<PAGE>
UNITED STATES
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 October 3, 1997
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 33-64140
--------
DAL-TILE INTERNATIONAL INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3548809
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
7834 Hawn Freeway, Dallas, Texas 75217
--------------------------------------
(Address of principal executive office)
(Zip Code)
(214)398-1411
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- ------
As of November 13, 1997, the registrant had outstanding 53,435,101 shares of
voting common stock, par value $0.01 per share.
<PAGE>
DAL-TILE INTERNATIONAL INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1 - Consolidated Financial Statements 3
Condensed Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
2
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE & NINE MONTHS ENDED OCTOBER 3, 1997 AND SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------------------------
OCTOBER 3, SEPTEMBER 30, OCTOBER 3, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales $177,731 $184,386 $518,882 $535,910
Cost of goods sold 131,461 93,784 315,811 277,240
------------ ------------- ------------- ------------
Gross profit 46,270 90,602 203,071 258,670
Expenses:
Transportation 18,673 12,859 45,064 34,523
Selling, general and administrative 90,871 45,270 213,060 143,710
Provisions for merger integration charge -- -- -- 9,000
Amortization of intangibles 1,401 1,401 4,204 4,204
------------ ------------- ------------- ------------
Total expenses 110,945 59,530 262,328 191,437
------------ ------------- ------------- ------------
Operating income (loss) (64,675) 31,072 (59,257) 67,233
Interest expense 11,461 10,817 28,820 38,260
Interest income 30 397 235 1,530
Other (income) expense (147) 352 (695) 805
------------ ------------- ------------- ------------
Income (loss) before income taxes (75,959) 20,300 (87,147) 29,698
Income tax provision 4,980 7,125 1,063 10,668
------------ ------------- ------------- ------------
Income (loss) before extraordinary item (80,939) 13,175 (88,210) 19,030
Extraordinary item - loss on early
retirement of debt, net of taxes -- (29,072) -- (29,072)
------------ ------------- ------------- ------------
Net loss ($80,939) ($15,897) ($88,210) ($10,042)
============ ============= ============= ============
Income (loss) before extraordinary item
per comman share (1.51) 0.26 (1.65) 0.39
Extraordinary item -- (0.57) -- (0.60)
------------ ------------- ------------- ------------
Net loss per common share ($1.51) ($0.31) ($1.65) ($0.21)
============ ============= ============= ============
Average outstanding common and
equivalent shares 53,435 51,270 53,435 48,567
============ ============= ============= ============
</TABLE>
See condensed notes to consolidated financial statements
3
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 3, 1997 AND JANUARY 3, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 3, JANUARY 3,
1997 1997
------------------ ---------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $393 $9,999
Trade accounts receivable 113,359 123,586
Inventories 142,647 142,413
Prepaid expenses 3,661 2,838
Other current assets 15,117 15,480
------------------ ---------------------
Total current assets 275,177 294,316
Property, plant, and equipment, at cost 294,067 261,976
Less accumulated depreciation 68,095 58,350
------------------ ---------------------
225,972 203,626
Goodwill, net of amortization 153,752 157,251
Finance costs, net of amortization 6,899 3,683
Tradename and other assets 31,263 29,621
------------------ ---------------------
Total assets $693,063 $688,497
================== =====================
</TABLE>
See condensed notes to consolidated financial statements
4
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
OCTOBER 3, 1997 AND JANUARY 3, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 3, JANUARY 3,
1997 1997
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Trade accounts payable $17,520 $38,827
Accrued expenses 50,531 27,809
Accrued interest payable 2,431 3,293
Current portion of long-term debt 7,778 32,823
Income taxes payable 948 2,342
Deferred income taxes 1,367 1,367
Other current liabilities 4,854 7,036
---------------- ---------------
Total current liabilities 85,429 113,497
Long-term debt 550,170 433,035
Other long-term liabilities 29,356 26,396
Commitments and contingencies
Stockholders' Equity:
Common stock, $.01 par value:
Authorized shares - 200,000,000; issued and
outstanding shares - 53,435,101 534 534
Additional paid-in capital 436,100 436,100
Accumulated deficit (348,860) (260,650)
Currency translation adjustment (59,666) (60,415)
---------------- ---------------
Total stockholders' equity 28,108 115,569
---------------- ---------------
Total liabilities and stockholders' equity $693,063 $688,497
================ ===============
</TABLE>
See condensed notes to consolidated financial statements
5
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 3, 1997 AND SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
OCTOBER 3, SEPTEMBER 30,
1997 1996
-------------- ----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($88,210) ($10,042)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 17,517 17,553
Extraordinary item -- 29,072
Provision for losses on accounts receivable 23,086 4,298
Deferred income tax provision (93) 4,995
Foreign currency transaction loss (gain) 289 (125)
Changes in operating assets and liabilities:
Trade accounts receivable (12,813) (25,724)
Inventories (188) (7,926)
Other assets (6,425) (2,887)
Trade accounts payable and accrued expenses 2,768 (11,068)
Accrued interest payable (863) (14,302)
Other liabilities (2,636) (16,951)
-------------- -------------
Net cash used in operating activities (67,568) (33,107)
INVESTING ACTIVITIES
Expenditures for property, plant, and equipment, net (33,590) (27,821)
FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 102,558
Borrowings under long-term debt 105,498 444,000
Borrowings under Term B facility 125,000 --
Borrowings under previous bank credit facility -- 52,028
Repayment of long-term debt (13,598) (563,529)
Repayment of long-term debt from Term B facility (122,000) --
Fees and expenses associated with debt refinancing (3,310) (42,765)
-------------- -------------
Net cash provided by (used in) financing activities 91,590 (7,708)
Effect of exchange rate changes on cash (38) 2
-------------- -------------
Net decrease in cash (9,606) (68,634)
Cash at beginning of period 9,999 72,965
-------------- -------------
Cash at end of period $393 $4,331
============== =============
</TABLE>
See condensed notes to consolidated financial statements
6
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The operating results of Dal-Tile International Inc. and its consolidated
subsidiaries (the "Company") for the three and nine months ended October
3, 1997 reflect the results of operations of Dal-Tile International Inc.
and its consolidated subsidiaries. Due to the Company's 52/53 week
accounting cycle, the third quarter of 1997 ended on October 3, 1997.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments,
consisting of normal recurring adjustments considered necessary for a fair
presentation of the financial position, results of operations, and cash
flow, have been included. The results of operations for the nine months
ended October 3, 1997 are not necessarily indicative of the results that
may be expected for the year ending January 2, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the January 3, 1997 annual report on Form 10-K of the
Company.
2. EARNINGS PER SHARE
Earnings per share are based on the average number of shares of common
stock outstanding during each period and such shares issuable upon assumed
exercise of stock options, using the treasury stock method, adjusted for
stock splits.
3. INVENTORIES
Inventories consist of the following (In Thousands):
(Unaudited)
October 3, January 3,
1997 1997
---- ----
Raw materials $11,559 $12,660
Work-in-process 4,354 3,516
Finished goods 126,734 126,237
-------- ---------
$142,647 $142,413
======== =========
7
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT
Long-term debt consists of the following (In Thousands):
(Unaudited)
October 3, January 3,
1997 1997
---- ----
Term Loan A $217,500 $275,000
Term Loan B 125,000 --
Revolving Credit Loan 194,000 176,000
Senior Secured Zero Coupon Notes 153 140
Other 21,295 14,718
--------- ----------
557,948 465,858
Less current portion 7,778 32,823
--------- ----------
$550,170 $433,035
During the third quarter of 1997, the Company amended certain financial
covenants to provide increased flexibility under the existing credit
facility (as amended, the "Second Amended Credit Facility"). In connection
with the Second Amended Credit Facility the Company's borrowing rate was
increased 50 basis points over the previously existing rates (which now
range from 2% - 2 1/2% over LIBOR). The Company's borrowing rate is based
on a pricing grid which provides for reduced borrowing rates as certain
ratios improve. There were no modifications to the existing amortization
schedule.
During the second quarter of 1997, the Company amended its existing credit
facility (as amended, the "Amended Credit Facility") and entered into a
$125 million Term B loan facility. The proceeds of the Term B loan were
used to repay $50 million of the Term A loan and $72 million of the
revolver under the Company's existing revolver credit facility. The
Company is required to make quarterly payments of $250,000 starting in the
first quarter of 1998.
5. INCOME TAXES
The Company has a significant year-to-date pre-tax loss and has prior
year tax loss carryforwards. Accordingly, the Company has recorded a
valuation allowance against the tax benefit associated with its
year-to-date pre-tax loss. This valuation allowance will be reassessed
in future reporting periods. During the third quarter of 1997 the
Company reversed income tax benefits recorded in the first half of 1997.
8
<PAGE>
DAL-TILE INTERNATIONAL INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. MERGER INTEGRATION CHARGES
In the first quarter of 1996, the Company recorded a pre-tax merger
integration charge of $9,000,000 for the closing of duplicative sales
centers, duplicative distribution centers, and certain manufacturing
facilities and severance costs associated with the elimination of
overlapping positions.
7. EXTRAORDINARY ITEM
In connection with the refinancing and early extinguishment of debt during
the third quarter of 1996, the Company recorded an extraordinary charge of
$44,800,000 ($29,072,000, net of tax) for prepayment premiums on certain
debt repaid, the write-off of existing deferred financing fees, and the
termination fee associated with the termination of the Company's
management agreement with AEA Investors Inc.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the three and
nine months ended October 3, 1997 compared with the three and nine months ended
September 30, 1996 for Dal-Tile International Inc. and its consolidated
subsidiaries (the "Company"). Due to the Company's 52/53 week accounting cycle,
the third quarter of 1997 ended on October 3, 1997. All references herein to the
third quarter of 1997 are intended to include the Company's operations through
October 3, 1997.
During the third quarter of 1997, the Company recorded a $65.4 million (pre-tax
and after-tax) charge, primarily for the write-down of obsolete and slow moving
inventories, uncollectible trade accounts receivable, other non-productive
assets, and costs for restructuring manufacturing, store operations and
corporate administrative functions. The charge is comprised of $28.1 million in
cost of sales, $3.5 million in transportation expense, and $33.8 million in
selling, general and administrative expenses. Total charges for the year of
$90.1 million (pre-tax and after-tax), including $24.7 million incurred in the
second quarter for the write-down of trade accounts receivable and inventories,
are comprised of $36.5 million in cost of sales, $3.5 million in transportation
expense, and $50.1 million in selling, general and administrative expenses.
Earnings for the three and nine months ended October 3, 1997, excluding such
charges, have been adversely affected by the absorption of overhead from
decreased production levels and increased transportation expense. The Company
believes these factors will continue to adversely affect performance for the
remainder of 1997 and potentially into 1998.
In the first quarter of 1996, the Company recorded a pre-tax merger integration
charge of $9.0 million for the closing of duplicative sales centers,
consolidation of the Company's distribution system, manufacturing facility
closings and severance costs associated with the elimination of overlapping
positions.
Net Sales
Net sales for the third quarter decreased $6.7 million, or 3.6%, to $177.7
million in 1997, from $184.4 million in 1996. Net sales for the nine months
ended October 3, 1997 decreased $17.0 million, or 3.2%, to $518.9 million from
$535.9 million for the nine months ended September 30, 1996. The decrease in net
sales was due principally to the negative impact on company-operated sales
centers caused by the delay in systems integration and the consolidation
throughout 1996 of redundant sales centers from the American Olean Acquisition
("AO Acquisition"). Same store sales increased 3.9% for the quarter and 7.7% for
the nine months ended October 3, 1997 as compared to comparable periods in 1996.
Gross Profit
Gross profit decreased $44.3 million, or 48.9%, to $46.3 million in the third
quarter of 1997 from $90.6 million in the third quarter of 1996. Gross profit
decreased $55.6 million or 21.5%, to $203.1 million for the nine months ended
October 3, 1997 from $258.7 million for the nine months ended September 30,
1996. The decrease for the three and nine months ended October 3, 1997 is due in
part to charges taken during the second and third quarters of 1997 for obsolete
and slow moving inventories. Sales declines and decreases in production levels
resulting in higher per unit manufacturing costs also adversely impacted gross
profit.
Gross margin (excluding the 1997 third quarter charge) decreased in the third
quarter of 1997 to 41.8% from 49.1% in the third quarter of 1996, and gross
margin (excluding the 1997 second and third quarter
10
<PAGE>
charges) decreased for the nine months ended October 3, 1997 to 46.2% from
48.3% for the comparable period in 1996. Decreased production levels during the
third quarter negatively impacted gross margin for the three and nine months
ended October 3, 1997 as compared to the comparable periods in 1996. The Company
believes these factors will continue to adversely affect performance for the
remainder of 1997 and potentially into 1998.
Expenses
Expenses increased $51.4 million, or 86.4%, to $110.9 million in the third
quarter of 1997 from $59.5 million in the third quarter of 1996. Expenses
increased $70.9 million, or 37.0%, to $262.3 million for the nine months ended
October 3, 1997 from $191.4 million for the nine months ended September 30,
1996. Expenses in the third quarter of 1997 increased as a result of the
charges, increased premium freight costs to consolidate distribution centers,
costs to reposition inventories, higher fixed costs for information technology
and costs to complete the American Olean integration. For the nine months ended
October 3, 1997, expenses also increased from the consolidation of eleven
distribution centers to three mega-distribution centers.
Expenses as a percent of sales in the third quarter (excluding the 1997 third
quarter charge) increased to 41.4% in 1997 from 32.3% in 1996. Expenses as a
percent of sales for the nine months ended October 3, 1997, (excluding the 1997
second and third quarter charges and the 1996 merger integration charge)
increased to 40.2% in 1997 from 34.0% in 1996. These increases are the result of
the increased expenses described above and lower sales.
Operating Income (loss)
Operating income (loss) decreased to a loss of $64.7 million in the third
quarter of 1997 from income of $31.1 million for the same period in 1996.
