in income of subsidiaries 20,643 7,972 (2,571) (331) 25,713
Taxes on income 7,355 3,986 (2,084) - 9,257
Equity in income of subsidiaries - - 17,274 (17,274) -
----------------------------------------------------------------------------------
Net income 13,288 3,986 16,787 (17,605) 16,456
Preferred stock dividends - - 1,750 - 1,750
----------------------------------------------------------------------------------
Net income applicable to common
shareholders $ 13,288 $ 3,986 $15,037 $(17,605) $ 14,706
====================================================================================================================================
</TABLE>
<PAGE> 28
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
58
<TABLE>
<CAPTION>
Interface, Inc. Consolidation
Guarantor Non-Guarantor (Parent and Elimination Consolidated
(in thousands) Subsidiaries Subsidiaries Corporation) Entries Totals
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1996
ASSETS
Current
Cash and cash equivalents $ 3,481 $ 4,791 $ 490 $ - $ 8,762
Accounts receivable 124,118 61,479 (17,780) - 167,817
Inventories 100,305 45,777 596 - 146,678
Miscellaneous 6,414 12,231 11,398 - 30,043
--------------------------------------------------------------------------
Total current assets 234,318 124,278 (5,296) - 353,300
Property and equipment, less accumulated
depreciation 143,599 60,924 4,268 - 208,791
Investments in subsidiaries 108,977 17,768 381,670 (508,415) -
Miscellaneous 142,228 44,637 374,105 (509,585) 51,385
Excess of cost over net assets acquired 171,526 74,512 3,032 - 249,070
--------------------------------------------------------------------------
$800,648 $322,119 $757,779 $(1,018,000) $862,546
=======================================================================================================================
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current
Notes payable $ 11,685 3,233 - - $ 14,918
Accounts payable 47,814 26,160 986 - 74,960
Accrued expenses 48,176 27,581 (2,272) - 73,485
Current maturities of long-term debt 2,244 22 - - 2,266
--------------------------------------------------------------------------
Total current liabilities 109,919 56,996 (1,286) - 165,629
Long-term debt, less current maturities 235,909 42,756 299,156 (322,256) 255,565
Senior subordinated notes - - 125,000 - 125,000
Deferred income taxes 12,936 1,009 9,539 - 23,484
--------------------------------------------------------------------------
Total liabilities 358,764 100,761 432,409 (322,256) 569,678
Redeemable preferred stock 57,891 - 19,750 (57,891) 19,750
Common stock 81,704 102,199 2,535 (183,902) 2,536
Additional paid-in capital 179,073 11,030 124,566 (190,102) 124,557
Retained earnings 127,477 103,678 182,897 (247,224) 166,828
Foreign currency translation adjustment (4,261) 4,451 (4,368) 1,121 (3,057)
Treasury stock - - - (17,746) (17,746)
--------------------------------------------------------------------------
$800,648 322,119 757,779 (1,018,000) 862,546
=======================================================================================================================
</TABLE>
<PAGE> 29
59
<TABLE>
<CAPTION>
Interface, Inc. Consolidation
Guarantor Non-Guarantor (Parent and Elimination Consolidated
(in thousands) Subsidiaries Subsidiaries Corporation) Entries Totals
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
ASSETS
Current
Cash and cash equivalents
Escrowed and restricted funds $ 2,984 $ 5,138 $ 628 $ - $ 8,750
Accounts receivable 69,897 63,361 (21,872) - 111,386
Inventories 82,381 52,123 - - 134,504
Miscellaneous 2,281 11,359 6,106 - 19,746
-----------------------------------------------------------------------------
Total current assets 157,543 131,981 (15,138) - 274,386
Property and equipment, less accumulated
depreciation 128,859 53,136 1,304 - 183,299
Investments in subsidiaries 112,820 17,746 300,688 (431,254) -
Miscellaneous 59,374 22,631 304,249 (348,413) 37,841
Excess of cost over net assets acquired 137,602 81,223 - - 218,825
-----------------------------------------------------------------------------
$596,198 $306,717 $591,103 $(779,667) $714,351
=============================================================================================================================
<CAPTION>
