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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended January 31, 1999
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Commission File No. 1-13099
THE MAXIM GROUP, INC.
A Delaware Corporation
(IRS Employer Identification No. 58-2060334)
210 TownPark Drive
Kennesaw, Georgia 30144
(678) 355-4000
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
Common Stock, $.001 par value New York Stock Exchange, Inc.
9-1/4% Senior Subordinated Notes Due 2007 New York Stock Exchange, Inc.
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(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE
ON WHICH REGISTERED)
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, $.001 par value
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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 No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the common stock of the registrant held by
nonaffiliates of the registrant (18,084,863 shares) on October 1, 1999 was
approximately $97,206,000 based on the closing price of the registrant's
common stock as reported on the New York Stock Exchange on October 1, 1999.
For the purposes of this response, officers, directors and holders of 10% or
more of the registrant's common stock are considered the affiliates of the
registrant at that date.
The number of shares outstanding of the registrant's common stock, as of
October 1, 1999: 19,038,347 shares of $.001 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These statements appear in a number of places in this Report and
include statements regarding the intent, belief or current expectations of
The Maxim Group, Inc. ("Maxim"), its directors or its officers with respect
to, among other things:
- trends affecting Maxim's financial condition or results of
operations,
- potential acquisitions by Maxim,
- Maxim's business and growth strategies,
- Maxim's ability to successfully integrate acquired businesses,
- the timing, magnitude and costs of the roll-out of new
flooring centers, and
- Maxim's financing plans.
You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements as a result of various factors. Among others, factors that could
adversely affect actual results and performance include:
- local and regional economic conditions in the areas served by
Maxim,
- the level of customer spending for floor covering products,
- competition among floor covering retailers and carpet
manufacturers,
- changes in merchandise mixes, site selection and related
traffic and demographic patterns,
- availability of financing,
- inventory management and turnover levels,
- realization of cost savings,
- Maxim's success in integrating recent and potential future
acquisitions, and
- the resolution or outcome of the pending litigation and
government inquiry relating to the restatement of
previously announced financial results for fiscal 1999 and
for each of the quarters therein.
The accompanying information contained in this Form 10-K, as well as
in Maxim's other 1934 Act filings, identifies important additional factors
that could adversely affect actual results and performance. See "Item 1.
Business-Risk Factors." You are urged to carefully consider such factors.
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ITEM 1. BUSINESS.
GENERAL
The Maxim Group, Inc. ("Maxim" or the "Company") operates and
franchises one of the largest floor covering distribution networks in North
America through several retail floor covering concepts. These include, but
are not limited to, CarpetMAX(R), New York Carpet World, The Carpet Exchange,
and Carpetland USA, each a full-service floor covering store format
(collectively, the "Maxim Brands"), and GCO Carpet Outlets ("GCO(R)"), a
cash-and-carry discount floor covering store format. Maxim also owns
CarpetsPlus of America, LLC ("CarpetsPlus"), a national resource network
comprised of independent floor covering dealers. To enhance Maxim's strategy
of becoming a true national retailer, Maxim intends to change the Maxim
Brands to a single brand operating under the name "Flooring America."
Since commencing operations in 1991 as a franchisor of CarpetMAX
floor covering stores, Maxim has grown its franchise floor covering networks
to include other retail floor covering concepts. As of October 1, 1999, Maxim
had 782 franchise members in 49 states, within which there were 515 CarpetMAX
stores, 113 GCO stores and 292 CarpetsPlus stores. The growth of Maxim's
franchise network resulted in the development of an integrated retail
infrastructure, including store development, marketing, advertising, credit
programs, sales training and product sourcing resources. In an effort to
expand this retail infrastructure, Maxim began acquiring selected floor
covering retailers, including CarpetMAX franchisees, in fiscal 1995 and began
opening Company-owned stores in fiscal 1996.
In August 1998, Maxim significantly expanded its network of
Company-owned stores by acquiring substantially all of the retail store
assets of Shaw Industries, Inc. ("Shaw"). These assets included 266 retail
floor covering stores, each of which operated under one of ten different
brand names, including New York Carpet World, Carpetland USA and The Carpet
Exchange. As of October 1, 1999, Maxim owned and operated a total of 323
flooring centers, which include the stores acquired from Shaw as well as 59
CarpetMAX stores and 12 GCO stores.