Operating income decreased to a loss of $59.3 million for the nine months ended
October 3, 1997 as compared to income of $67.2 million for the nine months ended
September 30, 1996. Operating income for the three and nine months ended October
3, 1997 decreased as a result of the charges, reduced sales, absorption of
overhead from decreased production levels and increased expenses.
In connection with a stock appreciation rights plan implemented for certain
members of Company management, the Company expects to record non-cash expense of
$5.9 million in the fourth quarter of 1997, $4.8 million in 1998 and $1.9
million in 1999.
Interest Expense (Net)
Interest expense (net) increased $1.0 million, or 9.7%, to $11.4 million in the
third quarter of 1997 from $10.4 million in 1996 and decreased $8.1 million, or
22.2%, to $28.6 million for the nine months ended October 3, 1997 from $36.7
million in 1996. Interest expense (net) increased during the third quarter of
1997 due to fees from the third quarter amendment of the Company's existing
credit facility (the "Second Amended Credit Facility") and higher borrowing
rates. Interest expense decreased for the nine months ended October 3, 1997 as a
result of interest savings from the refinancing of the Company's debt concurrent
with the Company's initial public offering which occurred in the third quarter
of 1996.
11
<PAGE>
Income Taxes
The Company has a significant year-to-date pre-tax loss and has prior year tax
loss carryforwards. Accordingly, the Company has recorded a valuation allowance
against the tax benefit associated with its year-to-date pre-tax loss. This
valuation allowance will be reassessed in future reporting periods. During the
third quarter of 1997 the Company reversed income tax benefits recorded in the
first half of 1997.
Income (loss) before Extraordinary Item
Income (loss) before extraordinary item decreased to a loss of $80.9 million in
the third quarter of 1997 from income of $13.2 million in the third quarter of
1996. Income (loss) before extraordinary item decreased to a loss of $88.2
million for the nine months ended October 3, 1997 from income of $19.0 million
for the nine months ended September 30, 1996. The decrease is due to the
charges, operating income reductions and increases in income taxes due to
current year losses not benefited.
Extraordinary Item
In connection with the refinancing and early extinguishment of debt during the
third quarter of 1996, the Company recorded an extraordinary item of $44.8
million ($29.1 million, net of tax) for prepayment premiums, the write-off of
existing deferred financing fees and a termination fee in connection with the
termination of the Company's management agreement with AEA Investors Inc. AEA
Investors Inc. is the manager of DTI Investors LLC, which is a significant
stockholder of the Company.
Net Loss
The Company incurred a net loss of $80.9 million during the third quarter of
1997 as compared to a net loss of $15.9 million during the third quarter of
1996. The Company incurred a net loss of $88.2 million for the nine months ended
October 3, 1997 compared to a net loss of $10.0 million for the nine months
ended September 30, 1996.
Liquidity and Capital Resources
The Company's principal sources of cash are historically from operating
activities and bank borrowings. Cash used in operating activities was $67.6
million for the nine months ended October 3, 1997 and $33.1 million for the same
period in 1996. Cash was used in 1997 principally to fund increases in
inventories and trade accounts receivable and capital expenditures.
Trade accounts receivable, prior to charges, increased earlier in 1997 as a
result of extended terms granted to customers and limited access by sales center
personnel to certain account information. Trade accounts receivable have
decreased since the second quarter due to improved collection efforts and the
write-down of uncollectible accounts. The Company has implemented more stringent
collection policies and a combination of centralized and decentralized
collection responsibilities. Inventories increased earlier in 1997 due to
multiple inventory systems which impaired the management of inventories.
Inventories have been declining, since the second quarter, due to temporary
reductions in production levels and the write-down of slow-moving or obsolete
inventories. The conversion to one fully integrated inventory system late in the
second quarter has improved inventory management.
12
<PAGE>
During the third quarter of 1997, the Company amended certain financial
covenants to provide increased flexibility under its existing credit facility
(as amended, the "Second Amended Credit Facility"). In connection with the
Second Amended Credit Facility the Company's borrowing rate was increased 50
basis points over the previously existing rates (which now range from 2% - 2
1/2% over LIBOR). The Company's borrowing rate is based on a pricing grid which
provides for reduced borrowing rates as certain financial ratios improve. There
were no modifications to the existing amortization schedule.
During the second quarter of 1997, the Company completed a new $125 million Term
B loan facility which made certain modifications to its then existing credit
facility (the "Amended Credit Facility"). The proceeds of the new term loan were
used to repay $50 million of the Term A loan and $72 million of the revolver
under the Company's existing revolver credit facility. The Company is required
to make minimal annual amortization payments in respect to the new term loan
starting in the first quarter of 1998 with final maturity on December 31, 2003.
The Amended Credit Facility includes an additional financial covenant and is
being secured by certain assets of the Company.
Total availability as of October 3, 1997 on the Company's revolving credit
facility was $46.5 million. The Company believes cash flow from operating
activities, together with borrowings available under the Second Amended Credit
Facility, will be sufficient to fund future working capital needs, capital
expenditures, and debt service requirements of the Company. Cash provided by
financing activities was $91.6 million for the nine months ended October 3,
1997, which reflects borrowings under the Company's revolving credit facility
and the $125 million Term B debt facility.
Expenditures for property, plant and equipment were $33.6 million for the nine
months ended October 3, 1997. The expenditures were used to fund expansion in
floor tile production, routine capital improvements and the integration of
management information systems. The Company's ability to continue to improve and
expand its manufacturing facilities in the future will be dependent on cash
generated from operations and borrowings under the revolving credit facility.
The Company is involved in various judicial and administrative proceedings
relating to environmental matters. The Company is currently engaged in
environmental investigation and remediation programs at certain sites relating
to activities prior to the AO Acquisition in December 1995 and prior to January
9, 1990 when AEA Investors Inc., a privately held corporation headquartered in
New York, arranged for Dal-Tile International Inc. to acquire all of the
outstanding capital stock of Dal-Tile Corporation, its affiliated companies and
certain related assets (the "AEA Acquisition"). The Company maintains a reserve
for remediation relating to environmental conditions and activities existing
prior to the AEA Acquisition and is entitled to indemnification with respect to
certain expenditures incurred in connection with environmental matters. It does
not expect the ultimate liability with respect to such investigation and
remediation activities to have a material effect on the Company's liquidity and
financial condition. In addition, with respect to the investigation and
remediation programs relating to environmental conditions and activities prior
to the AO Acquisition, the Company believes that, based on currently available
information and the terms and conditions of Armstrong World Industries (AWI's)
indemnification obligations under the AO Acquisition Agreement (as defined), any
liability of AO that is reasonably likely to arise with respect to such sites
would not result in a material adverse effect on the Company.
The United States is a party to the General Agreement on Tariffs and Trade
("GATT"). Under GATT, the United States currently imposes import duties on
ceramic tile from non-North American countries at 17%, to be reduced ratably to
8 1/2% by 2005. Accordingly, GATT may stimulate competition from non-North
American manufacturers who now export, or who may seek to export,
13
<PAGE>
ceramic tile to the United States. The Company cannot predict with certainty the
effect that GATT may have on the Company's operations.
Effects of Inflation
The Company believes it has generally been able to increase selling prices and
productivity to offset increases in costs resulting from inflation in the U.S.
and Mexico. Inflation has not had a material impact on the Company's results of
operations during the nine months ended October 3, 1997 and September 30, 1996.
Approximately 89% of the Company's inventory is valued using the LIFO inventory
accounting method. Therefore, current costs are reflected in cost of sales
rather than in inventory balances.
14
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Cautionary Statement for purposes of "Safe Harbor Provisions" of
the Private Securities Litigation Reform Act of 1995.
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to
risks, uncertainties and other factors which could cause actual
results to differ materially from future results expressed or
implied by such forward looking statements. Potential risks and
uncertainties include, but are not limited to, the impact of
competitive pressures and changing economic conditions on the
Company's business and its dependence on residential and
commercial construction activity, the fact that the Company is
highly leveraged, currency fluctuations and other factors
relating to the Company's foreign manufacturing operations, the
impact of pending reductions in tariffs and custom duties, and
environmental laws and other regulations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
10.1 First Amendment to the Credit and Guarantee Agreement.
10.2 Second Amendment to the Credit and Guarantee Agreement.
27 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the quarter ended October 3,
1997.
15
<PAGE>
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.
DAL-TILE INTERNATIONAL INC.
---------------------------
(Registrant)
Date:
November 13, 1997 /s/ William Christopher Wellborn
- - ------------------ -----------------------------------------------
Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
16
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
FIRST AMENDMENT, dated as of June 19, 1997 (this "Amendment"), to the
CREDIT AND GUARANTEE AGREEMENT, dated as of August 14, 1996 (as the same may be
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among DAL-TILE INTERNATIONAL INC., a Delaware corporation
("Holdings"), DAL-TILE GROUP INC., a Delaware corporation (the "Borrower"), the
several banks and other financial institutions from time to time parties thereto
(collectively, the "Lenders"), CREDIT SUISSE, as documentation agent (in such
capacity, the "Documentation Agent"), GOLDMAN SACHS CREDIT PARTNERS L.P. as
syndication agent (in such capacity, the "Syndication Agent") and THE CHASE
MANHATTAN BANK ("Chase"), a New York banking corporation, as administrative
agent for the Lenders (in such capacity, the "Administrative Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested that the Lenders amend the Credit
Agreement in the manner provided for herein; and
WHEREAS, the Lenders are willing to amend the Credit Agreement in the
manner and on the terms and conditions provided for herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS AND SECTION REFERENCES
1.1 Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein are so used as so defined.
1.2 Section References. Unless otherwise indicated, all Section and
subsection references are to the Credit Agreement.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT
2.1 Amendment to Subsection 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended as follows:
(a) by amending and restating in their entireties the following
definitions contained in such subsection to read as follows:
"Applicable Margin": (a) with respect to any Revolving Credit
Loan or Term Loan (i) if such Revolving Credit Loan or Term Loan, as
the case may be, is an ABR Loan, 0.25% and (ii) if such Revolving
Credit Loan or Term Loan, as the case may be, is a Eurodollar Loan,
1.25%, provided that the Applicable Margin for Revolving Credit Loans
and Term Loans will be adjusted, if required, on each Adjustment Date,
to the Applicable Margin set forth on Annex A-1 hereto opposite the
---------
Leverage Ratio Level of the Borrower in effect on such Adjustment
Date, provided further that, in the event that the financial
statements required to be delivered pursuant to subsection 7.1(a) or
7.1(b), as applicable, and the related certificate required pursuant
to subsection 7.2(b), are not delivered when due, then, during the
period from the date upon which such financial statements were
required to be delivered until one Business Day following the date
upon which they actually are delivered, the Applicable Margin for
Revolving Credit Loans and Term Loans which are ABR Loans shall be
0.50% and the Applicable Margin
<PAGE>
2
for Revolving Credit Loans and Term Loans which are Eurodollar Loans
Eurodollar Loans shall be 1.50%; and (b) with respect to any Tranche B
Term Loan, (i) if such Tranche B Term Loan is an ABR Loan, 0.75% and
(ii) if such Tranche B Term Loan is a Eurodollar Loan, 1.75%, provided
that the Applicable Margin for Tranche B Term Loans will be adjusted,
if required, on each Adjustment Date, to the Applicable Margin set
forth on Annex A-2 hereto (or, in the case of any Adjustment Date
---------
after June 19, 1998, on Annex A-3 hereto) opposite the Leverage Ratio
---------
Level of the Borrower in effect on such Adjustment Date, provided
further that, in the event that the financial statements required to
be delivered pursuant to subsection 7.1(a) or 7.1(b), as applicable,
and the related certificate required pursuant to subsection 7.2(b),
are not delivered when due, then, during the period from the date upon
which such financial statements were required to be delivered until
one Business Day following the date upon which they actually are
delivered, the Applicable Margin for Tranche B Term Loans which are
ABR Loans shall be 1.00% and the Applicable Margin for Tranche B Term
Loans which are Eurodollar Loans shall be 2.00%.
"Asset Sale": as to any Person, any sale or other disposition
(including any sale or other disposition in connection with a
Sale/Leaseback Transaction and any mortgage (other than the Mortgages)
or lease of real property) subsequent to the Closing Date of any
property of such Person (except sales or other dispositions permitted
under subsection 8.6(a) through 8.6(g)).
"Borrowing Date": any Business Day specified in a notice
pursuant to subsection 2.2, 2A.2, 3.2 or 3.8 as a date on which the
Borrower requests the Lenders to make Loans or the Swing Line Lender
to make Swing Line Loans hereunder.
"Commitment": with respect to any Lender, the collective
reference to such Lender's Term Loan Commitment, Tranche B Commitment
and/or Revolving Credit Commitment; collectively, as to all the
Lenders, the "Commitments".
"Commitment Percentage": as to any Lender (a) at any time prior
to the termination of the Revolving Credit Commitments, the percentage
which (i) the sum of (x) such Lender's Revolving Credit Commitment
plus (y) such Lender's Term Loan Commitment (or, after the Term Loans
are made, the outstanding principal amount of such Lender's Term Loan)
plus (z) such Lender's Tranche B Commitment (or, after the Tranche B
Term Loans are made, the outstanding principal amount of such Lender's
Tranche B Term Loan) then constitutes of (ii) the sum of (x) the
Revolving Credit Commitments of all the Lenders plus (y) the Term Loan
Commitments of all the Lenders (or, after the Term Loans are made, the
aggregate principal amount of Term Loans of all the Lenders then
outstanding) plus (z) the Tranche B Commitments of all the Lenders
(or, after the Tranche B Term Loans are made, the aggregate principal
amount of Tranche B Term Loans of all the Lenders then outstanding),
and (b) at any time after the termination of the Revolving Credit
Commitments, the percentage which (i) the sum of (x) the principal
amount of such Lender's Loans (other than Swing Line Loans) then
outstanding plus (y) the product of such Lender's Revolving Credit
Commitment Percentage times the sum of (I) the L/C Obligations then
outstanding and (II) the Swing Line Loans then outstanding then
constitutes of (ii) the sum of (x) the aggregate principal amount of
Loans of all the Lenders then outstanding plus (y) the aggregate L/C
Obligations of all the Lenders then outstanding.
