<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
---------- ----------
Commission File Number
----------------------
1-10471
CRAFTMADE INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2057054
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
650 South Royal Lane, Suite 100 Coppell, Texas 75019
- ---------------------------------------------- -----
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (972) 393-3800
--------------
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 [ ]
6,210,361 shares of Common Stock were outstanding as of May 12, 2000.
<PAGE> 2
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Quarterly Report on Form 10-Q
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the three and
nine months ended March 31, 2000 and 1999.
Condensed Consolidated Balance Sheets as of March 31, 2000 and
June 30, 1999.
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended March 31, 2000.
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 2000 and 1999.
Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
------------------------------ ------------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 20,336 $ 21,305 $ 60,157 $ 62,466
Cost of goods sold 14,119 13,887 39,526 40,006
------------ ------------ ------------ ------------
Gross profit 6,217 7,418 20,631 22,460
------------ ------------ ------------ ------------
Selling, general
and administrative
expenses 4,607 4,921 13,480 12,793
Interest expense,net 445 276 1,150 1,004
Depreciation and
amortization 219 203 648 597
------------ ------------ ------------ ------------
Total expenses 5,271 5,400 15,278 14,394
------------ ------------ ------------ ------------
Income before
income taxes
and minority interest 946 2,018 5,353 8,066
Provision for
income taxes 216 737 1,613 2,706
------------ ------------ ------------ ------------
Income before
minority interest 730 1,281 3,740 5,360
Minority interest (339) 7 (879) (617)
------------ ------------ ------------ ------------
Net income $ 391 $ 1,288 $ 2,861 $ 4,743
============ ============ ============ ============
Basic and diluted
earnings per share $ .06 $ .17 $ .41 $ .63
============ ============ ============ ============
Cash dividends
declared
per common share $ .02 $ .02 $ .06 $ .06
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 4
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Current assets:
Cash $ 1,127 $ 1,563
Accounts receivable - trade,
net of allowance 13,640 14,586
Inventory, net of reserve 14,953 13,779
Prepaid expenses and other
current assets 1,574 1,507
---------- ----------
Total current assets 31,294 31,435
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Property and equipment, net 9,554 9,691
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Other assets:
Goodwill, net 5,236 5,543
Other assets 30 48
---------- ----------
Total other assets 5,266 5,591
---------- ----------
$ 46,114 $ 46,717
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 5
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- -----------
Current liabilities: (In thousands)
<S> <C> <C>
Note payable, facility-
current portion $ 838 $ 788
Revolving line of credit 15,700 11,950
Accounts payable - trade 3,332 4,174
Accounts payable - commissions 344 344
Income taxes payable -- 446
Other accrued liabilities 340 426
----------- -----------
Total current liabilities 20,554 18,128
Note payable, facility -
long term portion 8,362 4,677
Other liabilities 407 549
----------- -----------
Total liabilities 29,323 23,354
----------- -----------
Stockholders' equity:
Series A cumulative, convertible,
callable preferred stock, $1.00
par value, 2,000,000 shares
authorized; 32,000 shares issued 32 32
Common stock, $.01 par value,
15,000,000 shares authorized,
9,316,535 shares issued 93 93
Additional paid-in capital 12,453 12,453
Retained earnings 21,482 19,046
----------- -----------
34,060 31,624
Less: treasury stock, 2,916,177
and 1,917,677 common shares at
cost as of March 31, 2000 and
June 30, 1999, respectively
and 32,000 preferred shares
at cost (17,269) (8,261)
----------- -----------
Total stockholders' equity 16,791 23,363
----------- -----------
$ 46,114 $ 46,717
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
(In $thousands) Series A ADDITIONAL
Preferred PAID-IN RETAINED
VOTING COMMON STOCK Stock CAPITAL EARNINGS TREASURY STOCK
--------------------- ----- ------- -------- -------------------
Shares Amount Shares Amount Total
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1999 9,317 $93 $32 $12,453 $19,046 1,950 ($8,261) $23,363
Stock repurchase 998 (9,008) (9,008)
Net Income for the nine months
ended March 31, 2000 2,861 2,861
Cash Dividends (425) (425)
Balance as of March 31, 2000 9,317 $93 $32 $12,453 $21,482 2,948 ($17,269) $16,791
</TABLE>
<PAGE> 7
CRAFTMADE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------
March 31, March 31,
2000 1999
------------ ------------
(In Thousands)
<S> <C> <C>
Net cash provided by
operating activities $ 2,737 $ 5,283
------------ ------------
Cash flows from investing activities:
TSI acquisition 0 (2,041)
Net additions to equipment (204) (372)
------------ ------------
Net cash used for investing activities (204) (2,413)
------------ ------------
Cash flows from financing activities:
Principal payments on note payable - facility (581) (1,141)
Proceeds from note payable - facility 4,316 --
Stock repurchase (9,008) (994)
Net proceeds from (principal payments for)
revolving line of credit 3,750 279
Proceeds from exercise of stock options 0 10
Cash dividends (425) (402)
Distributions to minority interest
shareholders in subsidiary (1,021) (478)
------------ ------------
Net cash used for financing activities (2,969) (2,726)
------------ ------------
Net increase (decrease) in cash (436) 144
Cash at beginning of year 1,563 925
------------ ------------
Cash at end of period $ 1,127 $ 1,069
============ ============
</TABLE>
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------
March 31, March 31,
2000 1999
------------ ------------
(In Thousands)
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,170 $ 1,004
============ ============
Income taxes $ 377 $ 2,800
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
MARCH 31, 2000
(Unaudited)
Note 1 - BASIS OF PREPARATION AND PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and include all adjustments which are, in the opinion of management,
necessary for a fair presentation. The condensed consolidated financial
statements include the accounts of the Company and its subsidiaries. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes that the disclosures are adequate to make the information presented not
misleading; however, it is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto which are
included in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1999. The financial data for the interim periods may not necessarily be
indicative of results to be expected for the year.
Certain amounts for the three and nine months ended March 31, 1999 have been
reclassified to conform with the current quarter and nine months' presentation.
Note 2 - TREASURY STOCK PURCHASES
On March 17, 1999, the Company's Board of Directors authorized the Company's
management to repurchase up to 200,000 shares of the Company's outstanding
stock. During the first quarter of fiscal 2000 the Company repurchased the
remaining 22,500 shares at an aggregate cost of $208,000 under this plan.
On August 13, 1999, and on October 29, 1999, the Company's Board of Directors
authorized the Company's management to repurchase an additional 400,000 and
250,000 shares, respectively, of the Company's outstanding common stock. At
March 31, 2000, the Company had repurchased 650,000 shares at an aggregate cost
of $6,042,000 related to this plan.
On February 16, 2000 the Company's Board of Directors authorized the Company's
management to repurchase an additional 1,500,000 shares of the Company's
outstanding common stock. At March 31, 2000, the Company had repurchased 326,000
shares at an aggregate cost of $2,758,000 related to this plan.
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
March 31, 2000
(Unaudited)
(In Thousands)
Note 3 - EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator used in the
basic and diluted EPS calculations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
----------------------------- -----------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic and Diluted EPS
Numerator:
Net Income $ 391 $ 1,288 $ 2,861 $ 4,743
------------ ------------ ------------ ------------
Denominator:
Common
Shares
Outstanding 6,671 7,551 6,954 7,550
------------ ------------ ------------ ------------
Basic EPS $ .06 $ .17 $ .41 $ .63
============ ============ ============ ============
Denominator:
Common Shares
Outstanding 6,671 7,551 6,954 7,550
Options -- 14 -- 15
------------ ------------ ------------ ------------
Total Shares 6,671 7,565 6,954 7,565
============ ============ ============ ============
Diluted EPS $ .06 $ .17 $ .41 $ .63
============ ============ ============ ============
</TABLE>
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
MARCH 31, 2000
(Unaudited)
Note 4 - DERIVATIVE FINANCIAL INSTRUMENTS
During the first quarter of fiscal 2000, the Company entered into an interest
rate swap agreement, with a maturity of December 26, 2003, to manage its
exposure to interest rate movements by effectively converting its long-term
facility debt from fixed to variable rates. The notional amount of the interest
rate swap subject to variable rates as of March 31, 2000 was $4,373,009, which
decreases as payments are made on the long-term debt. Under this agreement, the
Company has contracted to pay a variable rate equal to LIBOR plus 2.43% (8.5625%
at March 31, 2000) and receive a fixed rate of 8.125%. This agreement is
accounted for as a hedge of fixed rate debt and interest rate differentials paid
or received under this agreement will be recognized as adjustments to interest
expense. Gains or losses on terminated swaps will be recognized over the
remaining life of the underlying obligation as an adjustment to interest
expense. The fair value of the swap agreement approximated ($98,019) at March
31, 2000. This amount approximates the present value of the difference between
estimated future variable-rate payments and fixed-rate receipts and represents
the amount the Company would have to pay to terminate the swap. This amount has
not been recognized in the Condensed Consolidated Financial Statements, since it
is accounted for as a hedge and the Company has no present intention of
terminating the swap prior to the maturity date of the debt.
Note 5 - SEGMENT INFORMATION
The Company has two operating segments: Craftmade and Trade Source International
("TSI"). The Craftmade segment primarily derives its revenue from home
furnishings including ceiling fans, light kits, bathstrip lighting and lamps
offered primarily through lighting showrooms. The TSI segment derives its
revenue from outdoor lighting and fan accessories marketed solely to mass
merchandisers. The accounting policies of the segments are the same as those
described in Note 2 - Summary of Significant Accounting Policies to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999.
The Company evaluates the performance of its segments and allocates resources to
them based on their operating profit and loss and cash flows.
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF CRAFTMADE INTERNATIONAL, INC.