Maxim's full-service retail formats offer customers a wide selection
of competitively priced floor covering products. These flooring centers offer
approximately 15,000 stock keeping units ("SKUs"), including an extensive
merchandising mix of carpet, area rugs, hardwood flooring, ceramic tile,
vinyl flooring, laminates and stone. Maxim Brand flooring centers are
typically located in prime retail locations with high consumer visibility and
are staffed with specialized floor covering sales associates. These stores
offer a wide range of services, including interior design consulting,
measuring, delivery and installation.
In order to focus its full efforts and resources on its retail
operations, Maxim sold in January 1999 substantially all of the assets of its
Image Industries, Inc. subsidiary to Aladdin Manufacturing Corporation, a
subsidiary of Mohawk Industries, Inc. The total consideration of
approximately $210.7 million included the assumption of approximately $48.1
million of related debt and short-term liabilities. Image Industries, Inc.
("Image") is a leading plastics recycler and manufacturer of polyester fiber
and carpet, with annual sales of approximately $200 million.
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During the year ended January 31, 1999, Maxim operated three
reportable segments: (i) retail; (ii) manufacturing; and (iii) franchise
services. The retail segment is a highly integrated chain of floor covering
stores and distribution support centers. The manufacturing segment includes
the operations of Image. With the sale of substantially all the assets of
Image in January 1999, Maxim no longer engages in manufacturing operations.
The franchise services segment includes store development, marketing,
advertising, production, consumer credit, training and product sourcing, as
well as interest expense and corporate non-operating items not directly
relating to the manufacturing or retail segments. See Note 18 to Maxim's
Consolidated Financial Statements included elsewhere herein for certain
financial information relating to these three segments.
MATTERS RELATING TO RESTATEMENT OF FINANCIAL RESULTS
On April 6, 1999, Maxim issued a press release announcing revenues of
$684.4 million, a net loss of $3.0 million and a loss per diluted share of
$0.17 for the year ended January 31, 1999. On May 18, 1999, Maxim announced
that, as a result of the year-end financial audit process, Maxim would record
certain adjustments to these previously reported financial results for fiscal
1999, as well as for certain of the quarters therein.
In response, and after considering the recommendations of Maxim's
auditors, the Audit Committee of Maxim's Board of Directors in turn
recommended to the Maxim Board that a Special Committee of the Board be
appointed to, among other things, initiate a formal inquiry into Maxim's
accounting practices. The Special Committee was appointed and so authorized
by Maxim's Board and retained the law firm of Smith, Gambrell & Russell, LLP
to assist in the investigation, which, in turn, retained the forensic audit
group of Arthur Andersen LLP to assist in conducting the review and to
provide advice on accounting matters.
As a result of a review of accounting records performed under the
direction of the Special Committee and completion of the year-end audit
process, Maxim announced restated financial results for the fiscal year ended
January 31, 1999 and each of the quarters therein on October 11, 1999. For
the year ended January 31, 1999, Maxim reported restated revenues of $664.4
million, a net loss of $19.6 million and a loss per diluted share of $1.10.
These restated results included changes in recognition and/or timing of
certain vendor support funds, certain expense accruals and asset write-downs.
No adjustments are necessary for periods prior to fiscal 1999.
Maxim has restated its previously issued financial statements for the
three quarters ended April 30, 1998, July 31, 1998 and October 31, 1998 by
filing amended Quarterly Reports on Form 10-Q/A for the three quarters ended
April 30, 1998, July 31, 1998 and October 31, 1998, respectively. See Note 20
to Maxim's Consolidated Financial Statements for information relating to
these quarterly restatements.
Maxim has undertaken steps to improve controls and procedures to ensure
the integrity of its financial reporting, and that process will continue
under the direction of its new Chief Financial Officer. The Special Committee
is currently completing its review of information in anticipation of making a
final report to the Board of Directors as soon as practicable.
Since the May 18, 1999 announcement that Maxim would be restating financial
results for fiscal 1999 and certain of the quarters therein, 11 lawsuits
claiming to be class actions have been filed against Maxim and certain of its
current and former executive officers and directors. In addition, the Securities
and Exchange Commission commenced an informal inquiry in connection with the
matters relating to the restatement. See "Item 3. Legal Proceedings."