"Consolidated Current Assets": at any date of determination, an
amount equal to the sum of, without duplication, (a) all assets (other
than cash and Cash Equivalents) which would, in accordance with GAAP,
be classified on a consolidated balance sheet of Holdings (or, if the
Merger is consummated, the Borrower) and its Subsidiaries as current
assets at such date of determination and (b) the aggregate unpaid
balance of all accounts receivable of the Borrower
<PAGE>
3
and its Subsidiaries sold or financed pursuant to the Permitted
Securitization Transaction at such date of determination.
"Consolidated EBITDA": for any period, the Consolidated Net
Income for such period, plus, to the extent deducted in determining
such Consolidated Net Income, (a) Consolidated Interest Expense, (b)
depreciation, (c) amortization and (d) all Federal, state, local and
foreign income taxes, all as determined on a consolidated basis in
accordance with GAAP, provided that, for purposes of determining the
Applicable Margin for Revolving Credit Loans and Term Loans (other
than for purposes of determining whether Leverage Ratio Level IA
exists on any Adjustment Date), (i) Consolidated EBITDA for the period
of four consecutive fiscal quarters ending December 31, 1996, shall be
equal to the product of (A) Consolidated EBITDA for the fiscal quarter
ending December 31, 1996 times (B) 4, (ii) Consolidated EBITDA for the
period of four consecutive fiscal quarters ending March 31, 1997,
shall be equal to the product of (A) Consolidated EBITDA for the two
consecutive fiscal quarters ending March 31, 1997 times (B) 2, and
(iii) Consolidated EBITDA for the period of four consecutive fiscal
quarters ending June 30, 1997, shall be equal to the product of (A)
Consolidated EBITDA for the three consecutive fiscal quarters ending
June 30, 1997 times (B) a fraction, the numerator of which is 4 and
the denominator of which is 3.
"Consolidated Interest Expense": for any period, an amount equal
to the sum of, without duplication, (a) the amount of interest
expense, both expensed and capitalized, of Holdings (or, if the Merger
is consummated, the Borrower) and its Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP and (b) an
amount equal to the interest (or other fees or other amounts in the
nature of interest or discount accrued and paid or payable in cash for
such period) in respect of the Permitted Securitization Transaction,
provided that, for purposes of determining the Applicable Margin for
Revolving Credit Loans and Term Loans (other than for purposes of
determining whether Leverage Ratio Level IA exists on any Adjustment
Date), (i) Consolidated Interest Expense for the period of four
consecutive fiscal quarters ending December 31, 1996, shall be equal
to the product of (A) Consolidated Interest Expense for the fiscal
quarter ending December 31, 1996 times (B) 4, (ii) Consolidated
Interest Expense for the period of four consecutive fiscal quarters
ending March 31, 1997, shall be equal to the product of (A)
Consolidated Interest Expense for the two consecutive fiscal quarters
ending March 31, 1997 times (B) 2, and (iii) Consolidated Interest
Expense for the period of four consecutive fiscal quarters ending June
30, 1997, shall be equal to the product of (A) Consolidated Interest
Expense for the three consecutive fiscal quarters ending June 30, 1997
times (B) a fraction, the numerator of which is 4 and the denominator
of which is 3.
"Consolidated Net Income": for any period, the net income of
Holdings (or, if the Merger is consummated, the Borrower) and its
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, but excluding from the determination thereof
(without duplication) (a) any extraordinary or non-recurring gains or
losses (including, without limitation, the one-time charge taken in
the second fiscal quarter of the fiscal year ending December 31, 1997
to reflect, among other things, the write-down in valuation of
inventory and accounts receivable, provided that the amount excluded
in respect of such charge shall not exceed $25,000,000), (b) gains or
losses from the proposed or actual disposition of material assets and
(c) goodwill write-downs and restructuring charges (but deducting from
the determination of Consolidated Net Income for any period, cash
payments made during such period in respect of any goodwill write-
downs or restructuring charges recorded after the Closing Date).
"Consolidated Total Debt": at any date of determination, an
amount equal to the sum of, without duplication, (a) all Indebtedness
of Holdings (or, if the Merger is consummated, the Borrower) and its
consolidated Subsidiaries at such date of determination as determined
on a
<PAGE>
4
consolidated basis in accordance with GAAP and (b) the Securitization
Amount at such date of determination.
"Leverage Ratio Level": as to the Borrower, the existence of
Leverage Ratio Level IA, Leverage Ratio Level I, Leverage Ratio Level
II, Leverage Ratio Level III, Leverage Ratio Level IV, Leverage Ratio
V or Leverage Ratio VI, as the case may be.
"Leverage Ratio Level I": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of
four consecutive fiscal quarters ending on the last day of the period
covered by the financial statements relating to such Adjustment Date
is less than 4.25 to 1.00 but greater than or equal to 3.75 to 1.00.
"Loan": any Term Loan, Tranche B Term Loan, Revolving Credit
Loan or Swing Line Loan.
"Loan Documents": this Agreement, any Notes, the Guarantees, the
Applications and the Security Documents.
"Notes": collectively, the Swing Line Note, Revolving Credit
Notes, Term Notes and Tranche B Term Notes, if any.
(b) by adding the following new definitions in the proper
alphabetical order:
"Borrower Pledge Agreements": collectively, (i) the Pledge
Agreement, dated as of August 14, 1996, made by the Borrower in favor
of the Administrative Agent, and (ii) the Pledge Agreement, dated as
of October 4, 1996, made by the Borrower in favor of the
Administrative Agent, in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"Borrower Security Agreement": the Security Agreement executed
and delivered by the Borrower pursuant to the First Amendment, as the
same may be amended, supplemented or otherwise modified from time to
time.
"Collateral": all assets of the Loan Parties, now owned or
hereinafter acquired, upon which a Lien is purported to be created by
any Security Document.
"Collateral Agreement": the Collateral Agreement executed and
delivered by each Guarantor (other than Holdings) pursuant to the
First Amendment, as the same may be amended, supplemented or otherwise
modified from time to time.
"Domestic Subsidiary": any Subsidiary of the Borrower other than
a Foreign Subsidiary.
"First Amendment": the First Amendment to this Agreement, dated
as of June 19, 1997.
"Holdings Pledge Agreement": the Pledge Agreement, dated as of
August 14, 1996, made by Holdings in favor of the Administrative
Agent, as the same may be amended, supplemented or otherwise modified
from time to time.
"Leverage Ratio Level IA": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of
four consecutive fiscal quarters ending on the last day of the period
covered by the financial statements relating to such Adjustment Date
is greater than or equal to 4.25 to 1.00.
<PAGE>
5
"Mortgages": the collective reference to the mortgages, deeds of
trust and other similar documents executed and delivered from time to
time by the Borrower and the Guarantors in favor of the Administrative
Agent pursuant to this Agreement and the First Amendment,
substantially in the form of Exhibit K or, if such Exhibit is not
---------
appropriate under applicable law in the jurisdiction in which the
relevant real property is located, in such other form as shall be
reasonably satisfactory to the Borrower and the Administrative Agent,
as each of the same may be amended, supplemented or otherwise modified
from time to time.
"Permitted Securitization Transaction": a transaction or series
of related transactions pursuant to which a corporation, partnership,
trust, limited liability company or other entity incurs obligations or
issues interests, the proceeds of which are used to finance a discrete
pool (which may be fixed or revolving) of receivables of the Borrower
and its Subsidiaries on terms and conditions satisfactory to the
Administrative Agent.
"Pledge Agreements": collectively, the Borrower Pledge
Agreements and the Holdings Pledge Agreement.
"Required Tranche B Lenders": at any time, Tranche B Lenders the
Tranche B Commitment Percentages of which aggregate more than 50%.
"Securitization Amount": as defined in subsection 3.18.
"Security Agreements": the collective reference to the Borrower
Security Agreement and the Collateral Agreement.
"Security Documents": the collective reference to the Mortgages,
the Security Agreements, the Pledge Agreements and all other security
documents hereafter delivered to the Administrative Agent granting a
Lien on any asset or assets of any Person to secure the obligations
and liabilities of the Borrower hereunder and under any of the other
Loan Documents or to secure any guarantee of any such obligations and
liabilities.
"Tranche B Commitment": as to any Tranche B Lender, its
obligation to make a Tranche B Term Loan to the Borrower in an amount
equal to the amount set forth opposite such Tranche B Lender's name in
Schedule I-A hereto under the heading "Tranche B Commitment", as such
------------
amount may be reduced from time to time pursuant to this Agreement;
collectively, as to all the Tranche B Lenders, the "Tranche B
Commitments".
"Tranche B Commitment Percentage": as to any Tranche B Lender at
any time, the percentage of the Tranche B Commitments then constituted
by such Tranche B Lender's Tranche B Commitment (or, after the Tranche
B Term Loans are made, the percentage of the aggregate Tranche B Term
Loans then constituted by such Tranche B Lender's Tranche B Term
Loans).
"Tranche B Lender": any Lender with an unused Tranche B
Commitment hereunder and/or any Tranche B Term Loan outstanding
hereunder; collectively, the "Tranche B Lenders".
"Tranche B Term Loan": as defined in subsection 2A.1.
"Tranche B Term Note": as defined in subsection 2A.4(d).
"Tranche B Effective Date": as defined in subsection 3.3 of the
First Amendment.
<PAGE>
6
"UCC Filing Collateral": Collateral (other than fixtures) as to
which filing financing statements under the uniform commercial code of
the applicable jurisdiction is an appropriate method of perfection of
a security interest in such Collateral.
(c) by amending and restating in its entirety paragraph 2 of the
definition of "Interest Period" as follows:
"(2) no Interest Period that would otherwise extend beyond the
Revolving Credit Termination Date or beyond the date final payment is
due on the Term Loans or the Tranche B Term Loans, as the case may be,
shall be selected by the Borrower;
2.2 Addition of New Section. The Credit Agreement is hereby amended
by adding a new Section between Sections 2 and 3 to read in its entirety as
follows:
"SECTION 2A. AMOUNTS AND TERMS OF TRANCHE B COMMITMENTS
2A.1 Tranche B Term Loans. Subject to the terms and conditions
hereof, each Tranche B Lender severally agrees to make a term loan (a
"Tranche B Term Loan") to the Borrower on the Tranche B Effective Date in
an amount equal to the Tranche B Commitment of such Tranche B Lender. The
Tranche B Term Loans may from time to time be (a) Eurodollar Loans, (b) ABR
Loans or (c) a combination thereof, as determined by the Borrower and
notified to the Administrative Agent in accordance with subsections 2A.2
and 4.2 hereof.
2A.2 Procedure for Tranche B Term Loan Borrowing. The Borrower
hereby requests a Tranche B Term Loan borrowing on the Tranche B Effective
Date in an amount equal to the aggregate amount of the Tranche B
Commitments of the Tranche B Lenders. The Borrower shall give the
Administrative Agent irrevocable notice prior to 12:00 noon, New York City
time, at least three Business Days prior to the Tranche B Effective Date,
if all or any part of the Tranche B Term Loans are to be initially
Eurodollar Loans, specifying the respective amounts of each such Type of
Loan and the respective lengths of the initial Interest Periods therefor.
To the extent that the Borrower does not deliver a notice pursuant to the
immediately preceding sentence, the Tranche B Term Loans shall initially be
ABR Loans. Upon receipt of such notice the Administrative Agent shall
promptly notify each Tranche B Lender thereof. Each Tranche B Lender will
make the amount of its pro rata share of the borrowing of Tranche B Term
Loans available to the Administrative Agent for the account of the Borrower
at the office of the Administrative Agent specified in subsection 13.2
prior to 11:00 A.M., New York City time, on the Tranche B Effective Date in
Dollars and in funds immediately available to the Administrative Agent.
The Borrower hereby requests and directs the Administrative Agent, on the
Tranche B Effective Date, to use the amounts made available to the
Administrative Agent by the Tranche B Loan Lenders, first, to prepay
$75,000,000 of Revolving Credit Loans and, then, to prepay $50,000,000 of
the Term Loans.
2A.3 Repayment of Tranche B Term Loans. The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account
of the Tranche B Lenders the principal amount of the Tranche B Term Loans
made by such Tranche B Lenders in twenty-four consecutive quarterly
installments (or such earlier date on which the Tranche B Term Loans become
due and payable pursuant to Section 11), payable on the last day of each
March, June, September and December of each year, commencing on March 31,
1998, in aggregate amounts for each of the following years as follows (with
the installments in each such year being equal in amount except that the
installments due in March and June 2003 shall be in an amount equal to
$250,000 and the installments due in September and December 2003 shall in
an amount equal to $59,750,000):
<PAGE>
7
Year Amount
---- ------------
1998 $ 1,000,000
1999 $ 1,000,000
2000 $ 1,000,000
2001 $ 1,000,000
2002 $ 1,000,000
2003 $120,000,000
The Borrower hereby further agrees to pay interest on the unpaid principal
amount of the Tranche B Term Loans from time to time outstanding from the
date borrowed until payment in full thereof at the rates per annum, and on
the dates, set forth in subsection 4.4.
2A.4 Evidence of Tranche B Term Loan Debt. (a) Each Tranche B
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing indebtedness of the Borrower to such Tranche B Loan
Lender from time to time in respect of the Tranche B Term Loan of such
Tranche B Term Lender, including the amounts of principal and interest
payable and paid to such Tranche B Lender from time to time under this
Agreement.