AND SUBSIDIARIES
MARCH 31, 2000
(Unaudited)
Note 5 - SEGMENT INFORMATION (con't)
---------------------------
The following table presents information about the reportable segments (in
thousands):
<TABLE>
<CAPTION>
Craftmade TSI Total
------------ ------------ ------------
<S> <C> <C> <C>
For the three months ended March 31, 2000:
Net sales from external customers $ 11,672 $ 8,664 $ 20,336
Operating profit 1,266 125 1,391
For the three months ended March 31, 1999:
Net sales from external customers $ 11,233 $ 10,072 $ 21,305
Operating profit 1,515 779 2,294
For the nine months ended March 31, 2000:
Net sales from external customers $ 36,120 $ 24,037 $ 60,157
Operating profit 5,338 1,165 6,503
For the nine months ended March 31, 1999:
Net sales from external customers $ 34,444 $ 28,022 $ 62,466
Operating profit 6,032 3,038 9,070
March 31, 2000
Total Assets $ 27,827 $ 18,287 $ 46,114
March 31, 1999
Total Assets $ 28,267 $ 18,450 $ 46,717
</TABLE>
<PAGE> 12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Cautionary Statement
With the exception of historical information, the matters discussed under
"Results of Operations" and "Liquidity and Capital Resources" contain
forward-looking statements. There are certain important factors which could
cause results to differ materially than those anticipated by some of the
forward-looking statements. Some of these important factors include, among other
things, changes from anticipated levels of sales, whether due to future national
or regional economic and competitive conditions, changes in relationships with
customers, TSI's dependence on select mass merchandisers, customer acceptance of
existing and new products, pricing pressures due to excess capacity, raw
material cost increases, changes in tax or interest rates, unfavorable economic
and political developments in Asia, the location of the Company's primary
vendors, declining conditions in the home construction industry, inability to
realize deferred tax assets, and other uncertainties, all of which are difficult
to predict and many of which are beyond the control the Company.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net Sales. Net sales decreased $969,000 to $20,336,000 for the three month
period ended March 31, 2000 from $21,305,000 for the same three month period
last year. Sales of the TSI divison declined $1,408,000, partially offset by a
$439,000 increase in sales of the Craftmade division. Craftmade's sales
benefited from an increase in fan sales of 11.2% or $756,000 for the three month
period ended March 31, 2000 compared to the same period in the previous year.
The increase in fan sales was partially offset by a $317,000 decline in sales of
products other than fans, primarily related to a decline in sales of Durocraft
(the lamp business of Craftmade, which is currently being phased out). The
decline in sales of the TSI division was primarily due to the fact that the
division recorded $1,469,000 in revenue from the sale of merchandise to a
national wholesale club in the third quarter of fiscal 1999 which did not occur
in the third quarter of fiscal 2000. The sale in the third quarter of fiscal
1999 represented a non-program purchase of promotional items consistent with the
customer's strategy of continuously offering new products. The Company's
management anticipates that future growth of the TSI division will come from
expanding its product offerings, particularly through its 50% ownership interest
in Design Trends, LLC, and consequently expanding its customer base to include
regional and national
<PAGE> 13
specialty retailers and department stores in addition to the mass retailers and
major home center customers it now serves.
Gross Profit. Gross profit for the three months ended March 31, 2000 decreased
$1,201,000 to $6,217,000 (or 30.6% of net sales) from $7,418,000 (or 34.8% of
net sales) for the same period of 1999. Excluding the effect of inventory
write-downs, the gross margin of the Craftmade division increased $243,000, and
gross margins improved to 43.3% of sales from 42.8% for the three months ended
March 31, 2000 and 1999, respectively. Craftmade recorded a write-down of its
Durocraft inventory of $517,000 or $0.05 per share net of income taxes. Gross
profit from TSI decreased to 19.4% of net sales for the three months ended March
31, 2000 from 36.2% for the same period of the previous year. The decline in the
gross margin of TSI was primarily due to an increase in direct shipment sales
which carry lower margins than domestic shipments. TSI's gross margin was also
impacted because the division recorded $194,000 in sales credits during the
third quarter of fiscal 2000 which did not occur in the third quarter of fiscal
1999. These credits were issued to assist two of the division's largest
customers in clearing inventory, and were in addition to credits issued under
the terms of various sales allowance and rebate programs the Company has in
place.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses decreased to 22.7% of sales for the three
months ended March 31, 2000 from 23.1% of sales for the three months ended March
31, 1999, or 0.4% as a percentage of net sales. Total SG&A expense of the
Craftmade division decreased to 27.2% of sales from 28.6% of sales for the same
period in the previous year, or 1.4% as a percentage of sales. The decline in
SG&A expense as a percentage of sales demonstrates the Company's ability to
leverage its fixed corporate operating expenses while increasing sales of the
Craftmade division. For the three-month period ended March 31, 2000, SG&A
expenses of the TSI division declined to 16.5% of sales compared to 17.0% of
sales for the year-ago period, or 0.5% as a percentage of sales. The decline in
SG&A expense of the TSI division was due to management's continued efforts to
reduce costs and eliminate redundancies in SG&A subsequent to Craftmade's
acquisition of TSI.
Interest Expense. Net interest expense increased $169,000 to $445,000 for the
three months ended March 31, 2000 from $276,000 for the same three-month period
last year. This increase was primarily the result of a net increase in the
Company's line of credit during the nine months ended March 31, 2000. The
proceeds were utilized to repurchase the Company's common stock during the
period.
<PAGE> 14
Minority Interest. Minority interest of ($339,000) and $7,000 for the three
months ended March 31, 2000 and 1999, respectively, represented the 50%
ownership of Prime Home Impressions, LLC ("PHI") by a non-Company owned member.
The non-Company owned interest has been accounted for as a minority interest.
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March, 1999
Net Sales. For the nine months ended March 31, 2000, net sales decreased
$2,309,000 to $60,157,000 from $62,466,000 for the same nine-month period last
year. This decrease was primarily represented by TSI's $3,985,000 decline in
sales for the nine months ended March 31, 2000 offset partially by a $1,676,000
increase in Craftmade's sales for the period. Net sales of TSI declined as one
of TSI's major customers reduced its level of purchasing during the first
quarter of fiscal 2000 while it continued to sell previously purchased
inventory. Sales were also impacted by a substantial reduction in the purchases
of another customer, a national wholesale club, that occurred in the third
quarter. Craftmade's sales benefited from increased fan sales during the period,
partially offset by declining lamp sales, consistent with results for the
three-month period ended March 31, 2000.
Gross Profit. For the nine month period ended March 31, 2000, gross profit
decreased to 34.3% of sales or $20,631,000 in fiscal 2000 from 36.0% of sales or
$22,460,000 in fiscal 1999. Craftmade's gross margins declined to 42.2% from
43.1% for the nine months ended March 31, 2000 and 1999, respectively. Excluding
the $517,000 write-down of the Durocraft inventory in the third quarter of
fiscal 2000, the gross margin of the Craftmade division increased to 43.7% of
sales for the nine-month period ended March 31, 2000. Gross profit from TSI
declined to 22.4% of sales compared to 27.2% for the same period in the previous
year. The decline in TSI's gross margin was due to an increase in direct
shipment sales, which carry lower margins than domestic shipments, as well as
additional rebates provided to two of the division's larger customers to assist
in clearing certain categories of slow-moving inventory.
Selling, General and Administrative Expenses. For the nine month period ended
March 31, 2000, total selling, general and administrative expense increased to
$13,480,000 or 22.4% of sales compared to $12,793,000 or 20.5% of sales for the
same period last year. SG&A expenses of Craftmade increased to $9,630,000 or
26.7% of sales compared to $8,557,000 or 24.8% of sales for the same period last
year. The increase in SG&A expense dollars of Craftmade is primarily
attributable to increases in commissions and certain other costs directly
correlated to the sales increase experienced by Craftmade and to the increase in
employee costs related to the growth in the Company's labor force necessary to
meet its increased sales. The increase in SG&A expenses of Craftmade as a
percentage of sales was primarily due to the decline in lamp sales during the
fiscal year 2000 period, which resulted in the de-leveraging of SG&A expenses
compared to the same period in the previous year when lamp inventory was being
aggressively
<PAGE> 15
liquidated. For the nine-month period ending March 31, 2000, SG&A expenses of
TSI increased as a percentage of sales to 16.0% of sales compared to 15.1% for
the same period in the previous year, primarily as a result of the decline in
revenues the division experienced in the first and third quarter of fiscal 2000.
Interest Expense. For the nine-month period ended March 31, 2000, net interest
expense increased to $1,150,000 compared to $1,004,000 for the same period in
the previous year. This increase was primarily the result of a net increase in
the Company's line of credit during the nine months ended March 31, 2000. The
proceeds were utilized to repurchase the Company's common stock during the
period.
Minority Interest. Minority interest of $879,000 and $617,000 for the nine
months ended March 31, 2000 and 1999, respectively, represented the 50%
ownership of PHI by a non-Company owned member. The non-Company owned interest
has been accounted for as a minority interest.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased to $1,613,000 or 36.0% of net income
before taxes but after minority interest, for the nine months ended March 31,
2000 from $2,706,000 or 36.3% for the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash decreased $436,000 from $1,563,000 at June 30, 1999 to
$1,127,000 at March 31, 2000. The Company's operating activities provided cash
of $2,737,000, primarily attributable to the Company's net income from
operations.
The $204,000 of cash used for investing activities related to the purchase of
general warehouse, office and computer equipment.
The $2,969,000 of cash used for financing activities was primarily the result of
(i) the repurchase of 998,500 shares of the Company's common stock pursuant to
the Company's stock repurchase plans, at an aggregate cost of $9,008,000, (ii)
distributions to PHI's minority interest holder of $1,021,000, (iii) principal
payments of $581,000 on the Company's notes payable, and (iv) cash dividends of
$425,000. These amounts were partially offset by the net advance of $3,750,000
under the Company's lines of credit, and the advance of $4,316,000 under the
terms of the loan modification agreement pursuant to the Company's facility note
payable. It is management's intention to repurchase the
<PAGE> 16
Company's common stock from time to time under Board approved plans as long as
the Company's common stock continues to present an attractive investment for the
Company.