INDUSTRY OVERVIEW
Currently, the retail floor covering industry has in excess of $20 billion
in annual sales. The industry is segregated into three distinct markets:
residential replacement (including full-service stores and cash-and-carry
outlets); specified contract (commercial); and builder business. Maxim believes
that the residential replacement market comprises approximately 50% of the total
North American residential floor covering market, with the specified contract
and builder markets making up the remainder of the residential floor covering
industry. The domestic retail floor covering industry is highly fragmented, with
independent retail floor covering dealers operating over 25,000 locations. Home
centers, furniture stores, department stores and mass merchants also offer floor
covering products to the consumer.
Despite a recent trend towards consolidation, Maxim believes that the
retail floor covering industry remains characterized by a large number of
small local and regional companies, none of which has a national brand name.
The typical independent floor covering retailer operates a single store with
limited product selection and service. As a result, Maxim believes that most
independent floor covering retailers are at a competitive disadvantage, with
limited purchasing power for products and service and no national brand name
recognition. Other challenges of smaller retailers include effective asset
management, merchandising, selling and store management techniques.
MAXIM'S BUSINESS STRATEGY
Maxim's objective is to establish the largest and most profitable
residential and commercial floor covering distribution network in North
America. Maxim has built an integrated floor covering distribution network,
consisting of both Company-owned and franchised retail stores, supported by
Maxim's extensive specialty retailing capabilities in product sourcing, store
development, marketing and advertising, credit, personnel training and
franchise support.
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The cornerstone of Maxim's business strategy is focused on operating
the Maxim Brands under a full-service floor covering retail concept that is
designed to create competitive advantages over traditional floor covering
stores. The principal elements of this strategy include:
BROAD SELECTION OF PRODUCTS AND SERVICES. Maxim Brand flooring
centers are one-stop, full-service floor covering stores for customers
seeking a broad selection of carpet and other floor covering products. These
flooring centers generally offer approximately 15,000 SKUs of floor covering
products, including carpet, area rugs, hardwood flooring, ceramic tile, vinyl
flooring, laminates, stone and resilient surfaces from leading global floor
covering manufacturers. Maxim Brand stores typically carry a much broader
selection of high quality floor covering products and offer a more
comprehensive range of related services than those normally featured at
traditional independently owned and operated floor covering outlets.
PROVIDE A "POINT-OF-SALE" CUSTOMER FRIENDLY ENVIRONMENT WITH
SUPERIOR SERVICE. Maxim believes that, at the point-of-sale, a customer
friendly shopping environment and high level of customer service are
important competitive advantages. The size and format of the typical Maxim
Brand flooring center, along with a well-trained professional staff,
emphasizes customer care and is designed to create a more comfortable,
enjoyable and productive shopping experience. The Maxim Brand point-of-sale
concept provides the customer with one-stop shopping, including selection,
installation and on-going maintenance. In addition, Maxim Brand stores offer
customers added conveniences, including a proprietary credit program,
interior design consulting, delivery and installation services and a 100%
satisfaction guarantee policy.
DISTINCT RETAILING STRATEGIES. Maxim's retail floor covering sales
are diversified across the residential replacement, home building and
specified contract markets. Maxim Brand flooring centers (both franchised and
Company-owned) offer a wide selection of high quality floor covering products
with a high level of service to the customer, while GCO Carpet Outlets offer
discount floor covering products to the cash-and-carry customer. Maxim
believes that the breadth of its retail network and the diversity of its
targeted customer base helps mitigate the negative impact on revenues that
normally occur because of adverse changes in local competitive or economic
conditions.
ESTABLISH A NATIONAL BRAND. To enhance Maxim's strategy of becoming
a true national retailer, Maxim intends to change the Maxim Brands to a
single brand operating under the name "Flooring America." In an effort to
reconcile territorial conflicts between Maxim's Company-owned stores and
stores operated by franchisees under the "CarpetMAX" trade name, Maxim will
focus on becoming a national retailer. Maxim believes that the new name will
also help ensure that customers focus on flooring products rather than the
multiple identities of the Maxim Brands. Store conversions from Maxim Brands
to Flooring America commenced in October 1999 and extend through September
2000. To further support the consolidation to one brand, Maxim intends to
offer its CarpetMAX franchisees the opportunity to convert their CarpetMAX
stores to franchised Flooring America outlets pursuant to a franchise
agreement similar to the current CarpetMAX franchise agreement, but with
additional obligations and restrictions placed upon the franchisee more
consistent with a typical franchise agreement. Maxim intends to build brand
name awareness for Flooring America stores through community involvement,
charitable acts and grass roots advertising efforts. To that end, Maxim has
become a corporate sponsor for the Special Olympics and has chosen Cathy
Rigby to act as its national spokesperson.