(b) The Administrative Agent shall record in the Register, with
separate subaccounts therein for each Tranche B Lender (i) the amount of
each Tranche B Term Loan made hereunder, the Type thereof and, in the case
of Tranche B Term Loans which are Eurodollar Loans, each Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Tranche B
Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each Tranche B
Lender's share thereof, if any.
(c) The entries made in the Register and the accounts of each Tranche
B Lender maintained pursuant to subsection 2A.4(b) shall, to the extent
permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded; provided,
however, that the failure of any Tranche B Lender or the Administrative
Agent to maintain the Register or any such account, or any error therein,
shall not in any manner affect the obligation of the Borrower to repay
(with applicable interest) the Tranche B Term Loans made to the Borrower by
such Tranche B Lender in accordance with the terms of this Agreement.
(d) The Borrower agrees that, upon the request to the Administrative
Agent by any Tranche B Lender, the Borrower will execute and deliver to
such Tranche B Lender a promissory note of the Borrower evidencing the
Tranche B Term Loan made by such Tranche B Lender, substantially in the
form of Exhibit J (a "Tranche B Term Note"), payable to the order of such
---------
Tranche B Lender and in a principal amount equal to, in the case of Tranche
B Term Notes issued on or prior to the Tranche B Effective Date, the lesser
of (A) the initial Tranche B Commitment of such Tranche B Lender or (B) the
aggregate unpaid principal amount of all Tranche B Term Loans made by such
Tranche B Lender and, in the case of Tranche B Term Notes issued after the
Tranche B Effective Date, the aggregate unpaid principal amount of all
Tranche B Term Loans made by such Tranche B Lender. Each Tranche B Lender
is hereby authorized to record the date, Type and amount of the Tranche B
Term Loan made by such Tranche B Lender, the date and amount of each
payment or prepayment of principal thereof, each continuation thereof, each
conversion of all or a portion thereof to another Type and, in the case of
Tranche B Term Loans which are Eurodollar Loans, the length of each
Interest Period and Eurodollar Rate with respect thereto, on the schedule
annexed to and constituting a part of its Tranche B Term Note and any such
recordation shall, to all or a portion of the purchase price of applicable
law, constitute prima facie evidence of the accuracy of the information so
recorded, provided that the failure to make any such recordation (or any
error therein) shall not affect the obligation of the Borrower to repay
(with applicable interest) the Tranche B Term Loans made to the Borrower in
accordance with the terms of this Agreement.
<PAGE>
8
2A.5 Use of Proceeds of Tranche B Term Loans. The proceeds of the
Tranche B Term Loans shall be used by the Borrower to prepay $75,000,000 of
Revolving Credit Loans and to prepay $50,000,000 of the Term Loans.
2A.6 Amendments Relating to Tranche B Term Loans. Each Term Loan
Lender and each Revolving Credit Lender which is a party to the First
Amendment (for itself and its successors and assigns) hereby notifies the
Administrative Agent that such Lender's consent to any waiver, amendment,
supplement or modification of the Credit Agreement or any other Loan
Document or any terms thereof with respect to the following matters will
not be effective unless the Required Tranche B Lenders (or, in the case of
the matter described in clause (d) below, all the Tranche B Lenders) have
also consented to such waiver, amendment, supplement or modification: (a)
any waiver, amendment, supplement or modification of or to Section 2A; (b)
any waiver, amendment, supplement or modification of or to the order of
application of prepayments specified in subsection 4.1(c); (c) any waiver,
amendment, supplement or modification of or to any provision of any
Security Document that provides for the ratable sharing of the proceeds of
any realization on the Collateral to provide for a non-ratable sharing
thereof; or (d) any waiver, amendment, supplement or modification to reduce
the percentage specified in the definition of Required Tranche B Lenders."
2.3 Amendment to Subsection 3.1. Subsection 3.1 of the Credit
Agreement is hereby amended by deleting the words "the aggregate Accreted Value
of the then outstanding Zero Coupon Notes" appearing in clause (iii) of
paragraph (a) of such subsection and substituting in lieu thereof the words "the
sum of (A) the aggregate Accreted Value of the then outstanding Zero Coupon
Notes and (B) the Securitization Amount at such time".
2.4 Amendment to Subsection 3.6. Subsection 3.6 of the Credit
Agreement is hereby amended by adding the words "and (iii) the Securitization
Amount at such time" after the words "Zero Coupon Notes" in such subsection.
2.5 Amendment to Subsection 3.10. Subsection 3.10 of the Credit
Agreement is hereby amended by adding the words "and (C) the Securitization
Amount at such time" after the words "Zero Coupon Notes" in paragraph (a) of
such subsection.
2.6 Amendment to Subsection 3.18. Subsection 3.18 of the Credit
Agreement is hereby amended by deleting the last sentence of such subsection and
substituting in lieu thereof the following new sentences:
"It is also acknowledged and agreed that a portion of the Revolving Credit
Commitments in an amount equal to the aggregate cash proceeds received by
the Borrower and its Subsidiaries (net of amounts repaid) from the
financing of then outstanding accounts receivable pursuant to the Permitted
Securitization Transaction (the "Securitization Amount") shall not be
available for Revolving Credit Loans, Swing Line Loans or Letters of
Credit. If the Aggregate Revolving Credit Outstandings of all the
Revolving Credit Lenders shall at any time exceed the difference between
(a) the Revolving Credit Commitments and (b) the sum of (i) the Reserved
Amount and (ii) the Securitization Amount, the Borrower shall promptly
prepay Revolving Credit Loans, Swing Line Loans and/or cash collateralize
Letters of Credit in accordance with subsection 4.1(c) in an aggregate
amount equal to the amount of such excess."
2.7 Amendments to Subsection 4.1. Subsection 4.1 of the Credit
Agreement is hereby amended as follows:
(a) by adding a proviso at the end of the first sentence of paragraph
(a) of such subsection to read as follows:
<PAGE>
9
"provided that, except for the prepayment of Term Loans funded with
the proceeds of the Tranche B Term Loans, the Borrower may not make an
optional prepayment of the Term Loans or Tranche B Term Loans unless
the Borrower shall, concurrently with such prepayment, make a ratable
prepayment of Tranche B Term Loans or Term Loans, respectively."
(b) by adding the words "and Tranche B Term Loans" after the words
"Term Loans" in the third, fourth and fifth sentences of paragraph (a) of
such subsection;
(c) by adding a proviso at the end of the fifth sentence of paragraph
(a) of such subsection to read as follows:
"provided that any prepayment of the Term Loans funded with the
proceeds of the Tranche B Term Loans shall be applied to the remaining
installments thereof in the scheduled order of maturity."
(d) by adding the words "and Tranche B Term Loans" after the words
"Term Loans" in the first and second sentences of paragraph (b) of such
subsection;
(e) by deleting the reference to the amount "$35,000,000" in
paragraph (b) of such subsection and inserting in lieu thereof a reference
to the amount "$10,000,000";
(f) by amending and restating the first sentence of paragraph (c) of
such subsection to read in its entirety as follows;
"All mandatory prepayments of Loans and all reductions of Revolving
Credit Commitments pursuant to subsection 4.1(b) shall be made in the
following order of priority: first the Term Loans and the Tranche B
Term Loans shall be prepaid on a ratable basis (with the amount of
such prepayments being then applied to prepay the remaining
installments of the Term Loans or the Tranche B Term Loans, as the
case may be, pro rata), and second, after the Term Loans and the
Tranche B Term Loans shall have been prepaid in full, the Revolving
Credit Commitments shall be reduced (and, to the extent that there are
any Swing Line Loans and Revolving Credit Loans outstanding, the Swing
Line Loans and the Revolving Credit Loans shall be prepaid (with the
Swing Line Loans to be prepaid first) in an aggregate amount equal to
the lesser of (i) the amount of such reduction and (ii) the aggregate
principal amount of then outstanding Swing Line Loans and Revolving
Credit Loans)."
(g) by amending and restating the first three sentences of paragraph
(d) of such subsection to read in their entireties as follows;
"Amounts to be applied pursuant to this subsection 4.1 to the
prepayment of Term Loans, Tranche B Term Loans and Revolving Credit
Loans shall be applied first to reduce outstanding Term Loans, Tranche
B Term Loans and Revolving Credit Loans which are ABR Loans. Any
amounts remaining after such application shall be applied to prepay
Term Loans, Tranche B Term Loans and Revolving Credit Loans which are
Eurodollar Loans immediately and/or shall be deposited in the
Prepayment Account (as defined below). The Administrative Agent shall
apply any cash deposited in the Prepayment Account (i) allocable to
Term Loans to prepay Term Loans which are Eurodollar Loans, (ii)
allocable to Tranche B Term Loans to prepay Tranche B Term Loans which
are Eurodollar Loans and (iii) allocable to Revolving Credit Loans to
prepay Revolving Credit Loans which are Eurodollar Loans, in each case
on the last day of the respective Interest Periods therefor (or, at
the direction of the Borrower, on any earlier date) until all
outstanding Term Loans and/or Tranche B Term Loans and/or Revolving
Credit Loans which are Eurodollar Loans have been prepaid or until all
cash on deposit in the Prepayment Account with respect to such Loans
has been exhausted."
<PAGE>
10
(h) by adding a new paragraph at the end of such subsection to read
as follows:
"(e) Notwithstanding the foregoing, in respect of any partial
prepayment of Term Loans and Tranche B Term Loans pursuant to this
subsection, the Borrower, at its option, may permit any Lender having
a Tranche B Term Loan to decline receipt of its share of any such
prepayment, and, if such Lender so declines, such share shall be
applied as an additional prepayment of the Term Loans in accordance
with this subsection. In the event that the Borrower elects to permit
any Lender having a Tranche B Term Loan to irrevocably decline receipt
of its share of any such prepayment, the Borrower shall provide the
Administrative Agent with notice to such effect no later than three
Business Days prior the date specified for such prepayment, and the
Administrative Agent will promptly notify any such Lenders of such
election. Any such Lender that wishes to decline receipt of its share
of any such prepayment shall promptly, and, in any event no later than
the date specified for such prepayment, notify the Administrative
Agent."
2.8 Amendment to Subsection 4.2. Subsection 4.2 of the Credit
Agreement is hereby amended as follows:
(a) by inserting after the words "Term Loans" each time such words
appear in paragraphs (a) and (b) of such subsection the words "or Tranche B
Term Loans, as the case may be";
(b) by inserting after the words "the Required Term Loan Lenders" each
time such words appear in paragraphs (a) and (b) of such subsection the
words ", the Required Tranche B Lenders".
2.9 Amendment to Subsection 4.6. Subsection 4.6 of the Credit
Agreement is hereby amended by inserting after the words "the Required Term Loan
Lenders" each time such words appear in paragraphs (a) and (b) of such
subsection the words ", the Required Tranche B Lenders".
2.10 Amendment to Subsection 4.7. Subsection 4.7 of the Credit
Agreement is hereby amended as follows:
(a) by inserting after the words "or the Term Loan Lenders" appearing
in paragraph (a) of such subsection the words "or the Tranche B Lenders";
and
(b) by adding the following sentence at the end of paragraph (c)
thereof:
"Each borrowing by the Borrower of Tranche B Term Loans shall be
made ratably from the Tranche B Lenders in accordance with their
respective Tranche B Commitment Percentages."
2.11 Amendment to Subsection 5.1. Subsection 5.1 of the Credit
Agreement is hereby amended by (a) deleting the reference to the date "December
31, 1995" each time it appears in such subsection and substituting in lieu
thereof a reference to the date "December 31, 1996" and (b) deleting the
reference to the date "March 31, 1996" each time it appears in such subsection
and substituting in lieu thereof a reference to the date "March 31, 1997".
2.12 Amendment to Subsection 5.2. Subsection 5.2 of the Credit
Agreement is hereby amended by deleting the reference to the date "December 31,
1995" appearing therein and substituting in lieu thereof a reference to the date
"December 31, 1996".
2.13 Amendment to Subsection 6.2. Subsection 6.2 of the Credit
Agreement is hereby amended by adding the words "Tranche B Term Loans" after the
words "Term Loans" in the parenthetical in the second line of such subsection.
<PAGE>
11
2.14 Amendment to Subsection 7.1. Subsection 7.1 of the Credit
Agreement is hereby amended by (a) deleting the word "and" at the end of
paragraph (a) thereof, (b) by adding the word "and" at the end of paragraph (b)
thereof and (c) by adding a new paragraph after paragraph (b) to read in its
entirety as follows:
"(c) as soon as available, but in any event not later than 45 days
after the end of each month of each fiscal year (other than a month which
is also the end of a quarterly period) of Holdings or the Borrower, as the
case may be, the unaudited consolidated balance sheet of Holdings and its
consolidated Subsidiaries, or if the Merger is consummated, the Borrower
and its consolidated Subsidiaries, as at the end of such month and the
related unaudited consolidated statements of operations and of cash flows
of Holdings and its consolidated Subsidiaries, or if the Merger is
consummated, the Borrower and its consolidated Subsidiaries, for such month
and the portion of the fiscal year through the end of such month, setting
forth in each case in comparative form the figures for the previous year,
certified by a Responsible Officer of Holdings or the Borrower, as the case
may be, as being fairly stated in all material respects (subject to normal
year-end audit adjustments);".
2.15 Amendment to Subsection 7.2. Subsection 7.2 of the Credit
Agreement is hereby amended by amended by adding the following clauses at the
end of paragraph (b) thereof:
"and (iii) stating that no Subsidiary has been formed or acquired (or, if
any such Subsidiary has been formed or acquired, the Borrower has complied
with the requirements of subsection 7.9 with respect thereto), and (iv)
stating that neither the Borrower nor any of its Subsidiaries has changed
its name, its principal place of business, its chief executive office or
the location of any material item of tangible Collateral without complying
with the requirements of this Agreement and the Security Documents with
respect thereto".