At March 31, 2000, subject to continued compliance with certain covenants and
restrictions, the Company had $16,000,000 available on its line of credit, of
which $14,000,000 had been utilized. In addition, PHI had $3,000,000 available
on its line of credit, of which $1,700,000 had been utilized. The Company's
management believes that its current lines of credit, combined with cash flows
from operations, are adequate to fund the Company's current operating needs,
make annual payments approximating $1,400,000 under the facility note payable,
fund anticipated capital expenditures, fund possible future stock repurchase
plans, as well as fund its projected growth over the next twelve months.
During the third quarter of fiscal 2000, the Company entered into an agreement
with Allianz Life Insurance Company to modify the terms of the Company's
facility note payable dated December 21, 1995, to provide for an increase in the
principal amount to $9,200,000. The Company's management believes that this
facility will be sufficient for its purposes for the foreseeable future.
During the first quarter of fiscal 2000, the Company entered into a letter
agreement with Chase Bank of Texas, N.A., pursuant to which the Company
conducted a fixed-to-floating interest rate swap. See Note 4 - Derivative
Financial Instruments in the Notes to Condensed Consolidated Financial
Statements and Item 3 - Quantitative and Qualitative Disclosures about Market
Risk. The Company does not believe that this transaction will have a material
effect on its financial condition.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information set forth below constitutes a "forward looking statement." See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Cautionary Statement."
As a result of the terms of the Company's note payable on its operating
facility, the Company is subject to market risk associated with adverse changes
in interest rates. In an effort to reduce this market risk, the Company entered
into an interest rate swap agreement (the "Swap Agreement") with Chase Bank of
Texas, National Association ("Chase") during the first quarter of fiscal 2000.
The Swap Agreement is held by the Company for non-trading purposes and is
accounted for by the Company as a hedging instrument, with any realized gains or
losses recorded as adjustments to interest expense.
<PAGE> 17
The notiional principal amount of the Swap Agreement was $4,373,000 at March 31,
2000. During the term of the Swap Agreement, the Company receives a fixed rate
of interest (8.125%) from Chase on such Notional Amount in consideration of its
obligation to pay a floating rate of interest on such Notional Amount. The
floating rate of interest is based on the regularly published London Interbank
Offered Rate ("LIBOR")plus 2.43%. The Swap Agreement matures on December 26,
2003.
Although the Company entered into the Swap Agreement to reduce its exposure to
changes in interest rates, a sharp rise in interest rates could materially
adversely affect the financial condition and results of operations of the
Company. Under the Swap Agreement, for each one percent (1%) incremental
increase in LIBOR, the Company's annualized interest expense would increase by
approximately $44,000. Consequently, an increase in LIBOR of five percent (5%)
would result in an estimated annualized increase of interest expense for the
Company of approximately $219,000.
<PAGE> 18
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
not applicable
Item 2. Changes in Securities and Use of Proceeds
not applicable
Item 3. Defaults Upon Senior Securities
not applicable
Item 4. Submission of Matters to a Vote of Security Holders
not applicable
Item 5. Other Information
not applicable
Item 6. Exhibits and Reports on Form 8-K
a). Exhibits
3.1 Certificate of Incorporation of the Company, filed as
Exhibit 3(a)(2) to the Company's Post Effective Amendment
No. 1 to Form S-18 (File No. 33-33594-FW) and incorporated
by reference therein.
3.2 Certificate of Amendment of Certificate of Incorporation of
the Company, dated March 24, 1992 and filed as Exhibit 4.2
to the Company's Form S-8 (File No. 333-44337) and
incorporated by reference therein.
3.3 Amended and Restated Bylaws of the Company, filed as Exhibit
3(b)(2) to the Company's Post Effective Amendment No. 1 to
Form S-18
<PAGE> 19
(File No. 33-33594-FW) and incorporated by reference
therein.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.4 to
the Company's Registration Statement on Form S-3 (File No.
333-70823) and incorporated by reference therein.
10.1 Earnest Money contract and Design/Build Agreement dated May
8, 1995, between MEPC Quorum Properties II, Inc. and
Craftmade International, Inc. (including exhibits),
previously filed as an exhibit in Form 10-Q for the quarter
ended December 31, 1995, and herein incorporated by
reference.
10.2 Assignment of Rents and Leases dated December 21, 1995,
between Craftmade International, Inc. and Allianz Life
Insurance Company of North America (including exhibits),
previously filed as an exhibit in Form 10-Q for the quarter
ended December 31, 1995, and herein incorporated by
reference.
10.3 Deed of Trust, Mortgage and Security Agreement made by
Craftmade International, Inc., dated December 21, 1995, to
Patrick M. Arnold, as trustee for the benefit of Allianz
Life Insurance Company of North America (including
exhibits), previously filed as an exhibit in Form 10-Q for
the quarter ended December 31, 1995, and herein incorporated
by reference.
10.4 Second Amended and Restated Credit Agreement dated November
14, 1995, among Craftmade International, Inc., Nations Bank
of Texas, N.A., as Agent and the Lenders defined therein
(including exhibits), previously filed as an exhibit in Form
10-Q for the quarter ended December 31, 1995, and herein
incorporated by reference.
10.5 Lease Agreement dated November 30, 1995, between Craftmade
International, Inc. and TSI Prime, Inc., previously filed as
an exhibit in Form 10-Q for the quarter ended December 31,
1995, and herein incorporated by reference.
<PAGE> 20
10.6 Revolving credit facility with Texas Commerce Bank,
previously filed as an exhibit in Form 10-K for the year
ended June 30, 1996, and herein incorporated by reference.
10.7 Agreement and Plan of Merger, dated as of July 1, 1998, by
and among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, Neall and
Leslie Humphrey, John DeBlois, the Wiley Family Trust, James
Bezzerides, the Bezzco Inc. Employee Retirement Trust and
Trade Source International, Inc., a California corporation,
filed as Exhibit 2.1 to the Company's Current Report on Form
8-K filed July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
10.8 Voting Agreement, dated July 1, 1998, by and among James R.
Ridings, Neall Humphrey and John DeBlois, filed as Exhibit
2.1 to the Company's Current Report on Form 8-K filed July
15, 1998 (File No. 33-33594-FW) and herein incorporated by
reference.
10.9 Third Amendment to Credit Agreement, dated July 1, 1998, by
and among Craftmade International, Inc., a Delaware
corporation, Trade Source International, Inc., a Delaware
corporation, Chase Bank of Texas, National Association
(formerly named Texas Commerce Bank, National Association)
and Frost National Bank (formerly named Overton Bank and
Trust), filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and
herein incorporated by reference.
10.10 Consent to Merger by Chase Bank of Texas, National
Association and Frost National Bank, filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K filed July 15, 1998
(File No. 33-33594-FW) and herein incorporated by reference.
10.11 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and Neall Humphrey, filed as
Exhibit 2.1 to the Company's Current Report
<PAGE> 21
on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and
herein incorporated by reference.
10.12 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and Leslie Humphrey, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K
filed July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
10.13 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and John DeBlois, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K
filed July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
10.14 Registration Rights Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Neall and Leslie
Humphrey and John DeBlois, filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed July 15, 1998
(File No. 33-33594-FW) and herein incorporated by reference.
10.15 ISDA Master Agreement and Schedule, dated June 17, 1999, by
and among Chase Bank of Texas, National Association,
Craftmade International, Inc., Durocraft International, Inc.
and Trade Source International, Inc., filed as Exhibit 10.15
to the Company's Quarterly Report on Form 10Q filed November
12, 1999 (File No. 000-26667) and herein incorporated by
reference.
10.16 Confirmation under ISDA Master Agreement, dated July 23,
1999, from Chase Bank of Texas, National Association to
Craftmade International, Inc., filed as Exhibit 10.165 to
the Company's Quarterly Report on Form 10Q filed November
12, 1999 (File No. 000-26667) and herein incorporated by
reference.
10.17* Fourth Amendment to Credit Agreement, dated April 2, 1999,
by and among Craftmade
<PAGE> 22
International, Inc., a Delaware corporation, Durocraft
International, Inc., a Texas Corporation, Trade Source
International, Inc., a Delaware Corporation, C/D/R
Incorporated, a Delaware corporation, Chase Bank of Texas,
National Association and The Frost National Bank.
10.18* Letter Agreement Concerning Fifth Amendment to Credit
Agreement, dated August 11, 1999, from Chase Bank of Texas,
N.A. and Frost National Bank to Craftmade International,
Inc., Durocraft International, Inc., Trade Source
International, Inc., and C/D/R Incorporated.
10.19* Sixth Amendment to Credit Agreement, dated November 12,
1999, by and among Craftmade International, Inc., a Delaware
corporation, Durocraft International, Inc., a Texas
Corporation, Trade Source International, Inc., a Delaware
Corporation, C/D/R Incorporated, a Delaware corporation,
Chase Bank of Texas, National Association and The Frost
National Bank.
10.20* First Modification Agreement, dated March 9, 2000, by and
between Craftmade International, Inc., a Delaware
corporation, and Allianz Life Insurance Company of North
America, a Minnesota corporation.
27.1* Financial Data Schedule.
-----------
* Filed herewith.
b). Reports on Form 8-K
None.
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAFTMADE INTERNATIONAL, INC.
-----------------------------
(Registrant)
Date May 12, 2000 /s/ James R. Ridings
--------------------- ---------------------------
JAMES R. RIDINGS
President and Chief
Executive Officer
Date May 12, 2000 /s/ Kathleen B. Oher
--------------------- ---------------------------
KATHLEEN B. OHER
Chief Financial Officer
<PAGE> 24
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, filed as Exhibit
3(a)(2) to the Company's Post Effective Amendment No. 1 to
Form S-18 (File No. 33-33594-FW) and incorporated by reference
therein.
3.2 Certificate of Amendment of Certificate of Incorporation of
the Company, dated March 24, 1992 and filed as Exhibit 4.2 to
the Company's Form S-8 (File No. 333-44337) and incorporated
by reference therein.
3.3 Amended and Restated Bylaws of the Company, filed as Exhibit
3(b)(2) to the Company's Post Effective Amendment No. 1 to
Form S-18 (File No. 33-33594-FW) and incorporated by reference
therein.