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Current
Notes payable $ 745 $ 7,801 $ - $ - $ 8,546
Accounts payable 30,439 23,923 739 - 55,101
Accrued expenses 22,018 21,742 6,388 - 50,148
Current maturities of long-term debt 1,550 10 - - 1,560
-----------------------------------------------------------------------------
Total current liabilities 54,752 53,476 7,127 - 115,355
Long-term debt, less current maturities 146,231 47,081 171,000 (165,290) 199,022
Convertible subordinated debentures - - 125,000 - 125,000
Deferred income taxes 12,237 550 5,273 - 18,060
-----------------------------------------------------------------------------
Total liabilities 213,220 101,107 308,400 (165,290) 457,437
Redeemable preferred stock 57,891 - 25,000 (57,891) 25,000
Common stock 62,054 92,634 2,203 (154,688) 2,203
Additional paid-in capital 165,022 11,030 96,963 (176,152) 96,863
Retained earnings 97,821 87,617 161,430 (199,829) 147,039
Foreign currency translation adjustment 190 14,329 (2,893) (8,071) 3,555
Treasury stock - - - (17,746) (17,746)
-----------------------------------------------------------------------------
$596,198 $306,717 591,103 (779,667) $ 714,351
=============================================================================================================================
</TABLE>
<PAGE> 30
Interface Inc. and Subsidiaries
Notes to Consolidated Financial Statements
60
<TABLE>
<CAPTION>
Interface, Inc. Consolidation
Guarantor Non-Guarantor (Parent and Elimination Consolidated
(in thousands) Subsidiaries Subsidiaries Corporation) Entries Totals
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1996
Cash flows from operating activities $ 29,718 $ 61,218 $(35,913) $ - $ 55,023
--------------------------------------------------------------------
Cash flows from investing activities:
Purchase of plant and equipment (21,671) (11,459) (3,306) - (36,436)
Acquisitions, net of cash acquired - - (58,447) - (58,447)
Other - (3,518) - - (3,518)
--------------------------------------------------------------------
Net cash provided by (used in) investing
activities (21,671) (11,459) (65,271) - (98,401)
--------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) (7,550) (50,236) 104,738 - 46,952
Proceeds from issuance of common stock - - 2,916 - 2,916
Cash dividends paid - - (6,608) - (6,608)
Other - - - - -
--------------------------------------------------------------------
Net cash provided by (used in) financing
activities (7,550) (50,236) 101,046 - 43,260
--------------------------------------------------------------------
Effect of exchange rate changes on cash - 130 - - 130
--------------------------------------------------------------------
Net increase (decrease) in cash 497 (347) (138) - 12
Cash at beginning of year 2,984 5,138 628 - 8,750
--------------------------------------------------------------------
Cash at end of year $ 3,481 $ 4,791 $ 490 $ - $ 8,762
=========================================================================================================================
<CAPTION>
Interface, Inc. Consolidation
Guarantor Non-Guarantor (Parent and Elimination Consolidated
(in thousands) Subsidiaries Subsidiaries Corporation) Entries Totals
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1995
Cash flows from operating activities $ 15,522 $ 64,428 $ (3,402) $ - $ 76,548
-------------------------------------------------------------------
Cash flows from investing activities:
Purchase of plant and equipment (30,880) 9,886) (1,357) - (42,123)
Acquisitions, net of cash acquired (27,554) - - - (27,554)
Other (6,474) (15,219) 19,211 - (2,482)
-------------------------------------------------------------------
Net cash provided by (used in) investing
activities (64,908) (25,105) 17,854 - (72,159)
-------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) 34,092 31,926 (60,864) - 5,154
Proceeds from issuance of common stock - - 984 - 984
Cash dividends paid - - (6,132) - (6,132)
Other 17,862 (70,049) 52,187 - -
-------------------------------------------------------------------
Net cash provided by (used in) financing
activities 51,954 (38,123) (13,825) - 6
-------------------------------------------------------------------
Effect of exchange rate changes on cash - (34) - - (34)