SIGNIFICANT PRODUCT SOURCING CAPABILITIES. Maxim's large retail
network provides significant purchasing power, enabling Maxim to receive
advantageous pricing, delivery terms and merchandising programs from floor
covering manufacturers. Maxim has established close relationships with major
suppliers across all floor covering categories. By capitalizing on suppliers'
production and delivery flexibility, Maxim offers its customers one of the
largest selections of high quality floor covering products, generally on a
just-in-time basis, thereby minimizing inventory
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requirements while helping to maximize profitability.
EXTENSIVE RETAILING INFRASTRUCTURE. In order to service its retail
floor covering network, Maxim has built an extensive retail infrastructure,
including store development, marketing, advertising, credit programs, sales and
management training, and product sourcing resources. Maxim will continue to
leverage these resources to support the opening of new Company-owned and
franchised stores.
OPERATING STRATEGY
Maxim's strategic objective is to establish the largest and most
profitable floor covering distribution network in North America. To achieve this
objective, Maxim is pursuing the following strategies:
INTEGRATE THE SHAW RETAIL STORES. A major strategic initiative was the
acquisition of the Shaw retail stores during fiscal 1999. Maxim has begun to
re-merchandise these stores, integrate their operations into Maxim's retail
network, offer sales and management training to employees, and adopt a common
reporting platform. Maxim expects these integration activities to continue
beyond the end of the current fiscal year.
EXPAND COMPANY-OWNED STORE BASE WITHIN ESTABLISHED MARKETS. Maxim
expects to expand its ownership and operation of Company-owned stores by
opening approximately 12 stores over fiscal year 2000, principally in
existing or contiguous market areas. Maxim targets market areas with
significant new residential building activity and/or more established
communities where remodeling is likely to occur. Maxim believes that the
continued rollout of Company-owned flooring centers will enhance
profitability as Maxim leverages its retail infrastructure.
EXPAND GCO FRANCHISE NETWORK. Maxim's strategy is to expand its
franchise network by adding approximately 15 GCO franchised stores per year.
Maxim believes that the expansion of the GCO franchise network complements
Maxim's full service store base by giving price conscious customers an
alternative offering. Further, with only 62 of the 211 Dominant Metropolitan
Areas in the United States ("DMAs") currently covered by GCO Carpet Outlets,
Maxim believes significant growth opportunities exist for the GCO Carpet
Outlet concept.
PENETRATE NEW DISTRIBUTION CHANNELS. Maxim intends to leverage its size
by offering floor covering products and services to nontraditional markets such
as insurance restoration, real estate selling organizations, homebuilders, and
mortgage companies.
EXPAND PRODUCT OFFERINGS AND SERVICES FOR EACH DISTRIBUTION FORMAT.
Maxim believes that by offering new products and services to its customers, such
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as consumer credit programs, installation and post-sale maintenance products and
services, Maxim will increase retail productivity through more frequent and
larger customer transactions.
MERCHANDISING STRATEGY
Maxim's merchandising strategy includes the re-branding of its
retail stores to the Flooring America brand in order to increase the brand
name recognition of Maxim Brand stores. Also, the product mix in the stores
acquired from Shaw has been shifted to introduce a greater variety of floor
covering products. In addition, Maxim has introduced initiatives to change
the merchandise mix at many of its Maxim Brand retail stores to better serve
its customers, while minimizing its inventory investment by relying on
vendors to supply products on a just-in-time basis.
RETAIL OPERATIONS
Maxim's Company-owned retail stores are currently operated through a
number of formats. The following table displays, for each major format, the
number of Company-owned stores as of October 1, 1999:
<TABLE>
<CAPTION>
ACQUIRED SHAW RETAIL STORES
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NEW YORK THE CARPET
CARPETMAX GCO CARPET WORLD CARPETLAND USA EXCHANGE OTHERS
--------- --- ------------ -------------- ---------- ------
<S> <C> <C> <C> <C> <C>
59 12 141 33 24 54
</TABLE>
CARPETMAX STORES. CarpetMAX stores carry a broad variety of CarpetMAX
private label floor covering products from leading manufacturers. In April 1995,
Maxim began opening Company-owned CarpetMAX stores and as of October 1, 1999,
Maxim owned 59 CarpetMAX stores, including 27 Gallery stores.