4.1 Specimen Common Stock Certificate, filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-3 (File No.
333-70823) and incorporated by reference therein.
10.1 Earnest Money contract and Design/Build Agreement dated May 8,
1995, between MEPC Quorum Properties II, Inc. and Craftmade
International, Inc. (including exhibits), previously filed as
an exhibit in Form 10-Q for the quarter ended December 31,
1995, and herein incorporated by reference.
10.2 Assignment of Rents and Leases dated December 21, 1995,
between Craftmade International, Inc. and Allianz Life
Insurance Company of North America (including exhibits),
previously filed as an exhibit in Form 10-Q for the quarter
ended December 31, 1995, and herein incorporated by reference.
10.3 Deed of Trust, Mortgage and Security Agreement made by
Craftmade International, Inc., dated December 21, 1995, to
Patrick M. Arnold, as trustee for the benefit of Allianz Life
Insurance Company of North America (including exhibits),
previously filed as an exhibit in Form 10-Q for the quarter
ended December 31, 1995, and herein incorporated by reference.
10.4 Second Amended and Restated Credit Agreement dated November
14, 1995, among Craftmade International, Inc., Nations Bank of
Texas, N.A., as Agent and the Lenders defined therein
(including exhibits), previously filed as
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
an exhibit in Form 10-Q for the quarter ended December 31,
1995, and herein incorporated by reference.
10.5 Lease Agreement dated November 30, 1995, between Craftmade
International, Inc. and TSI Prime, Inc., previously filed as
an exhibit in Form 10-Q for the quarter ended December 31,
1995, and herein incorporated by reference.
10.6 Revolving credit facility with Texas Commerce Bank, previously
filed as an exhibit in Form 10-K for the year ended June 30,
1996, and herein incorporated by reference.
10.7 Agreement and Plan of Merger, dated as of July 1, 1998, by and
among Craftmade International, Inc., Trade Source
International, Inc., a Delaware corporation, Neall and Leslie
Humphrey, John DeBlois, the Wiley Family Trust, James
Bezzerides, the Bezzco Inc. Employee Retirement Trust and
Trade Source International, Inc., a California corporation,
filed as Exhibit 2.1 to the Company's Current Report on Form
8-K filed July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
10.8 Voting Agreement, dated July 1, 1998, by and among James R.
Ridings, Neall Humphrey and John DeBlois, filed as Exhibit 2.1
to the Company's Current Report on Form 8-K filed July 15,
1998 (File No. 33-33594-FW) and herein incorporated by
reference.
10.9 Third Amendment to Credit Agreement, dated July 1, 1998, by
and among Craftmade International, Inc., a Delaware
corporation, Trade Source International, Inc., a Delaware
corporation, Chase Bank of Texas, National Association
(formerly named Texas Commerce Bank, National Association) and
Frost National Bank (formerly named Overton Bank and Trust),
filed as Exhibit 2.1 to the Company's Current Report on Form
8-K filed July 15, 1998 (File No. 33-33594-FW) and herein
incorporated by reference.
10.10 Consent to Merger by Chase Bank of Texas, National Association
and Frost National Bank, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed July 15, 1998 (File No.
33-33594-FW) and herein incorporated by reference.
10.11 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and Neall
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
Humphrey, filed as Exhibit 2.1 to the Company's Current Report
on Form 8-K filed July 15, 1998 (File No. 33-33594-FW) and
herein incorporated by reference.
10.12 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and Leslie Humphrey, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
July 15, 1998 (File No. 33-33594-FW) and herein incorporated
by reference.
10.13 Employment Agreement, dated July 1, 1998, by and among
Craftmade International, Inc., Trade Source International,
Inc., a Delaware corporation, and John DeBlois, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
July 15, 1998 (File No. 33-33594-FW) and herein incorporated
by reference.
10.14 Registration Rights Agreement, dated July 1, 1998, by and
among Craftmade International, Inc., Neall and Leslie Humphrey
and John DeBlois, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed July 15, 1998 (File No.
33-33594-FW) and herein incorporated by reference.
10.15 ISDA Master Agreement and Schedule, dated June 17, 1999, by
and among Chase Bank of Texas, National Association, Craftmade
International, Inc., Durocraft International, Inc. and Trade
Source International, Inc., filed as Exhibit 10.15 to the
Company's Quarterly Report on Form 10Q filed November 12, 1999
(File No. 000-26667) and herein incorporated by reference.
10.16 Confirmation under ISDA Master Agreement, dated July 23, 1999,
from Chase Bank of Texas, National Association to Craftmade
International, Inc., filed as Exhibit 10.16 to the Company's
Quarterly Report on Form 10Q filed November 12, 1999 (File No.
000-26667) and herein incorporated by reference.
10.17* Fourth Amendment to Credit Agreement, dated April 2, 1999, by
and among Craftmade International, Inc., a Delaware
corporation, Durocraft International, Inc., a Texas
corporation, Trade Source International, Inc., a Delaware
corporation, C/D/R Incorporated, a Delaware corporation, Chase
Bank of Texas, National Association and The Frost National
Bank.
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
10.18* Letter Agreement Concerning Fifth Amendment to Credit
Agreement, dated August 11, 1999, from Chase Bank of Texas,
N.A. and Frost National Bank to Craftmade International, Inc.,
Durocraft International, Inc., Trade Source International,
Inc., and C/D/R Incorporated.
10.19* Sixth Amendment to Credit Agreement, dated November 12, 1999,
by and among Craftmade International, Inc., a Delaware
corporation, Durocraft International, Inc., a Texas
corporation, Trade Source International, Inc., a Delaware
corporation, C/D/R Incorporated, a Delaware corporation, Chase
Bank of Texas, National Association and The Frost National
Bank.
10.20* First Modification Agreement, dated March 9, 2000, by and
between Craftmade International, Inc., a Delaware corporation,
and Allianz Life Insurance Company of North America, a
Minnesota corporation.
27.1* Financial Data Schedule.
</TABLE>
- -------------
*Filed herewith.
<PAGE> 1
EXHIBIT 10.17
[CHASE LOGO]
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated
effective as of April 2, 1999 (the "Effective Date"), is among CRAFTMADE
INTERNATIONAL, INC., a Delaware corporation, DUROCRAFT INTERNATIONAL, INC., a
Texas corporation, TRADE SOURCE INTERNATIONAL, INC., a Delaware corporation
(jointly and severally, the "Borrower"), C/D/R INCORPORATED, a Delaware
corporation ("C/D/R"), CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as agent (the
"Agent"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION and FROST NATIONAL BANK
(collectively, the "Lenders").
PRELIMINARY STATEMENT
The Agent, the Lenders and the Borrower are parties to a Credit Agreement
dated as of May 30, 1996 as amended by a First Amendment dated as of October 8,
1996, a Second Amendment dated as of November 1, 1997, and a Third Amendment
dated as of July 1, 1998 (as so amended, the "Credit Agreement"). All
capitalized terms defined in the Credit Agreement and not otherwise defined in
this Amendment shall have the same meanings herein as in the Credit Agreement.
The Agent, the Lenders and the Borrower have agreed to amend the Credit
Agreement to modify the terms and conditions upon which Craftmade International,
Inc. may repurchase shares of its common stock, and also modify a financial
covenant.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties, the Agent, the Lenders and the Borrower hereby agree as follows:
Section 1. Amendment of Definition. The definition of "Funded Debt to
EBITDA Ratio" in Section 1 of the Credit Agreement is amended to read in its
entirety as follows:
""Funded Debt to EBITDA Ratio" means, at any particular time, the ratio of
(a) Funded Debt (including Senior Bank Debt and Capital Lease Obligations,
but excluding Mortgage Debt) to (b) EBITDA less treasury stock purchases."
Section 2. Amendment of Section 8.4. The last proviso of Section 8.4 of the
Credit Agreement is hereby amended to read in its entirety as follows:
"provided, however, that Borrower may purchase treasury stock so long as
(a) the amounts spent for such purchases, in any fiscal year, do not exceed
$3,000,000 and (b) Borrower remains in compliance with the Consolidated
Debt to Consolidated Tangible Net Worth Ratio as evidenced by a Treasury
Stock Purchase Compliance Certificate, substantially in the form of EXHIBIT
F-1 attached hereto, submitted to the Agent showing the effect of any
potential treasury stock purchases contemplated by Borrower during a thirty
(30) day period
<PAGE> 2
commencing on the earlier of (i) the date such Treasury Stock Purchase
Compliance Certificate is sent to the Agent or (ii) the date of the initial
treasury stock purchase covered by such certificate."
Section 3. Amendment of Exhibits. Exhibits F and F-1 to the Credit
Agreement are hereby amended in their entireties to be in the form of Exhibits F
and F-1, respectively, to this Amendment.
Section 4. Representations; No Event of Default. Borrower hereby represents
and warrants to the Agent and the Lenders that:
- - the execution, delivery and performance of this Amendment and any and all
other Loan Documents executed and delivered in connection with this
Amendment have been authorized by all requisite corporate action on the
part of Borrower and Guarantor and will not violate the certificate of
incorporation or articles of incorporation (or other charter documents), as
applicable, or bylaws of any of Borrower and Guarantor; and
- - neither the certificate of incorporation or articles of incorporation (or
other charter documents), as applicable, nor bylaws of any of Borrower and
Guarantor have been amended or revoked since May 30, 1996, except as
certified in writing to the Agent and the Lenders by Borrower or Guarantor
contemporaneously with the execution and delivery of this Amendment; and
- - the representations and warranties contained in the Credit Agreement, as
amended hereby, and any other Loan Document, are true and correct on and as
of the date hereof as though made on and as of the date hereof; and
- - as of the date of this Amendment, no Event of Default has occurred and is
continuing and no event or condition has occurred that with the giving of
notice or lapse of time or both would be an Event of Default; and
- - each of Borrower and Guarantor is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby.