2.16 Amendment to Subsection 7.9. Subsection 7.9 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following new subsection to read in its
entirety as follows:
"7.9 Additional Collateral. (a) With respect to any assets acquired
after the Tranche B Effective Date by the Borrower or any of its Domestic
Subsidiaries that are intended to be subject to the Lien created by any of
the Security Documents but which are not so subject (other than (x) any
assets described in paragraph (b) or (c) of this subsection), promptly (and
in any event within 45 days after the acquisition thereof): (i) execute
and deliver to the Administrative Agent such amendments to the relevant
Security Documents or such other documents as the Administrative Agent
shall deem necessary or advisable to grant to the Administrative Agent, for
the benefit of the Lenders, a Lien on such assets, (ii) take all actions
necessary or advisable to cause such Lien to be duly perfected in
accordance with all applicable Requirements of Law, including, without
limitation, the filing of financing statements in such jurisdictions as may
be requested by the Administrative Agent (it being agreed that (A) no
Mortgage shall be required to be executed and delivered with respect to any
parcel of real property acquired after the Tranche B Effective Date unless
the book value of such parcel of real property exceeds $1,000,000 and (B)
no action shall be required pursuant to this clause (ii) to perfect a Lien
(1) in assets that would not constitute UCC Filing Collateral unless the
book value of such assets is greater than $1,000,000 or (2) in assets
constituting UCC Filing Collateral if such perfection relates to assets
with an aggregate book value of less than $500,000), and (iii) if requested
by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described in clauses (i) and (ii)
immediately preceding, which opinions shall be in form and substance, and
from counsel, reasonably satisfactory to the Administrative Agent.
(b) With respect to any Person that, subsequent to the Tranche B
Effective Date, becomes a Subsidiary (other than a Foreign Subsidiary),
promptly upon the request of the Administrative Agent: (i) execute and
deliver to the Administrative Agent, for the benefit of the Lenders, a new
pledge agreement or such amendments to the relevant Pledge Agreement or
Collateral Agreement as the Administrative
<PAGE>
12
Agent shall deem necessary or advisable to grant to the Administrative
Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such
Subsidiary which is owned by the Borrower or any of its Subsidiaries, (ii)
deliver to the Administrative Agent the certificates representing such
Capital Stock, together with undated stock powers executed and delivered in
blank by a duly authorized officer of the Borrower or such Subsidiary, as
the case may be, (iii) cause such new Subsidiary (A) to become a party to
the Subsidiaries Guarantee and the Collateral Agreement, in each case
pursuant to documentation which is in form and substance satisfactory to
the Administrative Agent, and (B) to take all actions necessary or
advisable to cause the Lien created by the Collateral Agreement to be duly
perfected in accordance with all applicable Requirements of Law, including,
without limitation, the filing of financing statements in such
jurisdictions as may be requested by the Administrative Agent and (iv) if
requested by the Administrative Agent, deliver to the Administrative Agent
legal opinions relating to the matters described in clauses (i), (ii) and
(iii) immediately preceding, which opinions shall be in form and substance,
and from counsel, reasonably satisfactory to the Administrative Agent.
(c) With respect to any Person that, subsequent to the Tranche B
Effective Date, becomes a first tier Foreign Subsidiary, promptly upon the
request of the Administrative Agent: (i) execute and deliver to the
Administrative Agent a new pledge agreement or such amendments to the
relevant Pledge Agreement or Collateral Agreement as the Administrative
Agent shall deem necessary or advisable to grant to the Administrative
Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such
Subsidiary which is owned by the Borrower or any of its Subsidiaries
(provided that in no event shall more than 65% of the Capital Stock of any
such Subsidiary be required to be so pledged), (ii) deliver to the
Administrative Agent any certificates representing such Capital Stock,
together with undated stock powers executed and delivered in blank by a
duly authorized officer of the Borrower or such Subsidiary, as the case may
be, and take or cause to be taken all such other actions under the law of
the jurisdiction of organization of such Foreign Subsidiary as may be
necessary or advisable to perfect such Lien on such Capital Stock and (iii)
if requested by the Administrative Agent, deliver to the Administrative
Agent legal opinions relating to the matters described in clauses (i) and
(ii) immediately preceding, which opinions shall be in form and substance,
and from counsel, reasonably satisfactory to the Administrative Agent."
2.17 Amendment to Subsection 8.1(c). Subsection 8.1 of the Credit
Agreement is hereby amended by deleting paragraph (c) of such subsection in its
entirety and substituting in lieu thereof the following new paragraph:
"(c) Maintenance of Consolidated Adjusted Interest Coverage Ratio.
Permit for any period of four consecutive fiscal quarters ending on the
last day of any fiscal quarter set forth below the Consolidated Adjusted
Interest Coverage Ratio for such period to be less than the ratio set forth
opposite such fiscal quarter below:
Fiscal Quarter Interest Coverage Ratio
-------------- -----------------------
2nd, 3rd and 4th Fiscal Quarters of 1997 Fiscal Year
and 1st Fiscal Quarter of 1998 Fiscal Year 1.25 to 1
2nd and 3rd Fiscal Quarters of 1998 Fiscal Year 1.50 to 1
4th Fiscal Quarter of 1998 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 1999 Fiscal Year 1.75 to 1
4th Fiscal Quarter of 1999 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2000 Fiscal Year 2.25 to 1
4th Fiscal Quarter of 2000 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2001 Fiscal Year 2.50 to 1
<PAGE>
13
All Fiscal Quarters thereafter 3.00 to 1
2.18 Addition of new Subsection 8.1(d). Subsection 8.1 of the Credit
Agreement is hereby amended by inserting after paragraph (c) of such subsection
a new paragraph (d) to read in its entirety as follows:
"(d) Maintenance of Consolidated Leverage Ratio. Permit at the end
of any fiscal quarter set forth below the Consolidated Leverage Ratio for
such fiscal quarter to be greater than the ratio set forth opposite such
fiscal quarter below:
Fiscal Quarter Leverage Ratio
-------------- --------------
2nd, 3rd and 4th Fiscal Quarters of 1997 Fiscal Year 4.95 to 1
1st Fiscal Quarter of 1998 Fiscal Year 4.75 to 1
2nd and 3rd Fiscal Quarters of 1998 Fiscal Year 4.50 to 1
4th Fiscal Quarter of 1998 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 1999 Fiscal Year 4.25 to 1
4th Fiscal Quarter of 1999 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2000 Fiscal Year 4.00 to 1
4th Fiscal Quarter of 2000 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2001 Fiscal Year 3.75 to 1
4th Fiscal Quarter of 2001 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2002 Fiscal Year 3.25 to 1
All Fiscal Quarters thereafter 3.00 to 1
2.19 Amendment to Subsection 8.3. Subsection 8.3 of the Credit
Agreement is hereby amended by (a) deleting the word "and" at the end of
paragraph (k) thereof, (b) by redesignating paragraph (l) thereof as paragraph
(n) and (c) by adding two new paragraphs after paragraph (k) to read in their
entireties as follows:
"(l) Liens on accounts receivables which are subject to the Permitted
Securitization Transaction granted in connection with such Permitted
Securitization Transaction;
(m) Liens granted pursuant to the Security Documents; and"
2.20 Amendment to Subsection 8.5. Subsection 8.5 of the Credit
Agreement is hereby amended by deleting the words "the pledge of the stock of
the Subsidiaries of the Borrower pursuant to subsection 7.10" appearing in
paragraphs (a), (b) and (d) of such subsection and substituting in lieu thereof
the words "the Collateral".
2.21 Amendment to Subsection 8.6. Subsection 8.6 of the Credit
Agreement is hereby amended as follows:
(a) by (i) deleting the word "and" at the end of paragraph (f)
thereof, (ii) by redesignating paragraph (g) thereof as paragraph (h) and
(iii) by adding a new paragraph after paragraph (f) to read in its entirety
as follows:
<PAGE>
14
"(g) sales of accounts receivables pursuant to the Permitted
Securitization Transaction; and"; and
(b) by deleting the words "pursuant to subsection 7.10" appearing in
the last sentence thereof and substituting in lieu thereof the words
"pursuant to the Security Documents".
2.22 Amendment to Subsection 8.8. Subsection 8.8 of the Credit
Agreement is hereby amended by adding the words "and Tranche B Term Loans" after
the words "Term Loans" in paragraph (f) of such subsection.
2.23 Amendment to Subsection 8.10. Subsection 8.10 of the Credit
Agreement is hereby amended by replacing the "." at the end of the paragraph (f)
thereof with the words "; and" and by adding a new paragraph (g) at the end of
such subsection to read as follows:
"(g) loans by the Borrower to members of its senior management in an
aggregate principal amount not to exceed $2,000,000 at any time."
2.24 Amendment to Subsection 8.12. Subsection 8.12 of the Credit
Agreement is hereby amended by deleting the reference to "subsection 8.6(g)" and
substituting in lieu thereof a reference to "subsection 8.6(h)".
2.25 Amendment to Section 8. Section 8 of the Credit Agreement is
hereby amended by adding a new subsection at the end thereof to read as follows:
"8.16 Amendments to Permitted Securitization Transaction. Amend,
modify or change any of the terms of the Permitted Securitization
Transaction (other than by any amendment, modification, change, supplement
or waiver which (a) would extend the maturity thereof, (b) does not in any
way adversely affect the interests of the Administrative Agent or the
Lenders hereunder or under the Loan Documents or (c) is of a technical or
clarifying nature)."
2.26 Amendments to Section 11. Section 11 of the Credit Agreement is
hereby amended as follows:
(a) by deleting the reference to "subsection 7.10" in paragraph (c)
thereof and substituting in lieu thereof a reference to "subsection 7.9";
and
(b) by (i) redesignating paragraph (j) thereof as paragraph (l) and
(ii) by adding two new paragraphs after paragraph (i) to read in their
entireties as follows:
"(j) (i) Any of the Security Documents shall cease, for any
reason, to be in full force and effect, or the Borrower or any other
Loan Party which is a party to any of the Security Documents shall so
assert or (ii) the Lien created by any of the Security Documents shall
cease to be enforceable and of the same effect and priority purported
to be created thereby; or
(k) Any "Termination Event" under the Permitted Securitization
Transaction or any similar such event or occurrence as defined in the
documentation relating to the Permitted Securitization Transaction, or
any event or circumstance entitling the Persons purchasing, or
financing the purchase of, accounts receivables under the Permitted
Securitization Transaction to stop so purchasing or financing, other
than by reason of the occurrence of the stated expiry date of the
Permitted Securitization Transaction; provided that any notices or
--------
cure periods that are conditions to the rights of such Persons to stop
purchasing, or financing the purchase of, such accounts receivables
have been given or have expired, as the case may be; or".
<PAGE>
15
2.27 Amendment to Subsection 12.11. Subsection 12.11 of the Credit
Agreement is hereby amended by deleting the reference to the amount "$200,000"
and substituting in lieu thereof a reference to the amount "$225,000".
2.28 Amendment to Subsection 13.1. Subsection 13.1 of the Credit
Agreement is hereby amended by (a) deleting the words "capital stock pledged
pursuant to the stock pledge agreements executed pursuant to subsection 7.10" in
clause (ii) of the proviso to the second sentence of such subsection and
substituting in lieu thereof the word "Collateral" and (b) adding the following
words to clause (iii) of the proviso to the second sentence of such subsection:
"or amend, modify or waive Section 2A, the order of application of prepayments
specified in subsection 4.1(c) or any provision of any Security Document that
provides for the ratable sharing of the proceeds of any realization on the
Collateral to provide for a non-ratable sharing thereof without the written
consent of the Required Tranche B Lenders or reduce the percentage specified in
the definition of Required Tranche B Lenders without the consent of all the
Tranche B Lenders".
2.29 Amendment to Annex A to the Credit Agreement. Annex A to the
-------
Credit Agreement is hereby amended by replacing such Annex in its entirety with
Annex A-1 to this Amendment.
- - ---------
2.30 Addition of Annex A-2 and Annex A-3 to the Credit Agreement. The
Credit Agreement is hereby amended by adding two new annexes thereto to be
designated as Annex A-2 and Annex A-3 thereto and to read in their entireties as
--------- ---------
set forth in Annex A-2 and Annex A-3 to this Amendment, respectively.
--------- ---------
2.31 Addition of Schedule I-A to the Credit Agreement. The Credit
Agreement is hereby amended by adding a new Schedule thereto to be designated
Schedule I-A thereto and to read in its entirety as set forth in Schedule I-A to
- - ------------ ------------
this Amendment.
2.32 Addition of Exhibits J and K to Credit Agreement. The Credit
Agreement is hereby amended by adding two new exhibit thereto to be designated
Exhibit J and Exhibit K thereto and to read in their entireties as set forth in
- - --------- ---------
Exhibit J and Exhibit K to this Amendment, respectively.
- - --------- ---------
SECTION 3. MISCELLANEOUS
3.1 Joinder of Tranche B Lenders. From and after the Tranche B
Effective Date, the Tranche B Lenders, to the extent such Tranche B Lenders are
not Lenders prior to the Tranche B Effective Date, shall become parties to the
Credit Agreement as "Lenders" for all purposes thereof and the other Loan
Documents.
3.2 Representations and Warranties. On and as of the date hereof,
Holdings and the Borrower hereby confirm, reaffirm and restate the
representations and warranties set forth in Section 5 of the Credit Agreement
mutatis mutandis (after giving effect to any amendments thereto pursuant to this
Amendment), except to the extent that such representations and warranties
expressly relate to a specific earlier date in which case Holdings and the
Borrower hereby confirm, reaffirm and restate such representations and
warranties as of such earlier date.