In November 1996, Maxim introduced a new concept in the design and
operation of retail floor covering stores (currently known as CarpetMAX(R)
Flooring Idea "Gallery") as the prototype format for most new Company-owned
stores. These standardized 6,500 square foot stores located in Class A strip
shopping retail space feature modern high-tech fixtures and displays, eye-
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catching signage, bright lighting, a greeting area, a play and rest area for
kids, departmentalized product displays, a working area for interfacing with
customers and separate areas dedicated to the various product lines offered.
The Gallery store provides customers with a "one-stop" shopping
experience for all of their floor covering needs, catering primarily to
consumers seeking a wide selection of high quality products. With a greater
emphasis on hard surface floor covering products than a typical CarpetMAX store,
Maxim believes that in certain markets the Gallery store meets increased
consumer demand for alternatives to traditional carpet products.
GCO CARPET OUTLETS. GCO caters to the cash-and-carry floor covering
market through 12 discount floor covering stores under the name "GCO Carpet
Outlets(R)." GCO stores average approximately 10,000 square feet of retail
space that maintain in-store inventory. Generally, GCO Carpet Outlets derive
more than 70% of their revenues from the sale of carpet, with the balance
consisting of pad, hardwood and vinyl flooring sales. GCO Carpet Outlets
cater primarily to price sensitive customers who do not require the higher
levels of customer service and broad selection of products. Customers
typically include "do-it-yourself" homeowners, homebuilders, rental property
owners and property managers. In contrast to the full service operations of
Maxim Brand stores, GCO Carpet Outlets do not offer delivery or installation
services. Instead, customers requiring these services are provided a list of
recommended independent contractors. Floor covering products are sold with a
limited warranty.
ACQUIRED SHAW RETAIL STORES. In August 1998, Maxim acquired 266
retail floor covering stores from Shaw. Each of these stores currently
operates under one of ten brand names, including The Carpet Exchange,
Carpetland USA and New York Carpet World. The various name brands acquired
from Shaw operate under different business models with differing product and
customer mixes. Maxim is evaluating the strengths of the acquired brands and
is currently making merchandise shifts to maximize the stores' potential.
Changes will include rebranding of these stores to the Flooring America
brand, adjusting merchandising fixtures and displays, closing certain stores
and reviewing current operational practices at each store.
RETAIL INFRASTRUCTURE
SUPPLIER RELATIONSHIPS. Maxim believes it obtains quality products
at a low cost due to the collective purchasing volume of Maxim's consolidated
retail network and its relationships with major floor covering suppliers. The
ability of Maxim to purchase certain private label products creates
significant buying opportunities. In addition, Maxim's use of its suppliers'
efficient distribution networks permits it to maintain low inventory levels
at Maxim Brand stores.
Maxim offers a full range of floor covering products from leading
manufacturers. The following table lists a sampling of Maxim's major suppliers
of certain of its floor covering products:
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BROADLOOM CARPET:
- - Shaw Industries, Inc.
- - Mohawk Industries, Inc.
VINYL FLOORING:
- - Armstrong World Industries, Inc.
HARDWOOD FLOORING:
- - Triangle Pacific Corporation and its divisions
CERAMIC TILE:
- - Casa Italia
- - EPC America
- - Shaw Ceramics
- - Stiles Tile Works
LAMINATES:
- - Perstop Flooring AB (Pergo)
- - Formica Flooring
Each of these suppliers is one of the leaders in its respective floor covering
category. Maxim's suppliers also include niche carpet, vinyl, hardwood, laminate
and ceramic tile producers worldwide, as well as leading manufacturers and
importers of area rugs and other decorative floor covering products.
ADVERTISING AND PROMOTION. Maxim, through its in-house,
state-of-the-art production facilities, develops for its own use and the use of
its franchisees high quality, creative marketing and promotion programs. These
programs include television, radio, print and direct mail campaigns, sales
literature and point-of-purchase programs. Maxim maintains on-site multi-track
audio recording studios, a television production facility and a full-service
media department and has produced nationwide advertising campaigns. Customized
advertising packages are available to franchisees at lower rates than those
charged by most advertising or production companies.