Section 5. Conditions Precedent. The effectiveness of this Amendment shall
be subject to the following conditions precedent:
- - Lenders shall have received a Secretary's Certificate from the secretary or
assistant secretary of Borrower and Guarantor certifying and attaching
appropriate corporate resolutions regarding the transactions contemplated
hereby, and statements of incumbency; and
- - Lenders shall have received such other documents incidental and appropriate
to the transactions provided for herein as Lenders or their counsel may
reasonably request, and all such documents shall be in form and substance
reasonably satisfactory to Lenders; and
- - All legal matters incident to the consummation of the transactions
contemplated hereby shall be reasonably satisfactory to special counsel for
Lenders retained at the expense of Borrower.
FOURTH AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE> 3
Section 6. Guaranty. C/D/R hereby acknowledges, consents and agrees to this
Amendment and (a) acknowledges that its obligations under that certain Guaranty
Agreement executed by it effective as of May 30, 1996, in favor of the Agent and
the Lenders, includes a guaranty of all of the obligations, indebtedness and
liabilities of the Borrower under the Credit Agreement as amended by this
Amendment, (b) represents to the Agent and the Lenders that such Guaranty
remains in full force and effect and shall continue to be its legal, valid and
binding obligation, enforceable against it in accordance with its terms, and (c)
agrees that this Amendment and all documents executed in connection herewith do
not operate, and that the prior amendments to the Credit Agreement and all
documents executed in connection therewith have not operated, to reduce or
discharge its obligations under such Guaranty.
Section 7. Ratification. Borrower acknowledges that each of the Loan
Documents is in all respects ratified and confirmed, and all of the rights,
powers and privileges created by this Amendment or under the Loan Documents are
ratified, extended, carried forward and remain in full force and effect except
as the Credit Agreement is amended by this Amendment. Except as expressly
amended by this Amendment, the Credit Agreement is and shall be unchanged.
Section 8. Liens and Security Interests. Borrower hereby extends and renews
the Liens and security interests previously granted to the Agent and the Lenders
and agrees that this Amendment shall in no manner affect or impair any Liens or
security interests previously granted. Borrower hereby acknowledges that such
Liens and security interests are valid and existing.
Section 9. 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 shall be deemed an original and all of which taken
together shall constitute but one and the same agreement.
Section 10. Joint and Several; Loan Documents. Any and all obligations of
Borrower under the Loan Documents are joint and several, whether or not
expressly so stated. This Amendment shall be included within the definition of
"Loan Documents" as used in the Agreement. The "Agreement" as used in the Credit
Agreement is a reference to the Credit Agreement as amended by this Amendment.
Section 11. Enforceability. Borrower and Guarantor hereby represent and
warrant that, as of the date of this Amendment, the Credit Agreement and all
documents and instruments executed in connection therewith are in full force and
effect and that there are no claims, counterclaims, offsets or defenses to any
of such documents or instruments.
Section 12. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND AS APPLICABLE,
THE LAWS OF THE UNITED STATES OF AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENT THE FINAL
FOURTH AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE> 4
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed effective as of the Effective Date.
BORROWER: CRAFTMADE INTERNATIONAL, INC.
By: /s/ James R. Ridings
--------------------------------
Name: James R. Ridings
------------------------------
Title: Chief Executive Officer
-----------------------------
DUROCRAFT INTERNATIONAL, INC.
By: /s/ James R. Ridings
--------------------------------
Name: James R. Ridings
------------------------------
Title: Chief Executive Officer
-----------------------------
TRADE SOURCE INTERNATIONAL, INC.
By: /s/ James R. Ridings
--------------------------------
Name: James R. Ridings
------------------------------
Title: Chief Executive Officer
-----------------------------
GUARANTOR: C/D/R INCORPORATED
By: /s/ Clifford Crimmings
--------------------------------
Name: Clifford Crimmings
------------------------------
Title: President
-----------------------------
FOURTH AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE> 5
LENDERS: CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent and as Lender
By: /s/ Jerry G. Petrey
--------------------------------
Name: Jerry G. Petrey
------------------------------
Title: Vice President
-----------------------------
FROST NATIONAL BANK
By: /s/ D. Michael Randall
--------------------------------
Name: D. Michael Randall
------------------------------
Title: Senior Vice President
-----------------------------
FOURTH AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE> 1
EXHIBIT 10.18
[CHASE LOGO]
[CHASE BANK OF TEXAS, N.A. LETTERHEAD]
CRAFTMADE INTERNATIONAL, INC. August 11, 1999
DUROCRAFT INTERNATIONAL, INC.
TRADE SOURCE INTERNATIONAL, INC.
C/D/R INCORPORATED
650 S. Royal Lane, Suite 100
Coppell, Texas 75050
Re: FIFTH AMENDMENT TO CREDIT AGREEMENT; Credit Agreement dated as of May 30,
1996, as amended by First Amendment dated as of October 8, 1996, Second
Amendment dated as of November 1, 1997, Third Amendment dated as of July 1,
1998, and Fourth Amendment dated as of April 2, 1999 (as so amended, the "Credit
Agreement"), among the addressees, Chase Bank of Texas, N.A., Frost National
Bank, and Chase Bank of Texas, N.A., as agent
Dear Sirs or Madams:
We refer to the Credit Agreement referenced above. All capitalized terms
defined in the Credit Agreement and not otherwise defined in this letter have
the same meanings herein as in the Credit Agreement. This letter is the fifth
amendment of the Credit Agreement.
This letter evidences the agreement of the parties to the Credit Agreement
to amend the last proviso of Section 8.4 of the Credit Agreement by substituting
`$4,000,000" for "$3,000,000." As such, the last proviso of Section 8.4 as
hereby amended reads in its entirety as follows:
"provided, however, that Borrower may purchase treasury stock so long as
(a) the amounts spent for such purchases, in any fiscal year, do not exceed
$4,000,000 and (b) Borrower remains in compliance with the Consolidated
Debt to Consolidated Tangible Net Worth Ratio as evidenced by a Treasury
Stock Purchase Compliance Certificate, substantially in the form of EXHIBIT
F-1 attached hereto, submitted to the Agent showing the effect of any
potential treasury stock purchases contemplated by Borrower during a thirty
(30) day period commencing on the earlier of (i) the date such Treasury
Stock Purchase Compliance Certificate is sent to the Agent or (ii) the date
of the initial treasury stock purchase covered by such certificate."
<PAGE> 2
CRAFTMADE INTERNATIONAL, INC. et al
August 11, 1999
Page 2
Borrower hereby represents and warrants to the Agent and the Lenders that as of
the date of this letter, the execution, delivery and performance of this letter
and any and all other Loan Documents executed and delivered in connection with
this letter have been authorized by all requisite corporate action, including
resolutions of the boards of directors, on the part of Borrower and Guarantor;
that no Event of Default has occurred and is continuing and no event or
condition has occurred that with the giving of notice or lapse of time or both
would be an Event of Default; and that each of Borrower and Guarantor is in full
compliance with all covenants and agreements contained in the Credit Agreement,
as amended hereby.
C/D/R hereby acknowledges, consents and agrees to this letter and (a)
acknowledges that its obligations under that certain Guaranty Agreement executed
by it effective as of May 30, 1996, in favor of the Agent and the Lenders,
includes a guaranty of all of the obligations, indebtedness and liabilities of
the Borrower under the Credit Agreement as amended by this letter, (b)
represents to the Agent and the Lenders that such Guaranty remains in full force
and effect and shall continue to be its legal, valid and binding obligation,
enforceable against it in accordance with its terms, and (c) agrees that this
letter and all documents executed in connection herewith do not operate, and
that the prior amendments to the Credit Agreement and all documents executed in
connection therewith have not operated, to reduce or discharge its obligations
under such Guaranty.
This letter may be executed in any number of identical counterparts, each
of which when so executed shall be deemed an original and all of which taken
together shall constitute one and the same agreement. Except as expressly
amended by this letter, the Credit Agreement is and shall be unchanged
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF THE UNITED STATES OF
AMERICA.
THIS WRITTEN LETTER AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
<PAGE> 3
CRAFTMADE INTERNATIONAL, INC. et al
August 11, 1999
Page 3
CHASE BANK OF TEXAS, N.A., as Agent
and as Lender
By: /s/ Jerry G. Petrey
--------------------------------
Name: Jerry G. Petrey
Title: Vice President
FROST NATIONAL BANK
By: /s/ D. Michael Randall
--------------------------------
Name: D. Michael Randall
Title: Senior Vice President
CRAFTMADE INTERNATIONAL, INC.
DUROCRAFT INTERNATIONAL, INC.
TRADE SOURCE INTERNATIONAL, INC.
All By: /s/ James R. Ridings
-----------------------------
Name: James R. Ridings
Title: Chief Executive Officer
C/D/R INCORPORATED
By: /s/ Clifford Crimmings
-----------------------------
Name: Clifford Crimmings
Title: President
<PAGE> 1
EXHIBIT 10.19
[CHASE LOGO]
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated
effective as of November 12, 1999 (the "Effective Date"), is among CRAFTMADE
INTERNATIONAL, INC., a Delaware corporation, DUROCRAFT INTERNATIONAL, INC., a
Texas corporation, TRADE SOURCE INTERNATIONAL, INC., a Delaware corporation
(jointly and severally, "Borrower"), C/D/R INCORPORATED, a Delaware corporation
("C/D/R"), CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as agent ("Agent"), and
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION and THE FROST NATIONAL BANK
(collectively, "Lenders").
PRELIMINARY STATEMENT
Agent, Lenders and Borrower are parties to a Credit Agreement dated as
of May 30, 1996, as amended by a First Amendment dated as of October 8, 1996, a
Second Amendment dated as of November 1, 1997, a Third Amendment dated as of
July 1, 1998, a Fourth Amendment dated as of April 2, 1999 and a Fifth Amendment
(in letter form) dated as of August 11, 1999 (as so amended, the "Credit
Agreement"). All capitalized terms defined in the Credit Agreement and not
otherwise defined in this Amendment shall have the same meanings herein as in
the Credit Agreement.