3.3 Effectiveness. This Amendment shall become effective as of the
date upon which the conditions set forth below shall first be satisfied (the
"Tranche B Effective Date"), except that the amendment provided for in
subsection 2.28 hereof shall not become effective unless this Amendment is
executed by all the Lenders:
(a) Amendment Documentation. The Administrative Agent shall have
received (i) this Amendment, executed and delivered by a duly authorized
officer of Holdings, the Borrower, the Required Lenders, the Required Term
Loan Lenders, the Required Revolving Credit Lenders, the Issuing Bank and
each Tranche B Lender with a counterpart for the Administrative Agent and a
counterpart or a conformed copy for each Lender, (ii) a Collateral
Agreement executed and delivered by a duly
<PAGE>
16
authorized officer of each Guarantor (other than Holdings), substantially
in the form of Exhibit A hereto, with a counterpart for the Administrative
---------
Agent and a counterpart or a conformed copy for each Lender, (iii)
Mortgages with respect to each of the parcels of real property described on
Schedule 3.3(a) hereto, executed and delivered by a duly authorized officer
---------------
of each Loan Party party thereto, with a counterpart for the Administrative
Agent and a counterpart or a conformed copy for each Lender, (iv) for the
account of each Tranche B Lender which requests a Tranche B Term Note on
the Tranche B Effective Date, a Tranche B Term Note conforming to the
requirements hereof and executed by a duly authorized officer of the
Borrower, (v) the Consent attached to this Amendment executed and delivered
by a duly authorized office of Dal-Tile Corporation with a counterpart for
the Administrative Agent and a counterpart or a conformed copy for each
Lender, and (vi) a Guarantee Assumption Agreement, executed and delivered
by a duly authorized officer of each Domestic Subsidiary (other than Dal-
Tile Corporation and any Inactive Subsidiaries), substantially in the form
of Exhibit A thereto, with a counterpart for the Administrative Agent and a
---------
counterpart or a conformed copy for each Lender. As used herein, "Inactive
Subsidiary" means any Subsidiary of the Borrower which (a) does not own
assets with an aggregate book value in excess of $50,000 and (b) is not
engaged in any business.
(b) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Tranche B Effective Date, substantially in the form of
Exhibit F to the Credit Agreement, with appropriate insertions and
---------
attachments, satisfactory in form and substance to the Administrative
Agent, executed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Borrower.
(c) Corporate Proceedings of the Borrower. The Administrative Agent
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Amendment and the other Loan
Documents to which it is a party delivered in connection with this
Amendment and (ii) the granting of the Liens contemplated of it hereunder,
certified by the Secretary or an Assistant Secretary of the Borrower as of
the Tranche B Effective Date, which certificate shall be in form and
substance reasonably satisfactory to the Administrative Agent and shall
state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(d) Borrower Incumbency Certificate. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Tranche B Effective Date, as to the incumbency and
signature of the officers of the Borrower executing any Loan Document in
connection with this Amendment which certificate shall be reasonably
satisfactory in form and substance to the Administrative Agent and shall be
executed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Borrower.
(e) Corporate Proceedings of Holdings. The Administrative Agent
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance reasonably satisfactory to the
Administrative Agent, of the Board of Directors of Holdings authorizing the
execution, delivery and performance of this Amendment, certified by the
Secretary or an Assistant Secretary of Holdings as of the Tranche B
Effective Date, which certificate shall be in form and substance reasonably
satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(f) Holdings Incumbency Certificate. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of
Holdings, dated the Tranche B Effective Date, as to the incumbency and
signature of the officers of Holdings executing this Amendment, which
certificate shall be reasonably satisfactory in form and substance to the
Administrative Agent and shall be executed by the President or any Vice
President and the Secretary or any Assistant Secretary of Holdings.
(g) Corporate Proceedings of Subsidiaries. The Administrative Agent
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance reasonably
<PAGE>
17
satisfactory to the Administrative Agent, of the Board of Directors of each
Subsidiary of the Borrower which is a Loan Party authorizing (i) the
execution, delivery and performance of the Loan Documents to which it is a
party delivered in connection with this Amendment and (ii) the granting of
the Liens contemplated of it hereunder, certified by the Secretary or an
Assistant Secretary of each such Subsidiary as of the Tranche B Effective
Date, which certificate shall be in form and substance reasonably
satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(h) Subsidiary Incumbency Certificates. The Administrative Agent
shall have received, with a counterpart for each Lender, a certificate of
each Subsidiary of the Borrower which is a Loan Party, dated the Tranche B
Effective Date, as to the incumbency and signature of the officers of such
Subsidiaries executing any Loan Document in connection with this Amendment,
which certificate shall be reasonably satisfactory in form and substance to
the Administrative Agent and shall be executed by the President or any Vice
President and the Secretary or any Assistant Secretary of each such
Subsidiary.
(i) Fees. The Administrative Agent and the Lenders shall have
received the fees required to be received by them on or prior to the
Tranche B Effective Date.
(j) Legal Opinions. The Administrative Agent shall have received,
with a counterpart for each Lender, the following executed legal opinions:
(i) the executed legal opinion of Fried, Frank, Harris,
Shriver & Jacobson, special counsel to Holdings and the Borrower,
substantially in the form of Exhibit B hereto; and
---------
(ii) the executed legal opinions of such special and local
counsel as may be required by the Administrative Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agent may reasonably
require.
(k) Interim Financial Statements. The Lenders shall have received
unaudited interim consolidated financial statements of Holdings for each
fiscal quarterly period ended subsequent to the date of the latest
financial statements delivered prior to the date hereof under the Credit
Agreement and for the months of April and, if available, May 1997.
(l) Projections. The Lenders shall have received satisfactory
projections of the Borrower and its subsidiaries for the period from the
Tranche B Effective Date through the final maturity of the Tranche B Term
Loans.
(m) Representations and Warranties. Each of the representations and
warranties made by the Borrower and the other Loan Parties in or pursuant
to the Loan Documents shall be true and correct in all material respects on
and as of the Tranche B Effective Date, except to the extent such
representations and warranties expressly relate to an earlier date in which
case such representations and warranties shall be true and correct in all
material respects as of such earlier date. The borrowing of the Tranche B
Term Loans by the Borrower shall constitute a representation and warranty
by the Borrower that this condition has been satisfied.
(n) No Default. No Default or Event of Default shall have occurred
and be continuing on the Tranche B Effective Date or after giving effect to
the Extensions of Credit made on the Tranche B Effective Date. The
borrowing of the Tranche B Term Loans by the Borrower shall constitute a
representation and warranty by the Borrower that this condition has been
satisfied.
<PAGE>
18
(o) Lien Searches. The Administrative Agent shall have received the
results of a recent search by a Person satisfactory to the Administrative
Agent, of the Uniform Commercial Code, judgement and tax lien filings which
may have been filed with respect to personal property of any Loan Party,
and the results of such search shall be satisfactory to the Administrative
Agent.
(p) Actions to Perfect Liens. The Administrative Agent shall have
received evidence in form and substance satisfactory to it that all
filings, recordings, registrations and other actions (other than those
contemplated by subsection 3.4 hereof), including, without limitation, the
filing of duly executed financing statements on form UCC-1, necessary or,
in the opinion of the Administrative Agent, desirable to perfect the Liens
created by the Security Documents shall have been completed (or
arrangements satisfactory to the Administrative Agent shall have been made
for the completion thereof promptly following the Tranche B Effective
Date).
3.4 Title Insurance, Surveys and Other Real Property Matters. The
Borrower shall use its reasonable efforts to deliver to the Administrative Agent
on the Tranche B Effective Date or as soon thereafter as reasonably practicable
(and in any event the Borrower shall deliver to the Administrative Agent within
60 days after the Tranche B Effective Date):
(a) In respect of each parcel of real property covered by each
Mortgage a mortgagee's title policy (or policies) or marked up
unconditional binder for such insurance dated the Tranche B Effective Date
(or such later date on which such title policy or binder is delivered).
Each such policy shall (i) be in an amount satisfactory to the
Administrative Agent; (ii) be issued at ordinary rates; (iii) insure that
the Mortgage insured thereby creates a valid first Lien on such parcel free
and clear of all defects and encumbrances, except such as may be approved
by the Administrative Agent; (iv) name the Administrative Agent for the
benefit of the Lenders as the insured thereunder; (v) be in the form of
ALTA Loan Policy - 1970 (Amended 10/17/70); (vi) contain such endorsements
and affirmative coverage as the Administrative Agent may reasonably request
and (vii) be issued by title companies reasonably satisfactory to the
Administrative Agent (including any such title companies acting as co-
insurers or reinsurers, at the option of the Administrative Agent). The
Borrower shall also deliver to the Administrative Agent evidence reasonably
satisfactory to it that all premiums in respect of each such policy, and
all charges for mortgage recording tax, if any, have been paid.
(b) Maps or plats of an as-built survey of the sites of the property
covered by each Mortgage certified to the Administrative Agent and the
title insurance company issuing the relevant policy referred to in
subsection 3.4(a) hereof (the "Title Insurance Company"), in a manner
satisfactory to them, dated a date satisfactory to the Administrative Agent
and the Title Insurance Company by an independent professional licensed
land surveyor satisfactory to the Administrative Agent and the Title
Insurance Company, which maps or plats and the surveys on which they are
based shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and adopted by the
American Land Title Association and the American Congress on Surveying and
Mapping in 1962, and, without limiting the generality of the foregoing,
there shall be surveyed and shown on such maps, plats or surveys the
following: (i) the locations on such sites of all the buildings, structures
and other improvements and the established building setback lines; (ii) the
lines of streets abutting the sites and width thereof; (iii) all access and
other easements appurtenant to the sites or necessary or desirable to use
the sites; (iv) all roadways, paths, driveways, easements, encroachments
and overhanging projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (v) any encroachments on any adjoining
property by the building structures and improvements on the sites; and (vi)
if the site is described as being on a filed map, a legend relating the
survey to said map.
(c) If reasonably requested by the Administrative Agent, (i) a policy
of flood insurance which (A) covers any parcel of improved real property
which is encumbered by any Mortgage, (B) is written in an amount not less
than the outstanding principal amount of the indebtedness secured by such
Mortgage which is reasonably allocable to such real property or the maximum
limit of coverage made
<PAGE>
19
available with respect to the particular type of property under the
National Flood Insurance Act of 1968, whichever is less, and (C) has a term
ending not earlier than the maturity of the indebtedness secured by such
Mortgage and (ii) confirmation that the Borrower has received the notice
required pursuant to Section 208(e)(3) of Regulation H of the Board of
Governors of the Federal Reserve System.
(d) A copy of all recorded documents referred to, or listed as
exceptions to title in, the title policy or policies referred to in
subsection 3.4(a) hereof and a copy, certified by such parties as the
Administrative Agent may deem appropriate, of all other documents affecting
the property covered by each Mortgage.
3.5 Representations and Warranties as to Real Property Matters. The
Borrower hereby represents and warrants that (a) the parcels of real property
listed on Schedule 3.3(a) under the heading "Owned Real Properties" constitute
---------------
all of the parcels of real property owned by the Borrower and its Subsidiaries
as of the date hereof which (i) are developed as manufacturing, distribution,
sales or office facilities and are used in the conduct of the business of the
Borrower and its Subsidiaries, (ii) are used for the extraction of talc or other
raw materials or otherwise used in the conduct of the business of the Borrower
and its Subsidiaries and (iii) are undeveloped or not used in the conduct of the
business of the Borrower and its Subsidiaries but which have a book value of at
least $1,000,000, (b) the parcels of real property owned by the Borrower or any
of its Subsidiaries which are not listed on Schedule 3.3(a) have an aggregate
---------------
book value not in excess of $2,500,000 and (c) Schedule 3.5 sets forth a true
------------
and complete list of all manufacturing and distribution facilities leased by the
Borrower and its Subsidiaries as of the date hereof. The Borrower shall use
reasonable efforts to deliver to the Administrative Agent leasehold mortgages,
in form and substance reasonably satisfactory to the Administrative Agent,
within 75 days after the Tranche B Effective Date (or as soon thereafter as is
reasonably practicable) with respect to the leasehold interest of the Borrower
or its Subsidiaries in the leases with respect to the manufacturing facility
located in El Paso, Texas and the distribution centers in Los Angeles,
California, Baltimore, Maryland and Dallas, Texas.
3.6 Lockbox System. The Borrower shall use its reasonable efforts to
establish as soon after the Tranche B Effective Date as reasonably practicable
(and in any event the Borrower shall establish within 75 days after the Tranche
B Effective Date), for the benefit of the Administrative Agent and the Lenders,
a system of lockboxes and related deposit accounts into which the proceeds of
accounts receivable shall be deposited, under the circumstances all as more
fully described in the Collateral Agreement.
3.7 Special Covenant Regarding Inactive Subsidiaries. The Borrower
shall not permit any Domestic Subsidiary which is an Inactive Subsidiary on the
Tranche B Effective Date to acquire any assets or engage in any business unless
such Domestic Subsidiary shall comply with the requirements on subsection 7.9 of
the Credit Agreement as if such Domestic Subsidiary became a Subsidiary
subsequent to the Tranche B Effective Date.
3.8 Continuing Effect; No Other Amendments. Except as expressly
amended hereby, all of the terms and provisions of the Credit Agreement are and
shall remain in full force and effect. The amendments provided for herein are
limited to the specific subsections of the Credit Agreement specified herein and
shall not constitute an amendment of, or an indication of the Administrative
Agent's or the Lenders' willingness to amend, any other provisions of the Credit
Agreement or the same subsection for any other date or time period (whether or
not such other provisions or compliance with such subsections for another date
or time period are affected by the circumstances addressed in this Amendment).
3.9 Expenses. The Borrower agrees to pay and reimburse the
Administrative Agent for all reasonable costs and out-of-pocket expenses
incurred by the Administrative Agent in connection with the preparation and
delivery of this Amendment, including, without limitation, the reasonable fees
and disbursements of counsel to the Administrative Agent.
<PAGE>
20
3.10 Counterparts. This Amendment may be executed in any number of
counterparts by the parties hereto (including by facsimile transmission), each
of which counterparts when so executed shall be an original, but all the
counterparts shall together constitute one and the same instrument.