-------------------------------------------------------------------
Net increase (decrease) in cash 2,568 1,166 627 - 4,361
Cash at beginning of year 416 3,972 1 - 4,389
-------------------------------------------------------------------
Cash at end of year $ 2,984 $ 5,138 $ 628 $ - $ 8,750
=========================================================================================================================
</TABLE>
<PAGE> 31
61
<TABLE>
<CAPTION>
Interface, Inc. Consolidation
Guarantor Non-Guarantor (Parent and Elimination Consolidated
(in thousands) Subsidiaries Subsidiaries Corporation) Entries Totals
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1994
Cash flows from operating activities $ 16,314 $ 7,372 $ 9,709 $ - $ 33,395
Cash flows from investing activities:
Purchase of plant and equipment (15,689) (5,626) - - (21,315)
Acquisitions, net of cash acquired - - (1,409) - (1,409)
Other 19,028 (28,605) 6,230 (331) (3,678)
------------------------------------------------------------------
Net cash provided by (used in) investing
activities 3,339 (34,231) 4,821 (331) (26,402)
------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) (67,714) 105,524 (38,032) - (222)
Proceeds from issuance of common stock - - 678 - 678
Cash dividends paid - - (6,073) - (6,073)
Other 48,693 (79,827) 28,777 331 (2,026)
------------------------------------------------------------------
Net cash provided by (used in) financing
activities (19,021) 25,697 (14,650) 331 (7,643)
------------------------------------------------------------------
Effect of exchange rate changes on cash - 365 - - 365
------------------------------------------------------------------
Net increase (decrease) in cash 632 (797) (120) - (285)
Cash at beginning of year (216) 4,769 121 - 4,674
------------------------------------------------------------------
Cash at end of year $ 416 $ 3,972 $ 1 $ - $ 4,389
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The condensed consolidated financial statements of the Company (a holding
company) and the Guarantors should be read in conjunction with the consolidated
financial statements of the Company. Separate financial statements of the
Guarantors are not presented because the Guarantors are jointly, severally and
unconditionally liable under the guarantees, and the Company believes the
condensed consolidating financial statements presented are more meaningful in
understanding the financial position of the Guarantors (See Note 9).
There are no significant restrictions on the ability of the Guarantors to make
distributions to Interface, Inc.
<PAGE> 32
Interface Inc. and Subsidiaries
Management Statement and Auditors' Report
62
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Interface, Inc. is responsible for the accuracy and
consistency of of all the information contained in the annual report, including
the accompanying consolidated financial statements. The statements have been
prepared to conform with the generally accepted accounting principles
appropriate to the circumstances of the Company. The statements include amounts
based on estimates and judgments as required.
Interface, Inc. maintains internal accounting controls designed to provide
reasonable assurance that the financial records are accurate, that the assets
of the Company are safeguarded, and that the financial statements present
fairly the consolidated financial position, results of operations, and cash
flows of the Company.
The Audit Committee of the Board of Directors reviews the scope of the audits
and findings of the independent certified public accountants. The auditors meet
regularly with the Audit Committee to discuss audit and financial issues, with
and without management present.
BDO Seidman, LLP, the Company's independent certified public accountants, have
audited the financial statements prepared by management. Their opinion on the
financial statements is presented as follows.
Ray C. Anderson
Chairman of the Board and Chief Executive
Officer
Daniel T. Hendrix
Senior Vice President, Chief Financial Officer and Treasurer
Atlanta, Georgia
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of Interface, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Interface, Inc.