RETAIL MANAGEMENT AND SALES TRAINING. Maxim focuses on enhancing retail
productivity by applying proven techniques to train its store managers and sales
representatives. All Company-owned store management and sales and operating
personnel receive intensive training in a variety of areas ranging from product
knowledge to sales and service techniques. Maxim offers a variety of training
programs to its franchisees on a fee basis. These programs range from daily
classes to intensive one-week programs. Store personnel receive a comprehensive
training and orientation program, which emphasizes Maxim's advertising and
marketing support, proprietary credit programs, store operations and general
business practices.
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To further enhance its training capabilities, Maxim utilizes an
interactive digital video and audio satellite communications system. The
training system utilizes interactive communication capabilities to broadcast
training and merchandising programs to Company-owned stores and franchised
stores. Broadcasts disseminate information about sales training, new technology,
new products, merchandising, product specials and design trends.
SITE SELECTION AND STORE DEVELOPMENT AND DESIGN. Maxim has an
in-house store development department with responsibility for site selection,
contract negotiation and build-out of stores. In locating new sites, the
store development department evaluates the economic conditions, demographics,
growth and customer base of potential markets, as well as possible
competition. For new stores, Maxim also targets areas with significant new
residential building activity or older, more established communities where
remodeling is likely to occur. Within each market, Maxim seeks to locate
flooring centers in prime retail locations with high consumer visibility.
Maxim's strategy is to open multiple stores within each market to achieve
management, operating and advertising efficiencies and to help create
barriers to competitive entry or expansion. The interior store design
includes a pre-determined product mix, fixtures and display systems, and
point-of-sale merchandising signage and promotional materials.
MANAGEMENT INFORMATION SYSTEMS. Most Company-owned stores are
currently operating their businesses with the information systems that were
in place at the time of acquisition or opening by Maxim. Using its current
information systems, Maxim obtains information on a daily basis detailing
sales, closing ratios and various other data relating to retail store
operations. Maxim is currently integrating its systems to provide operating
units with appropriate management information and to streamline transaction
processing.
All information system functions relating to the stores acquired
from Shaw are transitioning from Shaw to Maxim. Despite some difficulties,
the primary challenge of developing a skilled staff and technical
infrastructure has been substantially completed. The remaining issues concern
the timing of change overs to avoid business interruptions. The hardware has
been upgraded for the store network and Maxim has implemented SAP modules
covering general ledger, human resources and payroll functions. One of the
Company's regions is currently operating on SAP Retail to validate the fit
for all Company-owned stores.
BUILDER AND SPECIFIED CONTRACT OPERATIONS
To expand market share and enhance its management expertise in the
builder market of the floor covering industry, Maxim has acquired companies with
excellent reputations in this market. Maxim services the builder market
primarily in local areas where it has established regional service centers and a
base of CarpetMAX stores. The specified contract business caters primarily to
the floor covering requirements of larger commercial customers. By leveraging
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the established infrastructure available in these local markets, Maxim seeks to
utilize its extensive merchandise mix, product displays, sales personnel and
customer service capabilities to cater to the builders' needs.
CUSTOMER SERVICE
Maxim seeks to differentiate itself from other independent and large
retailers through its customer service offerings. Accordingly, Maxim Brand
flooring centers offer retail customers the following services:
INTERIOR DESIGN AND PRODUCT SELECTION. Sales professionals assist
customers in all aspects of selecting floor covering (including assessment of
interior design preferences), coordination with other home furnishings and
decorating preferences, and product layout and measuring. To ensure customer
satisfaction, Maxim offers a 30-day unconditional satisfaction guarantee.
Maxim Brand sales professionals seek opportunities to visit a customer's home
or commercial location to verify proper installation and to identify
additional sales opportunities.
DELIVERY AND INSTALLATION. Maxim Brand flooring centers rely on
local contractors for the installation of floor covering products.
Installation is often the final contact with customers, therefore Maxim has
developed the "Ten Point Must System," a merit-based training program for its
installation subcontractors, to guarantee consistent, high quality
installation services.