Agent, Lenders and Borrower have agreed to amend the Credit Agreement
to increase principal amounts available to be borrowed by Borrower, subject to
the terms and conditions of the Credit Agreement, from $14,000,000 to
$16,000,000, to extend the maturity of such indebtedness, and to effect certain
other desired changes.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, Agent, Lenders and Borrower hereby agree as
follows:
Section 1. Addition of Definition. The following definition is hereby
added to Section 1 of the Credit Agreement:
""Fixed Charge Coverage Ratio" means (a)(i) EBITDA, less (ii) cash Tax
Expense, less (iii) the dollar amount of treasury stock repurchases by Borrower,
divided by (b)(i) principal payments made on Debt (including, without
limitation, prepayments of Mortgage Debt), plus (ii) Interest Expense, plus
(iii) cash dividends. With respect to both clauses (a) and (b) above, such
amounts shall be determined for the period beginning on and including October 1,
1999 through and including the most recently completed fiscal quarter, until
such time as the four most recently completed fiscal quarters are taken into
account in such determination, at which time and thereafter only the four most
recently completed fiscal quarters."
<PAGE> 2
Section 2. Amendment of Definition. The following definitions in
Section 1 of the Credit Agreement are amended to read in their entirety as
follows:
""Applicable Rate" means:
(a) during the period that an Advance is a Prime Rate Advance,
the Prime Rate minus 1/2 of one percent (0.5%); and
(b) during the period that an Advance is a Eurodollar Advance,
the Eurodollar Rate plus (i) at all times when the most recent
compliance certificate delivered in accordance with SECTION 7.1(C)
shows that the Funded Debt to EBITDA Ratio is less than 1.0 to 1.0, one
and one-quarter percent (1.25%), and (ii) at all times when the most
recent compliance certificate delivered in accordance with SECTION
7.1(C) shows that the Funded Debt to EBITDA Ratio is greater than or
equal to 1.0 to 1.0, one and one-half percent (1.5%)."
""Borrowing Base" means, at any particular time, an amount equal to the
sum of (a) eighty percent (80%) of Eligible Accounts, plus (b)
fifty-five percent (55%) of Eligible Inventory; provided, however, that
at no time shall the Eligible Inventory component of the Borrowing Base
ever be greater than percent (50%) of the aggregate amount of
outstanding Advances."
""Commitments" means, as to either Lender, the obligation of such
Lender to make Advances thereunder in an aggregate principal amount not
to exceed $8,000,000, and "Commitments" means such obligation of all
Lenders, as such amounts may be reduced pursuant to Section 2.7 or
otherwise."
""Funded Debt to EBDITA Ratio" means, at any particular time, the ratio
of (a) Funded Debt (including Senior Bank Debt and Capital Lease
Obligations, but excluding Mortgage Debt) to (b) EBITDA."
""Termination Date" means 11:00 a.m. Dallas, Texas time on November 30,
2001, or such earlier date and time on which the Commitments terminate
as provided in this Agreement."
Section 3. Amendment of Section 8.1. The next to last paragraph of
Section 8.1 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"Without limiting the foregoing, C/D/R will not incur, create,
assume or permit to exist, and will not permit any subsidiary of C/D/R
to incur, create, assume or permit to exist, any Debt, except unsecured
Debt in an aggregate amount not to exceed $100,000 at any one time
outstanding."
Section 4. Amendment of Section 8.4. The last proviso of Section 8.4 of
the Credit Agreement is hereby amended to read in its entirety as follows:
"provided, however, that Borrower may purchase treasury stock so long
as the Consolidated Debt to Consolidated Tangible Net Worth Ratio is
not greater than 2.0 to 1.0, and as a result of such purchase would not
become over 2.0 to 1.0, in each case as evidenced by a Treasury Stock
Purchase Compliance Certificate, substantially in the form of EXHIBIT
F-1 attached
SIXTH AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE> 3
hereto, submitted to Agent showing the effect of any potential treasury
stock purchases contemplated by Borrower during a thirty (30) day
period commencing on the earlier of (i) the date such Treasury Stock
Purchase Compliance Certificate is sent to Agent or (ii) the date of
the initial treasury stock purchase covered by such certificate."
Section 5. Amendment of Section 9.3. Section 9.3 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"Section 9.3 Funded Debt to EBITDA Ratio. Borrower will at all times
maintain a Funded Debt to EBITDA Ratio, determined monthly with respect
to the twelve most recently completed calendar months, of not greater
than 1.75 to 1.0."
Section 6. Replacement of Section 9.4. Section 9.4 of the Credit
Agreement (captioned "EBITDA of Trade Source") is hereby deleted in its
entirety, and replaced in its entirety by the following:
"Section 9.4 Fixed Charge Coverage Ratio. Borrower will maintain a
Fixed Charge Coverage Ratio of greater than 1.0 to 1.0 as of the end of
each fiscal quarter of Borrower."
Section 7. Amendment of Exhibits. Exhibits A, C, F and F-1 to the
Credit Agreement are hereby amended in their entireties to be in the form of
Exhibits A, C, F and F-1, respectively, to this Amendment.
Section 8. Addition of Section 7.12. A new Section 7.12 of the Credit
Agreement is hereby added, to read in its entirety as follows:
"Section 7.12. Administrative Fee. Borrower will pay Agent an
administrative fee pursuant to the terms of that certain letter between them
regarding such fee. "
Section 9. Representations; No Event of Default. Borrower hereby
represents and warrants to Agent and Lenders that:
- - the execution, delivery and performance of this Amendment and any and
all other Loan Documents executed and delivered in connection with this
Amendment have been authorized by all requisite corporate action on the
part of Borrower and Guarantor and will not violate the certificate of
incorporation or articles of incorporation (or other charter
documents), as applicable, or bylaws of any of Borrower and Guarantor;
and
- - neither the certificate of incorporation or articles of incorporation
(or other charter documents), as applicable, nor bylaws of any of
Borrower and Guarantor have been amended or revoked since May 30, 1996,
except as certified in writing to Agent and Lenders by Borrower or
Guarantor contemporaneously with the execution and delivery of this
Amendment; and
- - the representations and warranties contained in the Credit Agreement,
as amended hereby, and any other Loan Document, are true and correct on
and as of the date hereof as though made on and as of the date hereof;
and
SIXTH AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE> 4
- - as of the date of this Amendment, no Event of Default has occurred and
is continuing and no event or condition has occurred that with the
giving of notice or lapse of time or both would be an Event of Default;
and
- - each of Borrower and Guarantor is in full compliance with all covenants
and agreements contained in the Credit Agreement, as amended hereby.
Section 10. Conditions Precedent. The effectiveness of this Amendment
shall be subject to the following conditions precedent:
- - Each Lender shall have received a promissory note of Borrower payable
to the order of such Lender, in substantially the form of EXHIBIT A
hereto, with appropriate completion, which promissory note shall be in
modification, increase and replacement of (but not in extinguishment
of) those certain promissory notes in the form of EXHIBIT A to the
Credit Agreement, and dated as of July 1, 1998 and in the stated
maximum principal amount of $7,000,000; and
- - Lenders shall have received a Secretary's Certificate from the
secretary or assistant secretary of Borrower and Guarantor certifying
and attaching appropriate corporate resolutions regarding the
transactions contemplated hereby, and statements of incumbency; and
- - Lenders shall have received such other documents incidental and
appropriate to the transactions provided for herein as Lenders or their
counsel may reasonably request, and all such documents shall be in form
and substance reasonably satisfactory to Lenders; and
- - All legal matters incident to the consummation of the transactions
contemplated hereby shall be reasonably satisfactory to special counsel
for Lenders retained at the expense of Borrower.
Section 11. Guaranty. C/D/R hereby acknowledges, consents and agrees to
this Amendment and (a) acknowledges that its obligations under that certain
Guaranty Agreement executed by it effective as of May 30, 1996, in favor of
Agent and Lenders, includes a guaranty of all of the obligations, indebtedness
and liabilities of Borrower under the Credit Agreement as amended by this
Amendment (specifically including the increased principal amount of $16,000,000
potentially available under the Credit Agreement), (b) represents to Agent and
Lenders that such Guaranty remains in full force and effect and shall continue
to be its legal, valid and binding obligation, enforceable against it in
accordance with its terms, and (c) agrees that this Amendment and all documents
executed in connection herewith do not operate, and that the prior amendments to
the Credit Agreement and all documents executed in connection therewith have not
operated, to reduce or discharge its obligations under such Guaranty.
Section 12. Ratification. Borrower acknowledges that each of the Loan
Documents is in all respects ratified and confirmed, and all of the rights,
powers and privileges created by this Amendment or under the Loan Documents are
ratified, extended, carried forward and remain in full
SIXTH AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE> 5
force and effect except as the Credit Agreement is amended by this Amendment.
Except as expressly amended by this Amendment, the Credit Agreement is and shall
be unchanged.
Section 13. Liens and Security Interests. Borrower hereby extends and
renews the Liens and security interests previously granted to Agent and Lenders
and agrees that this Amendment shall in no manner affect or impair any Liens or
security interests previously granted. Borrower hereby acknowledges that such
Liens and security interests are valid and existing.
Section 14. 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 shall be deemed an original and all of which taken
together shall constitute but one and the same agreement.
Section 15. Joint and Several; Loan Documents. Any and all obligations
of Borrower under the Loan Documents are joint and several, whether or not
expressly so stated. This Amendment shall be included within the definition of
"Loan Documents" as used in the Agreement. The "Agreement" as used in the Credit
Agreement is a reference to the Credit Agreement as amended by this Amendment.
Section 16. Enforceability. Borrower and Guarantor hereby represent and
warrant that, as of the date of this Amendment, the Credit Agreement and all
documents and instruments executed in connection therewith are in full force and
effect and that there are no claims, counterclaims, offsets or defenses to any
of such documents or instruments.
Section 17. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND AS APPLICABLE,
THE LAWS OF THE UNITED STATES OF AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed effective as of the Effective Date.
BORROWER: CRAFTMADE INTERNATIONAL, INC.