3.11 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
EXHIBIT 10.2
EXECUTION COPY
SECOND AMENDMENT, dated as of September 30, 1997 (this "Amendment"),
to the CREDIT AND GUARANTEE AGREEMENT, dated as of August 14, 1996 (as amended
pursuant to the First Amendment thereto, dated as of June 19, 1997 and as the
same may be further amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among DAL-TILE INTERNATIONAL INC., a Delaware
corporation ("Holdings"), DAL-TILE GROUP INC., a Delaware corporation (the
"Borrower"), the several banks and other financial institutions from time to
time parties thereto (collectively, the "Lenders"), CREDIT SUISSE, as
documentation agent (in such capacity, the "Documentation Agent"), GOLDMAN SACHS
CREDIT PARTNERS L.P. as syndication agent (in such capacity, the "Syndication
Agent") and THE CHASE MANHATTAN BANK ("Chase"), a New York banking corporation,
as administrative agent for the Lenders (in such capacity, the "Administrative
Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested that the Lenders amend the Credit
Agreement in the manner provided for herein; and
WHEREAS, the Lenders are willing to amend the Credit Agreement in the
manner and on the terms and conditions provided for herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS AND SECTION REFERENCES
1.1 Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein are so used as so defined.
1.2 Section References. Unless otherwise indicated, all Section and
subsection references are to the Credit Agreement.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT
2.1 Amendment to Subsection 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended as follows:
(a) by amending and restating in their entireties the following
definitions contained in such subsection to read as follows:
"Consolidated Net Income": for any period, the net income of
Holdings (or, if the Merger is consummated, the Borrower) and its
Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, but excluding from the determination thereof
(without duplication) (a) any extraordinary or non-recurring gains or
losses (including, without limitation, (i) the one-time charge taken
in the second fiscal quarter of the fiscal year ending December 31,
1997 to reflect, among other things, the write-down in valuation of
inventory and accounts receivable, provided that the amount excluded
in respect of such charge shall not exceed $25,000,000 and (ii)
charges taken in the third and fourth fiscal quarters of the fiscal
year ending December 31, 1997 to reflect, among other things, the
write-down in valuation of inventory and accounts receivable and other
write-downs and restructuring costs, provided that (A) the maximum
amount excluded pursuant to this clause (a)(ii) in respect of the cash
portion
<PAGE>
2
of such charges shall not exceed $8,000,000 in the aggregate, (B) the
cash portion of such charges shall be paid prior to December 31, 1998
(it being understood and agreed that the cash portion of any such
charges which are not paid by December 31, 1998 shall not be excluded
pursuant to this clause (a)(ii)) and (C) the aggregate amount excluded
pursuant to this clause (a)(ii) shall in no event exceed $75,000,000),
(b) gains or losses from the proposed or actual disposition of
material assets, (c) goodwill write-downs and restructuring charges
(but deducting from the determination of Consolidated Net Income for
any period, cash payments made during such period in respect of any
goodwill write-downs or restructuring charges recorded after the
Closing Date) and (d) non-cash charges resulting from the vesting or
exercise of stock options or stock appreciation rights granted to
management of the Borrower.
"Consolidated Net Worth": at any date of determination, all
items which would, in accordance with GAAP, be included under
shareholders' equity on a consolidated balance sheet of Holdings (or,
if the Merger is consummated, the Borrower) and its Subsidiaries at
such date of determination, but excluding from the determination
thereof the effect of (a) any foreign currency translation
adjustments, (b) charges taken in the third and fourth fiscal quarters
of the fiscal year ending December 31, 1997 to reflect, among other
things, the write-down in valuation of inventory and accounts
receivable and other write-downs and restructuring costs, provided
that (i) the maximum amount excluded pursuant to this clause (b) in
respect of the cash portion of such charges shall not exceed
$8,000,000 in the aggregate, (ii) the cash portion of such charges
shall be paid prior to December 31, 1998 (it being understood and
agreed that the cash portion of any such charges which are not paid by
December 31, 1998 shall not be excluded pursuant to this clause (b))
and (iii) the aggregate amount excluded pursuant to this clause (b)
shall in no event exceed $75,000,000, and (c) any non-cash charges
resulting from the vesting or exercise of stock options or stock
appreciation rights granted to management of the Borrower.
"Leverage Ratio Level": as to the Borrower, the existence of
Leverage Ratio Level IC, Leverage Ratio Level IB, Leverage Ratio Level
IA, Leverage Ratio Level I, Leverage Ratio Level II, Leverage Ratio
Level III, Leverage Ratio Level IV, Leverage Ratio Level V or Leverage
Ratio Level VI, as the case may be.
"Leverage Ratio Level IA": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of
four consecutive fiscal quarters ending on the last day of the period
covered by the financial statements relating to such Adjustment Date
is less than 5.00 to 1.00 but greater than or equal to 4.25 to 1.00.
(b) by adding the following new definitions in the proper
alphabetical order:
"Leverage Ratio Level IB": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of
four consecutive fiscal quarters ending on the last day of the period
covered by the financial statements relating to such Adjustment Date
is less than 6.00 to 1.00 but greater than or equal to 5.00 to 1.00,
provided that, after the consummation of the Subordinated Debt
Offering, "Leverage Ratio Level IB" shall exist on an Adjustment Date
thereafter if the Consolidated Leverage Ratio for the period of four
consecutive fiscal quarters ending on the last day of the period
covered by the financial statements relating to such Adjustment Date
is greater than or equal to 5.00 to 1.00.
"Leverage Ratio Level IC": as to the Borrower, shall exist on an
Adjustment Date if the Consolidated Leverage Ratio for the period of
four consecutive fiscal quarters ending on the last day of the period
covered by the financial statements relating to such Adjustment Date
is greater than or equal to 6.00 to 1.00, provided that, after the
consummation of the Subordinated Debt Offering, "Leverage Ratio Level
IC" shall not exist on any Adjustment Date thereafter.
<PAGE>
3
"Subordinated Debt": any unsecured Indebtedness of the Borrower:
no part of the principal of which is required to be paid (whether by
way of mandatory sinking fund, mandatory redemption, mandatory
prepayment or otherwise) prior to June 30, 2004; the payment of the
principal of and interest on which and other obligations of the
Borrower in respect thereof are subordinated to the prior payment in
full of the principal of and interest (including post-filing or post-
petition interest, whether or not a claim for post-filing or post-
petition interest is allowed in any bankruptcy, insolvency,
reorganization or like proceeding) on the Loans and all other
obligations and liabilities of the Borrower to the Administrative
Agent and the Lenders hereunder on terms and conditions satisfactory
to the Required Lenders; and all other terms and conditions of which
are reasonably satisfactory in form and substance to the Required
Lenders.
"Subordinated Debt Offering": the issuance or incurrence by the
Borrower of at least $125,000,000 in principal amount of Subordinated
Debt.
(c) by adding the following proviso at the end of the definition of
"Adjustment Date" contained in such subsection:
", provided that (a) September 30, 1997 shall also be an Adjustment
Date and (b) if the Applicable Margin shall be based upon Leverage
Ratio Level IC on the date the Subordinated Debt Offering is
consummated, the first Business Day following the consummation of such
Subordinated Debt Offering shall also be an Adjustment Date solely for
purposes of changing the Leverage Ratio Level then in effect to
Leverage Ratio Level IB".
(d) by adding the following proviso at the end of the definition of
"Consolidated EBITDA" contained in such subsection:
"provided further that, for purposes of determining whether Leverage
Ratio Level IB or Leverage Ratio Level IC exists on any Adjustment
Date, Consolidated EBITDA shall be equal to the greater of (x)
Consolidated EBITDA for the period of four consecutive fiscal quarters
ending on the last day of the period covered by the financial
statements relating to such Adjustment Date and (y) the product of (i)
Consolidated EBITDA for the most recent fiscal quarter of such period
times (ii) 4."
(e) by adding the following clause at the end of the definition of
"Net Proceeds" contained in such subsection:
"and (d) with respect to any Subordinated Debt, the cash proceeds
(including Cash Equivalents) received by the Borrower or any of its
Subsidiaries from the issuance or incurrence of such Subordinated Debt
net of all investment banking fees, legal fees, accountants fees,
underwriting discounts and commissions and other customary fees and
expenses, actually incurred by the Borrower or any of its Subsidiaries
and documented in connection therewith".
2.2 Amendment to Subsection 3.3. Subsection 3.3 of the Credit
Agreement is hereby amended by deleting (a) the reference to "Annex A" therein
-------
and substituting in lieu thereof a reference to "Annex A-1" and (b) the
---------
reference to "0.375%" and substituting in lieu thereof a reference to "0.50%".
2.3 Amendment to Subsection 4.1(b). Subsection 4.1 of the Credit
Agreement is hereby amended by deleting the last sentence of paragraph (b) of
such subsection in its entirety and substituting in lieu thereof the following
new sentences:
"Unless the Required Lenders otherwise agree, the Term Loans and Tranche B
Term Loans shall be prepaid and the Revolving Credit Commitments shall be
permanently reduced (and, in connection with any such reduction, the Swing
Line Loans and Revolving Credit Loans shall be prepaid and/or the
<PAGE>
4
Letters of Credit shall be cash collateralized as provided in subsection
4.1(c)) as set forth in subsection 4.1(c) in an amount equal to 100% of the
Net Proceeds of any Subordinated Debt issued or incurred by the Borrower.
Except as otherwise provided in this subsection 4.1(b), each prepayment
required pursuant to this subsection 4.1(b) shall be made, and each
reduction of Revolving Credit Commitments pursuant to this subsection shall
be effective, on the third Business Day following receipt of the Net
Proceeds from the relevant Asset Sale or Casualty Event or the issuance or
incurrence of the relevant Subordinated Debt."
2.4 Amendment to Subsection 7.1. Subsection 7.1 of the Credit
Agreement is hereby amended by adding a new sentence at the end of such
subsection to read in its entirety as follows:
"All such financial statements shall be accompanied by a report of a
Responsible Officer of the Borrower setting forth in reasonable detail the
progress of the Borrower in its restructuring efforts undertaken during the
fiscal year ending December 31, 1997 and setting forth information as to
the aggregate amount of accounts receivable and inventory at the end of the
relevant period and any write-downs in the valuation of accounts receivable
and inventory taken during such period."
2.5 Amendment to Subsection 8.1(c). Subsection 8.1 of the Credit
Agreement is hereby amended by deleting paragraph (c) of such subsection in its
entirety and substituting in lieu thereof the following new paragraph:
"(c) Maintenance of Consolidated Adjusted Interest Coverage Ratio.
Permit for any period of four consecutive fiscal quarters ending on the
last day of any fiscal quarter set forth below the Consolidated Adjusted
Interest Coverage Ratio for such period to be less than the ratio set forth
opposite such fiscal quarter below (it being understood that this covenant
shall not be applicable to the third and fourth fiscal quarters of the
fiscal year ending December 31, 1997):
Fiscal Quarter Interest Coverage Ratio
-------------- -----------------------
1st Fiscal Quarter of 1998 Fiscal Year 0.20 to 1
2nd Fiscal Quarter of 1998 Fiscal Year 0.50 to 1
3rd Fiscal Quarter of 1998 Fiscal Year 1.00 to 1
4th Fiscal Quarter of 1998 Fiscal Year
and 1st Fiscal Quarter of 1999 Fiscal Year 1.50 to 1
2nd and 3rd Fiscal Quarters of 1999 Fiscal Year 1.75 to 1
4th Fiscal Quarter of 1999 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2000 Fiscal Year 2.25 to 1
4th Fiscal Quarter of 2000 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2001 Fiscal Year 2.50 to 1
All Fiscal Quarters thereafter 3.00 to 1"
2.6 Amendment to Subsection 8.1(d). Subsection 8.1 of the Credit
Agreement is hereby amended by deleting paragraph (d) of such subsection in its
entirety and substituting in lieu thereof the following new paragraph:
<PAGE>
5
"(d) Maintenance of Consolidated Leverage Ratio. Permit at the end
of any fiscal quarter set forth below the Consolidated Leverage Ratio for
such fiscal quarter to be greater than the ratio set forth opposite such
fiscal quarter below:
Fiscal Quarter Leverage Ratio
-------------- --------------
3rd Fiscal Quarter of 1997 Fiscal Year 7.50 to 1
4th Fiscal Quarter of 1997 Fiscal Year 13.00 to 1
1st Fiscal Quarter of 1998 Fiscal Year 13.00 to 1
2nd Fiscal Quarter of 1998 Fiscal Year 12.00 to 1
3rd Fiscal Quarter of 1998 Fiscal Year 8.00 to 1
4th Fiscal Quarter of 1998 Fiscal Year 7.50 to 1
1st Fiscal Quarter of 1999 Fiscal Year 6.00 to 1
2nd and 3rd Fiscal Quarters of 1999 Fiscal Year 4.25 to 1
4th Fiscal Quarter of 1999 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2000 Fiscal Year 4.00 to 1
4th Fiscal Quarter of 2000 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2001 Fiscal Year 3.75 to 1
4th Fiscal Quarter of 2001 Fiscal Year and 1st, 2nd
and 3rd Fiscal Quarters of 2002 Fiscal Year 3.25 to 1
All Fiscal Quarters thereafter 3.00 to 1"
2.7 Addition of New Subsection 8.1(e). Subsection 8.1 of the Credit
Agreement is hereby amended by inserting after paragraph (d) of such subsection
a new paragraph (e) to read in its entirety as follows:
"(e) Maintenance of Consolidated EBITDA. Permit at the end of any
fiscal quarter set forth below Consolidated EBITDA for the period of four
consecutive fiscal quarters ended at the end of such fiscal quarter to be
less than the amount set forth opposite such fiscal quarter below:
<PAGE>
6
Fiscal Quarter Amount
-------------- ------
3rd Fiscal Quarter of 1997 Fiscal Year $ 80,000,000
4th Fiscal Quarter of 1997 Fiscal Year 43,000,000
1st Fiscal Quarter of 1998 Fiscal Year 43,000,000
2nd Fiscal Quarter of 1998 Fiscal Year 49,000,000
3rd Fiscal Quarter of 1998 Fiscal Year 70,000,000
4th Fiscal Quarter of 1998 Fiscal Year 90,000,000
1st, 2nd, 3rd and 4th Fiscal Quarters of 1999 Fiscal Year 100,000,000
All Fiscal Quarters thereafter 110,000,000"
2.8 Amendment to Subsection 8.2. Subsection 8.2 of the Credit
Agreement is hereby amended by (a) deleting the word "and" at the end of
paragraph (i) thereof, (b) by redesignating paragraph (j) thereof as paragraph
(k) and (c) by adding a new paragraph after paragraph (i) to read in its
entirety as follows:
"(j) Subordinated Debt, provided that 100% of the Net Proceeds of any
such Subordinated Debt are applied to prepay Loans (and/or cash
collateralize Letter of Credit) and the Revolving Credit Commitments are
reduced, in each case to the extent required by subsection 4.1(b); and"
2.9 Amendment to Subsection 8.9. Subsection 8.9 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following new subsection:
"8.9 Limitation on Capital Expenditures. Make or commit to make
Capital Expenditures in the aggregate for the Borrower and its Subsidiaries
during any of the fiscal years of the Borrower set forth below, in excess
of the amount set forth opposite such fiscal year below:
Fiscal Year Ending Amount
------------------ -------------
12/31/96 $42,000,000
12/31/97 50,000,000
12/31/98 25,000,000
12/31/99 30,000,000
12/31/00 35,000,000
12/31/01 40,000,000
12/31/02 45,000,000
provided, that, if the Consolidated Adjusted Interest Coverage Ratio for
any period of four consecutive fiscal quarters exceeds 5.00 to 1.00, this
covenant shall cease to be of any further force and effect."