CONSUMER CREDIT PROGRAM. Maxim, in affiliation with a national
provider of consumer financing, began offering consumer credit to its
customers in November 1996. This consumer credit program is marketed as the
"Wall-to-Wall" credit program and is exclusively for the use of Maxim Brand
stores and participating franchisees. Maxim believes these credit programs
enhance closing ratios and lead to higher average ticket purchases. Maxim
uses a pre-approved listing service, which enables it to solicit sales from
100% credit pre-approved potential customers. With 60-day, 90-day, 6-month
and 12-month interest-free programs, plus revolving credit packages, Maxim
offers a variety of credit plans to its customers. Maxim also offers longer
term (up to two years) third-party consumer credit financing for its
customers. Under certain circumstances, Maxim may be contingently liable for
the credit extended. Maxim receives a percentage of interest attributable to
accounts outstanding.
FRANCHISE OPERATIONS
Maxim is the largest franchisor of floor covering stores in the United
States. As of October 1, 1999, Maxim had (i) 113 GCO franchised stores
operating in 62 of the 211 DMAs in the United States and (ii) 376 CarpetMAX
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franchise territories, within which there were approximately 515 CarpetMAX
stores. Because of the different nature of their business, CarpetMAX and GCO
franchisees may be established in the same geographic territory. In addition
to the GCO and CarpetMAX franchises, in February 1997, Maxim began to offer
MaxCARE(R) franchises to address the increased demand for carpet and
upholstery cleaning services and wood refurbishing. As of October 1, 1999,
Maxim had sold 86 MaxCARE franchises. Finally, in November 1998 following the
acquisition of the CarpetsPlus dealership system, Maxim began to offer
CarpetsPlus franchises to unaffiliated large, full-service retail floor
covering dealers who sought enhanced purchasing power without the structure
and brand affiliation associated with a CarpetMAX franchise.
The following table sets forth the number of franchised flooring
centers/locations for each of Maxim's franchise concepts:
<TABLE>
<CAPTION>
October 1, January 31,
--------------- ------------------------------
1999 1999 1998 1997
--------------- ---- ---- ----
<S> <C> <C> <C> <C>
CarpetMax 515(1) 572 463 457
GCO 113 110 101 102
CarpetsPlus 292(2) 250(2) -- --
MaxCARE 86 61 24 --
Other 29 30 -- --
</TABLE>
(1) The decrease in the number of CarpetMAX franchise stores from 572 on
January 31, 1999 to 515 on October 1, 1999 was due to store closures,
bankruptcies, terminations, voluntary departures, and conversions to
CarpetsPlus.
(2) Assumes that all CarpetsPlus dealers convert to the new CarpetsPlus
franchise system.
CARPETMAX FRANCHISE NETWORK. Maxim generates revenues from CarpetMAX
franchisees through two primary sources: initial franchise fees and rebates,
commissions or fees paid by suppliers based on franchisees' purchases of
floor covering products. The current form of the CarpetMAX franchise
agreement requires the payment of an initial one-time franchise fee and
requires the franchisees to purchase at least 90% of their total purchases of
floor covering products from suppliers designated by Maxim and sanctioned by
the CarpetMAX Merchandise Committee. In addition to having access to floor
covering products at lower cost, CarpetMAX franchisees also have access to
CarpetMAX private label products and specials.
In June 1998, Maxim modified the CarpetMAX(R) franchise program by
(i) selectively reducing the number of designated suppliers to enhance the
buying leverage of its franchisees and to help ensure that suppliers focus
their efforts on CarpetMAX branded products, (ii) offering, at no charge,
many of the services previously offered on a fee for service basis, and (iii)
instituting additional obligations to be undertaken by franchisees which are
consistent with traditional franchisee obligations, such as signage
requirements.
CarpetMAX franchisees have the exclusive right to operate a CarpetMAX
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franchise utilizing the CarpetMAX trademarks within a specific geographic
area (the "Exclusive Area"). Provided the franchisee is not in default of its
franchise agreement, Maxim may not license another CarpetMAX franchisee to
operate within the other franchisee's Exclusive Area, nor may Maxim or any
affiliate of Maxim operate a CarpetMAX store within the Exclusive Area
without the franchisee's consent. However, Maxim generally reserves the right
to operate other branded concepts offering floor covering products within the
Exclusive Area. CarpetMAX franchise agreements have an indefinite term and
generally may be terminated by (i) the franchisee in the event that Maxim
materially breaches the franchise agreement or, within three days of
execution of the franchise agreement, if the franchisee disapproves of the
initial price list provided to the franchisee for the various floor covering
products offered through the CarpetMAX system or (ii) Maxim upon the
occurrence of certain events of default listed in the franchise agreement.