By: /s/ James R. Ridings
--------------------------------
Name: James R. Ridings
Title: Chief Executive Officer
SIXTH AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE> 6
DUROCRAFT INTERNATIONAL, INC.
By: /s/ James R. Ridings
------------------------------
Name: James R. Ridings
Title: Chief Executive Officer
TRADE SOURCE INTERNATIONAL, INC.
By: /s/ James R. Ridings
------------------------------
Name: James R. Ridings
Title: Chief Executive Officer
GUARANTOR: C/D/R INCORPORATED
By: /s/ Clifford Crimmings
------------------------------
Name: Clifford Crimmings
Title: President
LENDERS: CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent and as Lender
By: /s/ Jerry G. Petrey
-----------------------------
Name: Jerry G. Petrey
Title: Vice President
THE FROST NATIONAL BANK
By: /s/ D. Michael Randall
-----------------------------
Name: D. Michael Randall
Title: Senior Vice President
SIXTH AMENDMENT TO CREDIT AGREEMENT - Page 6
<PAGE> 1
EXHIBIT 10.20
FIRST MODIFICATION AGREEMENT
THIS FIRST MODIFICATION AGREEMENT (the "Agreement") is made to be
effective as of the 9th day of March, 2000, by and between CRAFTMADE
INTERNATIONAL, INC., a Delaware corporation ("Borrower"), and ALLIANZ LIFE
INSURANCE COMPANY OF NORTH AMERICA, a Minnesota corporation ("Lender").
R E C I T A L S:
A. Lender made a loan (the "Loan") in the original principal amount of
Nine Million Two Hundred Thousand and No/100 Dollars ($9,200,00.00) to Borrower.
B. To evidence the Loan, Borrower executed and delivered to Lender that
certain Promissory Note (the "Note") dated December 21, 1995, payable to the
order of Lender in the original principal sum of Nine Million Two Hundred
Thousand and No/100 Dollars ($9,200,000.00), bearing interest and being payable
as therein provided
C. Payment of the Note is secured by, among other instruments, that
certain Deed of Trust, Mortgage and Security Agreement (the "Deed of Trust") of
even date therewith executed by Borrower for the benefit of Lender, encumbering
certain real property located in Dallas County, Texas, more particularly
described on Exhibit A attached hereto and incorporated herein for all purposes,
and certain other property more particularly described in the Deed of Trust (the
"Property").
D. The Deed of Trust is recorded in Volume 95249, Page 01387 of the
Real Property Records of Dallas County, Texas, said Deed of Trust and the record
thereof being incorporated herein for all purposes.
E. Payment of the Note is further secured by, among other instruments,
that certain Assignments of Rents and Leases (the "Assignment of Leases") of
even date with the Note, executed by Borrower for the benefit of Lender and
recorded in Volume 95249, Page 01417 of the Real Property Records of Dallas
County, Texas.
F. The Note, the Deed of Trust, the Assignment of Leases, that certain
Environmental Indemnity dated as of December 21, 1995, executed by Borrower for
the benefit of Lender, any financing statements executed in connection with the
Loan, and all other instruments evidencing, securing or relating to the Loan,
and all other instruments evidencing, securing or relating to the Loan, as same
may have been modified or amended, are herein sometimes referred to collectively
as the "Loan Documents."
G. Lender is the current owner and holder of the Loan Documents and
Borrower is the owner of the legal and equitable title to the Premises and is
the obligor under the Loan Documents.
<PAGE> 2
H. Borrower and Lender desire to modify certain terms and provisions of
the Loan Documents as more specifically provided hereinbelow.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower and Lender hereby
agree as follows:
A G R E E M E N T S:
1. Additional Advance. Lender and Borrower agree that as of the
effective date of this agreement, the outstanding principal amount of the Note
is Four Million Eight Hundred Eighty-Four Thousand Two Hundred Thirty-Seven and
30/100 Dollars ($4,884,237.30). Subject to the timely satisfaction of each of
the conditions precedent set forth in this Agreement, Lender agrees to advance
to Borrower, and Borrower agree to borrow from Lender, pursuant to the terms of
the Note and other Loan Documents (as same may be amended hereby), the sum of
Four Million Three Hundred Fifteen Thousand Seven Hundred Sixty-Two and 70/100
Dollars ($4,315,762.70) (the "Additional Advance"), such that the outstanding
principal balance of the Loan will again be Nine Million Two Hundred Thousand
and No/100 Dollars ($9,200,000.00).
2. Modification of Note. Borrower acknowledges and agrees that with the
disbursement of the Additional Advance, the unpaid principal balance of the Note
is Nine Million Two Hundred Thousand and No/100 Dollars ($9,200,000.00).
Borrower and Lender agree that the Note is hereby modified as follows:
(a) Beginning as of April 1, 2000, the principal balance
outstanding from time to time shall bear interest at the rate of eight
and 302/1000 percent (8.302%) per year, and such rate shall be the
"Note Rate" as defined in the Note. Except to the extent otherwise
required by paragraph C.7 of the Note, interest shall be computed on
actual days elapsed and based on a year of twelve (12) months of thirty
(30) days each.
(b) On each "Payment Date" to and including December 1, 2007,
payments of principal and interest in the amount of One Hundred
Thousand Three Hundred Seventy-Eight and No/100 Dollars ($100,378.00)
shall be due and payable (the "Monthly Installment"). "Payment Date"
means the first day of each consecutive calendar month commencing May
1, 2000.
(c) The entire remaining principal amount, together with any
accrued and unpaid interest and all other amounts due under the Loan
Documents, shall be due and payable in full on January 1, 2008 ("Final
Installment").
3. Modification of Other Loan Documents. All of the Loan Documents
shall be and hereby are amended to the extent necessary to make the recitations
and contents thereof consistent with the terms of this Agreement. The provisions
of the Loan Documents, as amended hereby, shall continue to be applicable to and
govern the Loan (inclusive of the Additional Advance).
<PAGE> 3
4. Representations and Warranties. Borrower hereby makes the following
representations and warranties to Lender, it being hereby acknowledged by
Borrower that Lender is relying upon such representations and warranties as a
material inducement to Lender's execution hereof and the making of the
Additional Advance:
(a) The statements contained herein and in all documentation
provided to Lender and all other representations or statements made by
or on behalf of Borrower to Lender in connection with this Agreement
are true and complete to the best of Borrower's knowledge and do not
omit any fact or information material to Lender's evaluation hereof and
of Borrower's compliance with the conditions for the consummation of
the modification contemplated hereby.
(b) Borrower is not insolvent and will not be rendered
insolvent by this Agreement or by any of the transactions contemplated
hereby.
(c) To the best of Borrower's knowledge, all representations
and warranties made by Borrower in the Loan Documents remain true and
correct in all material respects, except as may have been otherwise
disclosed in writing to Lender prior to the execution hereof.
(d) To the best of Borrower's knowledge, Borrower is in full
compliance with all covenants, agreements and obligations of Borrower
set forth in the Loan Documents and no default exists thereunder, nor
does any event or circumstances exist which with the passage of time or
the giving of notice, or both, would constitute a default under the
Loan Documents.
(e) Borrower has no setoffs, counterclaims, defenses or other
causes of action against Lender arising out of the Loan, the Loan
Documents, any other indebtedness of Borrower to Lender, or otherwise,
and to the extent any such setoffs, counterclaims, defenses or other
causes of action may exist, whether known or unknown, said items are
hereby waived by Borrower.
(f) To the best of Borrower's knowledge, Lender has duly
performed all its obligations under the Loan Documents;
(g) The figures recited herein, including the amount of the
outstanding principal balance of the Note, are accurate.
(h) Borrower is the sole legal and beneficial owner of the
Property and is the sole occupant of the Property, there being no
leases in effect with respect to the Property as of the date of this
Agreement.
(i) To the best of the Borrower's knowledge, the Property is
in compliance with all applicable government laws, rules and
regulations.
<PAGE> 4
(j) Borrower has all requisite authority to enter into this
Agreement and to execute this Agreement and all other documents
contemplated hereby, and this Agreement constitutes the legal, valid
and binding obligations of Borrower enforceable in accordance with its
terms. The execution and delivery of this Agreement does not
contravene, result in a breach of, or constitute a default under any
deed of trust, loan agreement, indenture or other contract or agreement
to which Borrower is bound, nor would such execution and delivery
constitute such a default with the passage of time or the giving of
notice, or both.
(k) The lien of the Deed of Trust is valid and subsisting and
shall remain an enforceable and valid first lien against the Property
to secure the payment of all amounts (including, without limitations,
the outstanding principal balance of the Note, inclusive of the
Additional Advance) and the performance of all obligations described in
the Deed of Trust as being secured thereby.
(l) The survey of the Property delivered in connection with
the Loan, dated as December 21, 1995 and certified by G. Dennis Qualls
(RPLS No. 4276), continues to be an accurate survey of the Property,
and there have been no alterations to the improvements included in the
Property which would cause such survey to be inaccurate as of the
effective date of this Agreement.
(m) The indebtedness relating to the NationsBank Financing
Statement (as hereinafter defined) has been paid in full, and
NationsBank (as hereinafter defined) has no security interest in any
part of the Property. For purposes of the preceding sentence, the term
"NationsBank Financing Statement" refers to that certain financing
statement filed in the Real Property Records of Dallas County, Texas,
on April 19, 1996, and recorded in said records at Volume 96002, Page
2026, naming NationsBank of Texas, N.A. ("NationsBank") as "Secured
Party" and Borrower as "Debtor."