2.10 Amendment to Section 8. Section 8 of the Credit Agreement is hereby
amended by adding a new subsection at the end thereof to read in its entirety as
follows:
"8.17 Limitation on Optional Payments and Modifications of Debt
Instruments. (a) Make any optional payment or prepayment on or redemption
or purchase of any Subordinated Debt, (b) amend, modify or change, or
consent or agree to any amendment, modification or change to any of the
terms of any Subordinated Debt (other than any such amendment, modification
or change which would extend the maturity or reduce the amount of any
payment of principal thereof or which would reduce the rate
<PAGE>
7
or extend the date for payment of interest thereon or which would make the
covenants applicable thereto less restrictive on the Borrower and its
Subsidiaries), or (c) amend the subordination provisions of the
Subordinated Debt."
2.11 Amendment to Annexes to the Credit Agreement. Annex A-1, Annex A-2
--------- ---------
and Annex A-3 to the Credit Agreement are hereby amended by replacing each such
---------
Annex in its entirety with Annex A-1, Annex A-2 and Annex A-3 to this Amendment,
--------- --------- ---------
respectively.
2.12 Title Insurance, Surveys and other Real Property Matters. The
Borrower shall complete the delivery of the items required to be delivered
pursuant to subsection 3.4 of the First Amendment on or prior to October 31,
1997.
SECTION 3. MISCELLANEOUS
3.1 Representations and Warranties. On and as of the date hereof,
Holdings and the Borrower hereby confirm, reaffirm and restate the
representations and warranties set forth in Section 5 of the Credit Agreement
mutatis mutandis (after giving effect to any amendments thereto pursuant to this
Amendment), except to the extent that such representations and warranties
expressly relate to a specific earlier date in which case Holdings and the
Borrower hereby confirm, reaffirm and restate such representations and
warranties as of such earlier date.
3.2 Effectiveness. This Amendment shall become effective as of the date
upon which the conditions set forth below shall first be satisfied (the
"Effective Date"):
(a) Amendment. The Administrative Agent shall have received this
Amendment, executed and delivered by a duly authorized officer of Holdings,
the Borrower and the Required Lenders with a counterpart for the
Administrative Agent and a counterpart or a conformed copy for each Lender.
(b) Amendment Fee. The Administrative Agent shall have received for
each Lender which executes this Amendment on or prior to October 10, 1997,
an amendment fee in an amount equal to 1/8% of the sum of (a) such Lender's
Revolving Credit Commitment and (b) the aggregate principal amount of the
then outstanding Term Loans of such Lender.
(c) Representations and Warranties. Each of the representations and
warranties made by the Borrower and the other Loan Parties in or pursuant
to the Loan Documents shall be true and correct in all material respects on
and as of the Effective Date, except to the extent such representations and
warranties expressly relate to an earlier date in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date.
(d) No Default. No Default or Event of Default shall have occurred and
be continuing on the Effective Date.
3.3 Continuing Effect; No Other Amendments. Except as expressly amended
hereby, all of the terms and provisions of the Credit Agreement are and shall
remain in full force and effect. The amendments provided for herein are limited
to the specific subsections of the Credit Agreement specified herein and shall
not constitute an amendment of, or an indication of the Administrative Agent's
or the Lenders' willingness to amend, any other provisions of the Credit
Agreement or the same subsection for any other date or time period (whether or
not such other provisions or compliance with such subsections for another date
or time period are affected by the circumstances addressed in this Amendment).
3.4 Expenses. The Borrower agrees to pay and reimburse the
Administrative Agent for all reasonable costs and out-of-pocket expenses
incurred by the Administrative Agent in connection with the
<PAGE>
8
preparation and delivery of this Amendment, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent.
3.5 Counterparts. This Amendment may be executed in any number of
counterparts by the parties hereto (including by facsimile transmission), each
of which counterparts when so executed shall be an original, but all the
counterparts shall together constitute one and the same instrument.
3.6 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
DAL-TILE INTERNATIONAL INC.
By: /s/ RICHARD SEWELL
---------------------------------
Name: RICHARD SEWELL
Title: VICE PRESIDENT-FINANCE
DAL-TILE GROUP INC.
By: /s/ RICHARD SEWELL
---------------------------------
Name: RICHARD SEWELL
Title: VICE PRESIDENT-FINANCE
THE CHASE MANHATTAN BANK, as Administrative Agent
and as a Lender
By: /s/ WILLIAM J. CAGGIANO
---------------------------------
Name: WILLIAM J. CAGGIANO
Title: MANAGING DIRECTOR
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/
---------------------------------
Title: VICE PRESIDENT
CREDIT SUISSE FIRST BOSTON
(formerly CREDIT SUISSE)
By:
---------------------------------
Title:
By: /s/ CHRIS T. HORGAN
---------------------------------
Title: VICE PRESIDENT
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ STEPHEN B. KING
---------------------------------
Title: AUTHORIZED SIGNATORY
ALLIED IRISH BANKS, P.L.C., CAYMAN ISLANDS
BRANCH
By: /s/ MARCIA MEEKER
---------------------------------
Title: VICE PRESIDENT
By: /s/
---------------------------------
Title:
BANKBOSTON, N.A.
By: /s/
---------------------------------
Title: VICE PRESIDENT
THE BANK OF NEW YORK
By: /s/
---------------------------------
Title: VICE PRESIDENT
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
---------------------------------
Title: SENIOR MANAGER LOAN OPERATIONS
CIBC, INC.
By: TIMOTHY E. DOYLE
---------------------------------
Title: MANAGING DIRECTOR, CIBC WOOD GUNDY
SECURITIES CORP., AS AGENT
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
---------------------------------
Title:
CRESTAR BANK
By: /s/
---------------------------------
Title: VICE PRESIDENT
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ JENNY GILPIN
---------------------------------
Title: Authorized Agent
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: /s/
---------------------------------
Title: S.V.P AND MANAGING DIRECTOR
FLEET BANK, N.A.
By: /s/
---------------------------------
Title: MANAGING DIRECTOR
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By: PHILIP C. LAUINGER III
---------------------------------
Title: VICE PRESIDENT & MANAGER
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:
---------------------------------
Title:
NATIONSBANK OF TEXAS, N.A.
By: /s/ SUNANNE B. SMITH
---------------------------------
Title: VICE PRESIDENT
PNC BANK, NATIONAL ASSOCIATION
By:
---------------------------------
Title: VICE PRESIDENT
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ RICHARD M. LEWIS
---------------------------------
Title: VICE PRESIDENT
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: /s/ LYNN CALLICOTT BARANSKI
---------------------------------
Title: AUTHORIZED SIGNATORY
DEBT STRATEGIES FUND, INC.
By:/S/ LYNN CALLIOCOTT BARANSKI
---------------------------------
Title: AUTHORIZED SIGNATORY
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST
By: /s/ JEFFREY W. MAILLET
---------------------------------
Title: SENIOR VICE PRESIDENT
& DIRECTOR
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/
---------------------------------
Title: ASSISTANT VICE PRESIDENT
THE MITSUBISHI TRUST AND BANKING CORPORATION
By: /s/
---------------------------------
Title: FIRST VICE PRESIDENT
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: /s/ PAUL P. MALECKI
---------------------------------
Title: VICE PRESIDENT
BANK LEUMI
By: /s/ GLORIA BEECHER
---------------------------------
Title: VICE PRESIDENT
<PAGE>
KZH-SOLEIL CORPORATION
By: /s/
---------------------------------
Title:
CYPRESS TREE INVESTMENT PARTNERS I,
By: /s/
---------------------------------
Title:
<PAGE>
KZH-SOLEIL CORPORATION
By: /s/
---------------------------------
Title:
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC., AS PORTFOLIO MANAGER
By: /s/
---------------------------------
Title: MANAGING DIRECTOR
CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC.,
As: ATTORNEY-IN-FACT AND ON BEHALF OF
ALLMERICA LIFE INSURANCE COMPANY
AS PORTFOLIO MANAGER
By: /s/
---------------------------------
Title: MANAGING DIRECTOR
<PAGE>
BANKERS TRUST COMPANY
By: /s/ PATRICIA HOGAN
---------------------------------
Title: VICE PRESIDENT
<PAGE>
CONSENT
The undersigned hereby acknowledges receipt of a copy of and consents to
the execution and delivery by Holdings and the Borrower of the Second Amendment
to which this Consent is attached (the "Amendment"). The undersigned further
confirms and agrees that, after giving effect to the Second Amendment, each Loan
Document to which it is a party shall continue in full force and effect in
accordance with its terms.
DAL-TILE CORPORATION
By /s/ RICHARD SEWELL
--------------------------
Name RICHARD SEWELL
-----------------------
Title VICE PRESIDENT-FINANCE
----------------------
<PAGE>
Annex A-1
---------
Pricing Grid For Revolving Credit Loans and Term Loans
------------------------------------------------------
<TABLE>
<CAPTION>
Eurodollar ABR
Leverage Ratio Level Applicable Margin Applicable Margin Commitment Fee
- - -------------------- ------------------ ----------------- ----------------
<S> <C> <C> <C>
Leverage Ratio Level 1C 2.00% 1.00% 0.50%
Leverage Ratio Level 1B 1.75% 0.75% 0.50%
Leverage Ratio Level IA 1.50% 0.50% 0.375%
Leverage Ratio Level I 1.25% 0.25% 0.375%
Leverage Ratio Level II 1.00% 0% 0.30%
Leverage Ratio Level III .75% 0% 0.25%
Leverage Ratio Level IV .625% 0% 0.225%
Leverage Ratio Level V .50% 0% 0.20%
Leverage Ratio Level VI .375% 0% 0.175%
</TABLE>
<PAGE>
Annex A-2
---------
Pricing Grid For Tranche B Term Loans
-------------------------------------
Eurodollar ABR
Leverage Ratio Level Applicable Margin Applicable Margin
- - -------------------- ------------------ -----------------
Leverage Ratio Level 1C 2.50% 1.50%
Leverage Ratio Level 1B 2.25% 1.25%
Leverage Ratio Level IA 2.00% 1.00%
Leverage Ratio Level I - VI 1.75% 0.75%
<PAGE>
Annex A-3
---------
Pricing Grid For Tranche B Term Loans
-------------------------------------
Eurodollar ABR
Leverage Ratio Level Applicable Margin Applicable Margin
- - -------------------- ------------------ -----------------
Leverage Ratio Level 1C 2.50% 1.50%
Leverage Ratio Level 1B 2.25% 1.25%
Leverage Ratio Level IA 2.00% 1.00%
Leverage Ratio Level I 1.75% 0.75%
Leverage Ratio Level II - VI 1.50% 0.50%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JAN-02-1998 JAN-02-1998
<PERIOD-START> JUL-01-1997 JAN-04-1997
<PERIOD-END> OCT-03-1997 OCT-03-1997
<CASH> 393 393
<SECURITIES> 0 0
<RECEIVABLES> 113359 113359
<ALLOWANCES> 16228 16228
<INVENTORY> 142647 142647
<CURRENT-ASSETS> 275177 275177
<PP&E> 294067 294067
<DEPRECIATION> 68095 68095
<TOTAL-ASSETS> 693063 693063
<CURRENT-LIABILITIES> 85429 85429
<BONDS> 550170 550170
0 0
0 0
<COMMON> 534 534
<OTHER-SE> 27574 27574
<TOTAL-LIABILITY-AND-EQUITY> 693063 693063
<SALES> 177731 518882
<TOTAL-REVENUES> 177731 518882
<CGS> 131461 315811
<TOTAL-COSTS> 242406 578139
<OTHER-EXPENSES> (147) (695)
<LOSS-PROVISION> 12976 23086
<INTEREST-EXPENSE> 11461 28820
<INCOME-PRETAX> (75959) (87147)
<INCOME-TAX> 4980 1063
<INCOME-CONTINUING> (80939) (88210)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 80939 88210
<EPS-PRIMARY> 1.51 1.65
<EPS-DILUTED> 1.51 1.65
</TABLE>