and subsidiaries as of December 29, 1996 and December 31, 1995, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 29, 1996. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Interface, Inc. and
subsidiaries as of December 29, 1996 and December 31, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 1996, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
February 20, 1997
[BDO LOGO]
<PAGE> 33
Interface Inc. and Subsidiaries
Selected Financial Information
63
<TABLE>
<CAPTION>
(In thousands,except share data) 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Operating Data
Net sales $1,002,076 $802,066 $725,283 $625,067 $594,078 $581,786 $623,467 $581,756 $396,651
Cost of sales 684,455 551,643 504,098 427,321 404,130 393,733 410,652 382,455 263,508
Selling, general, and
administrative expenses 238,932 188,880 170,375 151,576 149,509 150,100 153,317 135,468 87,445
Operating income 78,689 61,543 50,810 46,170 40,439 37,953 59,498 63,833 45,698
Income before taxes on income
and extraordinary items 43,427 31,676 25,713 21,304 18,561 14,330 37,680 40,631 34,111
Taxes on income 17,032 11,336 9,257 7,455 6,311 5,409 14,078 16,084 13,926
Income before extraordinary items 26,395 20,340 16,456 13,849 12,250 8,921 23,602 24,547 20,185
Net income 26,395 16,828 16,456 13,849 12,250 8,921 23,602 24,547 20,185
Earnings per common share
before extraordinary items
Primary 1.23 1.02 .82 .75 .71 .52 1.37 1.43 1.18
Fully diluted * * * * * * 1.24 1.27 1.15
Earnings per common share
Primary 1.23 .83 .82 .75 .71 .52 1.37 1.43 1.18
Fully diluted * * * * * * 1.24 1.27 1.15
Dividends
Cash dividends paid (A) 6,606 6,132 6,073 5,063 4,142 4,136 4,133 3,600 2,649
Cash dividends per
common share .245 .24 .24 .24 .24 .24 .24 .21 .16
Property additions (B) 40,387 48,929 24,376 28,829 14,476 15,375 23,705 25,333 49,261
Depreciation and amortization 35,305 28,944 28,180 24,512 22,257 19,723 21,570 17,243 11,621
Weighted Average Shares Outstanding
Primary 20,060 18,255 18,013 17,302 17,253 17,230 17,214 17,146 17,109
Fully diluted 21,989 19,946 25,848 24,352 23,398 23,375 23,359 23,291 18,726
At Year End
Working capital 189,584 159,031 174,620 140,575 138,834 150,541 156,638 131,953 127,328
Current ratio 2.2 2.4 2.5 2.1 2.5 2.3 2.4 2.2 2.3
Net property and equipment 208,791 183,299 152,874 145,125 137,605 139,406 141,125 126,917 119,006
Total assets 862,546 714,351 683,408 642,319 534,120 569,438 582,371 525,814 493,371
Total long-term debt 382,272 325,582 314,441 291,637 235,488 240,137 254,578 244,158 249,136
Redeemable preferred stock 19,750 25,000 25,000 25,000 -- -- -- -- --
Common shareholders' equity 273,118 231,914 214,090 181,884 186,349 198,977 198,409 157,001 135,985
Book value per common share 12.56 12.58 11.89 10.42 10.79 11.55 11.52 9.14 7.94
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands,except share data) 1987
- ----------------------------------------------
<S> <C>
Annual Operating Data
Net sales $267,008
Cost of sales 176,813
Selling, general, and
administrative expenses 56,884
Operating income 33,311
Income before taxes on income
and extraordinary items 25,722
Taxes on income 11,742
Income before extraordinary items 13,700
Net income 13,700
Earnings per common share
before extraordinary items
Primary .87
Fully diluted N/A
Earnings per common share
Primary .87
Fully diluted N/A
Dividends
Cash dividends paid (A) 2,081
Cash dividends per
common share .13
Property additions (B) 14,152
Depreciation and amortization 8,270
Weighted Average Shares Outstanding
Primary 15,740
Fully diluted N/A
At Year End
Working capital 55,586
Current ratio 2.2
Net property and equipment 72,818
Total assets 233,165
Total long-term debt 62,949
Redeemable preferred stock --
Common shareholders' equity 115,990
Book value per common share 6.80
==============================================
</TABLE>
* For fiscal years 1996, 1995, 1994, 1993, 1992 and 1991, fully diluted
earnings per common share were antidilutive or the differences from primary
earnings per share were insignificant.
(A) Includes preferred stock dividends of $1,678,000 in 1996, $1,750,000 in
1995 and 1994 and $913,000 in 1993.