6. Release of Claims. Borrower, on behalf of itself, its partners and
their respective successors and assigns (collectively and individually,
"Borrower Parties"), hereby fully, finally and completely RELEASE AND FOREVER
DISCHARGE Lender and its successors, assigns, affiliates, subsidiaries, parents,
officers, shareholders, directors, employees, attorneys, agents and properties,
past present and future, and their respective heirs, successors and assigns
(collectively and individually, "Lender Parties"), of and from any and all
claims, controversies, disputes, liabilities, obligations, demands, damages,
debts, liens, actions and causes of action of any and every nature whatsoever,
known or unknown, whether at law, by statute or in equity, in contract or in
tort, under state or federal jurisdiction, and whether or not the economic
effect of such alleged matters arise or are discovered in the future, which
Borrower Parties now have or may claim to have against Lender Parties arising
out of or with respect to any and all transactions relating to the Loan or the
Loan Documents occurring on or before the date hereof, including any loss, cost
or damage of any kind or character arising out of or in any way connected with
or in any way resulting from the acts, actions or omissions of Lender Parties
occurring on or before the date hereof. The foregoing release is intended to be,
and is, a full, complete and general release in favor of Lender Parties with
respect to all claims, demands, actions, causes of action and other matters
described therein, including
<PAGE> 5
specifically, without limitation, any claims, demands or causes of action based
upon allegations of breach of fiduciary duty, breach of any alleged duty of fair
dealing in good faith, economic coercion, usury, or any other theory, cause of
action, occurrence, matter or thing which might result in liability upon Lender
Parties arising or occurring on or before the effective date hereof. Borrower
Parties understand and agree that the foregoing general release is in
consideration for the agreements of Lender contained herein and that they will
receive no further consideration for such release.
7. Default and Remedies. Subject to any applicable notice and grace
periods set forth in the Loan Documents, any default by Borrower in the
performance of its obligations herein contained or any inaccuracy in the
representations and warranties made by Borrower herein shall constitute a
default under the Loan Documents and shall entitle Lender to exercise all of its
rights and remedies set forth in the Loan Documents. In addition to any rights
and remedies of Lender set forth in the Loan Documents, Borrower shall pay all
reasonable legal costs incurred by Lender in any legal action involving the Loan
Documents or the indebtedness evidenced and secured thereby. Further, Borrower
shall not oppose the immediate appointment of a third party receiver upon a
voluntary bankruptcy filing by Borrower or in any case where a creditor may
attempt to claim a preference on the cash flow from the collateral securing
Lenders' debt.
8. Ratification of Loan Documents. This Agreement is only a
modification of the Loan Documents and not a novation of same. Except as
expressly set forth herein, the provisions, representations and conditions set
forth in the Loan Documents, which are incorporated herein, are unmodified and
shall remain in full force and effect; and Borrower does hereby ratify and
confirm such provisions, representations and conditions, as amended hereby.
9. Lien of Deed of Trust. It is the intent of the Lender and Borrower
that the amount of indebtedness secured by the lien of the Deed of Trust shall
be taken up and renewed, such that as of the date of disbursement of the
Additional Advance the Deed of Trust shall secure the full principal balance of
the Note in the amount of Nine Million Two Hundred Thousand Dollars
($9,200,000.00) as well as the payment and performance of all other indebtedness
and obligations described in the Deed of Trust. Borrower hereby ratifies,
confirms and adopts all mortgages, liens, security interests, assignments and
encumbrances under the Deed of Trust and agrees that the Deed of Trust shall
continue in full force and effect for the purpose of securing the performance
and payment of all the indebtedness and obligations therein described, including
specifically, without limitation, all indebtedness evidence by the Note
(inclusive of the Additional Advance), as modified herein, and all renewals and
extensions thereof. Borrower agrees to execute any instruments which, in the
opinion of Lender, are necessary to perfect such mortgages, liens, security
interests, assignments and encumbrances.
10. Title Insurance Policy. Simultaneously with the execution hereof,
Borrower shall furnish, or cause to be furnished, to Lender, at Borrower's
expense, a Mortgage Policy of Title Insurance (the "Title Policy") in the amount
of Nine Million Two Hundred Thousand Dollars ($9,200,000.00) insuring that the
lien of the Deed of Trust is a first lien on the Property subject only to such
exceptions as may be approved by Lender in its sole discretion.
<PAGE> 6
11. Lift of Bankruptcy Stay. Notwithstanding any provision in the Loan
Documents to the contrary, in the event Borrower shall make application for or
seek relief or protection under any of the sections or chapters of the Code or
in the event that any involuntary petition is filed against Borrower under any
section of the Code, Lender shall thereupon be entitled, to the full extent
allowed by applicable law, to immediate relief from any automatic stay imposed
by Section 362 of the Code, or otherwise, on or against the exercise of the
rights and remedies otherwise available to Lender pursuant to the Loan
Documents and as otherwise provided by law.
12. Fees. Simultaneously with the execution of this Agreement, Borrower
shall pay all costs and expenses incurred by Lender in connection with the
negotiation, preparation and execution of this Agreement. Without limiting the
generality of the preceding sentence, Borrower shall pay all attorneys' fees,
title company charges (including UCC searches), escrow fees and recording costs
incurred by Lender in connection with this Agreement. In addition to the
foregoing, simultaneously with the execution of this Agreement, Borrower shall
pay any amounts past due under the Loan Documents (including specifically,
without limitation, any late charges due thereunder).
13. Recordation of Agreement. If Lender elects, this Agreement shall be
recorded, at the expense of Borrower, in the Real Property Records of each
county where the Property is located.
14. Legal Opinion. Simultaneously with the execution of this
Agreement, Lender shall have received from legal counsel retained by Borrower
and acceptable to Lender and opinion (the "Legal Opinion") of counsel covering
the following matters: (a) the due authorization, execution, validity, binding
effect and enforceability of this Agreement in accordance with its terms; (b)
the Loan, as modified by this Agreement, complies with applicable usury laws;
(c) the due organization and valid legal existence of Borrower, and (d) the
existence of, or the non-existence of, to the current actual knowledge of
counsel of Borrower, any requirements for any consent of any governmental
authority in connection with the execution, delivery or performance of this
Agreement or any documents related thereto.
15. Conditions Precedent.
(a) The following shall be conditions precedent to the
effectiveness of this Agreement and the disbursement of the Additional
Advance:
(i) Prior to or simultaneously with the execution of this
Agreement, Borrower shall have paid to Lender all amounts required
herein to be paid on or before the date of execution of this
Agreement, including specifically, without limitation (1) interest
on the Additional Advance at the rate of eight and one-half percent
(8.5%) per annum from the date of disbursement of the Additional
Advance through and including March 31, 2000, and (2) all fees,
costs, and legal expenses incurred by Lender as a result of the
negotiation, preparation, approval and recording of the Agreement.
<PAGE> 7
(ii) Prior to or simultaneously with the execution of this
Agreement, Borrower shall have executed, or caused to be executed,
and delivered to Lender all documents required by Lender in
connection with the modification of the Loan contemplated hereby,
including specifically, without limitation, the following: (A)this
Agreement; (B) if required by Lender, UCC Financing Statements; (C)
UCC searches in respect of Borrower; (D) the Title Policy; and (E)
the Legal Opinion.
(iii) Prior to or simultaneously with the execution of this
Agreement, Lender shall have received an appraisal and, if required
by Lender, and environmental report in respect of the Property
satisfactory to Lender, in Lender's sole discretion. The costs of
any such appraisal or environmental report shall be borne by
Borrower.
(b) If, for any reason, any of the foregoing conditions precedent
fails to occur within the time period specified, this Agreement shall
terminate and be of no further force or effect, and the Loan Documents
shall remain in effect as if this Agreement had never been executed.
The foregoing conditions precedent are for the sole benefit of Lender
and may be waived only by Lender by written agreement executed by
Lender.
16. No Waiver. Except as expressly provided herein, the execution of
this Agreement by Lender does not and shall not constitute a waiver of any
rights or remedies to which Lender is entitled pursuant to the Loan Documents,
nor shall the same constitute a waiver of any default which may have heretofore
occurred or which may hereafter occur with respect to the Loan Documents.
17. Severability of Provisions. A determination that any provision of
this Agreement is unenforceable or invalid shall not affect the enforceability
or validity of any other provision hereof, and any determination that the
application of any provision of this Agreement to any person or circumstance is
illegal or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to any other persons or circumstances.
18. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall constitute
one instrument, but in making proof hereof it shall only be necessary to produce
one such counterpart.
19. Governing Law. The terms and conditions of this Agreement shall be
governed by the applicable laws of the State of Texas.
20. Interpretation. Within this Agreement, words of any gender shall be
held and construed to include any other gender, and words in the singular number
shall be held and construed to include the plural, unless the context otherwise
requires. The section headings used herein are intended for reference purpose
only and shall not be considered in the interpretation of the terms and
conditions hereof. The parties acknowledge that the parties and their counsel
have reviewed and revised this Agreement and that the normal rule of
construction the effect that any ambiguities are
<PAGE> 8
to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any exhibits or amendments hereto.
21. Amendment. The terms and conditions hereof may not be modified,
altered or otherwise amended except by an instrument in writing executed by
Borrower and Lender.
22. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the modification of the Loan and
fully supersedes all prior agreements and understandings between the parties
pertaining to such subject matter.
23. Successors and Assigns. The terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto,
their successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement to be effective as of the day and year first above written.
BORROWER:
CRAFTMADE INTERNATIONAL, INC.,
Delaware corporation
By: /s/ JAMES R. RIDINGS
---------------------------
Name: James R. Ridings
Title: Chief Executive Officer
(This space intentionally left blank)
<PAGE> 9
LENDER:
ALLIANZ LIFE INSURANCE COMPANY OF
NORTH AMERICA, a Minnesota corporation
By: /s/ RONALD M. CLARK
-----------------------------------
Name: Ronald M. Clark
---------------------------------
Title: Assistant Treasurer
--------------------------------
By: /s/ WENDELL R. KURTZ
-----------------------------------
Name: Wendell R. Kurtz
---------------------------------
Title: Assistant Treasurer
--------------------------------
(This space intentionally left blank)
<PAGE> 10
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on the 8th day of March,
2000, by James R. Ridings, CEO, of CRAFTMADE INTERNATIONAL, INC., a Delaware
corporation, on behalf of said corporation.
/s/ DEBORAH S. LORENZ
---------------------------------
Notary Public
Deborah S. Lorenz
---------------------------------
Printed/Typed Name of Notary
My Commission Expires: 1-31-2001
-----------
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