(B) Includes property and equipment obtained in acquisitions of businesses.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF INTERFACE, INC.
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY ORGANIZATION
---------- ---------------
<S> <C>
Bentley Mills, Inc. Delaware (USA)
Guilford (Delaware), Inc. Delaware (USA)
Interface Europe, Inc. Delaware (USA)
Interface Interface Fabrics, Inc.(1) Delaware (USA)
Interface Securitization Corporation Delaware (USA)
Intek, Inc. Georgia (USA)
Interface Americas, Inc. Georgia (USA)
Interface Asia-Pacific, Inc.(2) Georgia (USA)
Interface Flooring Systems, Inc. Georgia (USA)
Interface Leasing, Inc. Georgia (USA)
Interface Research Corporation Georgia (USA)
Interface Yarns, Inc. Georgia (USA)
Pandel, Inc. Georgia (USA)
Prince Street Technologies, Ltd. Georgia (USA)
Re:Source Americas Enterprises, Inc.(3) Georgia (USA)
Rockland React-Rite, Inc. Georgia (USA)
Toltec Fabrics, Inc. Georgia (USA)
Interface Architectural Resources, Inc. Michigan (USA)
Interface Americas Services, Inc. Nevada (USA)
Interface Holding Company Nevada (USA)
Interface Specialty Resources, Inc. Nevada (USA)
Renovisions, Inc. Pennsylvania (USA)
Interface International (Barbados), Inc. Barbados
Interface Flooring Systems (Canada), Inc. Canada
Interface Europe B.V.(4) Netherlands
Interface Europe, Ltd.(5) United Kingdom
</TABLE>
- -------------------
(1) Interface Interior Fabrics, Inc. (formerly Guilford of Maine, Inc.) is the
parent of eight subsidiaries organized and operating in Canada and the
United States (including Toltec Fabrics, Inc. and Intek, Inc.).
(2) Interface Asia-Pacific, Inc. is the parent of nine subsidiaries organized
and operating in Australia, Japan, Hong Kong, Singapore, Thailand and
China.
(3) Re:Source Americas Enterprises, Inc. is the parent of 15 subsidiaries
organized and operating in the United States.
(4) Interface Europe B.V. (formerly Interface Heuga B.V.) is the parent of six
subsidiaries organized and operating in the Netherlands, and 12
subsidiaries organized and operating outside of the Netherlands (none of
which are organized or operating in the United States).
(5) Interface Europe, Ltd. (formerly Interface Flooring Systems, Ltd.) is the
parent of five subsidiaries organized and operating in the United Kingdom,
Ireland and Hong Kong.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Interface, Inc.
Atlanta, Georgia
We hereby consent to the incorporation by reference in the Prospectuses
constituting a part of the Company's Registration Statements on Form S-8 (File
Numbers 33-28305, 33-28307, 33-69808, 333-10379 and 333-10377) of our reports
dated February 20, 1997, relating to the consolidated financial statements and
schedules of Interface, Inc. appearing in the Company's Form 10-K for the year
ended December 29, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectuses.
BDO SEIDMAN, LLP
Atlanta, Georgia
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM FINANCIAL
STATEMENTS INCORPORATED BY REFERENCE INTO THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 29, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 8,782
<SECURITIES> 0
<RECEIVABLES> 175,166
<ALLOWANCES> 7,349
<INVENTORY> 146,678
<CURRENT-ASSETS> 353,300
<PP&E> 408,956
<DEPRECIATION> 200,165
<TOTAL-ASSETS> 862,546
<CURRENT-LIABILITIES> 163,716
<BONDS> 379,353
19,750
0
<COMMON> 2,536
<OTHER-SE> 270,582
<TOTAL-LIABILITY-AND-EQUITY> 862,546
<SALES> 1,002,076
<TOTAL-REVENUES> 1,002,076
<CGS> 684,455
<TOTAL-COSTS> 923,387
<OTHER-EXPENSES> 2,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,772
<INCOME-PRETAX> 26,395
<INCOME-TAX> 1,678
<INCOME-CONTINUING> 24,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,395
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