GCO FRANCHISE NETWORK. Maxim generates revenues from GCO franchisees
through both initial franchise fees paid upon store openings and royalty fees
based on store sales. The GCO initial franchise fee ranges from $5,000 to
$25,000 depending on whether the franchisee is an existing GCO or CarpetMAX
franchisee. Each franchisee pays a royalty of 3% on net delivered sales
between $500,000 and $1.5 million, 2-1/2% on net delivered sales between $1.5
million and $2.0 million, and 2% on net delivered sales over $2.0 million
during a year. The GCO franchise agreement requires franchisees to spend
approximately 5% to 15% of their gross revenues budgeted per quarter on
advertising and promotional activities. To serve the needs of its
franchisees, Maxim has continued to expand the scope of services available to
GCO franchisees. For example, Maxim now offers services relating to site
selection assistance, merchandising, advertising and promotion, management
and sales training, consumer credit, information systems and other store
operations. In order to take advantage of increasing demand for hard surface
flooring materials among the GCO customer base, Maxim entered into an
agreement with Color Tile, LLC ("Color Tile"). Under the agreement, Maxim may
offer to GCO franchisees the right to sell Color Tile (R) hard surface floor
covering materials in franchised GCO carpet outlets. This arrangement
requires the franchisee to pay Maxim license fees in addition to royalties
based on gross revenues, including sales of Color Tile products.
GCO franchisees have limited exclusivity to use the GCO business
concept and service marks, logos, slogans and other identifying features
within a specific geographic area (the "Protected Territory"), provided that
the franchisee is not in default of its franchise agreement and subject to
certain limitations and exceptions. Maxim may not grant more than one GCO
Carpet Outlet franchise within a Protected Territory, nor may Maxim or any
affiliate of Maxim, operate a Company-owned discount floor covering store
using the GCO marks or the GCO franchise system within a Protected Territory
without the franchisee's consent. GCO franchise agreements have a term of 10
years, may
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be renewed for additional consecutive terms of five years and may be
terminated by (i) the franchisee in the event that Maxim fails to cure a
material breach of the franchise agreement or (ii) Maxim upon the occurrence
of certain events of default as set forth in the franchise agreement. GCO
offers area development agreements, under which a franchisee commits to
opening multiple stores in a single market area in exchange for discounted
initial franchise fees. GCO also offers other expansion incentives to
existing franchisees and CarpetMAX dealers, including discounted franchise
fees under certain circumstances.
CARPETSPLUS FRANCHISE NETWORK. Effective September 25, 1998, Maxim
acquired CarpetsPlus of America, LLC, a national resource network
specializing in the retail flooring industry. The acquired company operated a
loosely affiliated group of large full-service retail floor covering dealers,
which offered its group members enhanced buying power. Effective November
1998, Maxim offered CarpetPlus franchises to independent unaffiliated retail
floor covering dealers to (i) take advantage of their cumulative purchasing
power to obtain favorable pricing from selected suppliers, (ii) use the
"CarpetsPlus(TM)" and other related trademarks, (iii) purchase private-label
CarpetsPlus products, (iv) obtain assistance in strategic product selection
and store design and layouts and, (v) obtain rebates on purchases of floor
covering products. The CarpetsPlus franchise program is intended to
supplement the franchisee's current business activities and does not require
the franchisee to change any aspect of its business. Each CarpetsPlus
franchisee receives an exclusive territory within which no other franchised
CarpetsPlus store will be located. There are no signage requirements. The
initial membership fee is $7,500 to operate the franchise from the
franchisee's existing retail floor covering store. If the franchisee wants to
operate additional retail floor covering stores within the franchise, the
franchisee must pay an additional membership fee of $5,000 per store.
Franchisees do not pay royalty fees or advertising fees. Maxim receives
rebates or commissions based upon CarpetsPlus franchisees' purchases from the
designated suppliers and distributors. CarpetsPlus franchise agreements have
an indefinite term and may be terminated by the franchisee for any reason
upon 90 days' prior notice to Maxim and by Maxim upon the occurrence of
certain events of default listed in the franchise agreement. All CarpetsPlus
franchisees are required to purchase no less than 50% of their total
purchases of floor covering products from suppliers or distributors
designated by Maxim.
MAXCARE FRANCHISE NETWORK. Under the MaxCARE system, franchisees
offer carpet, upholstery cleaning and wood refurbishing, and related
services to both individuals and businesses. These services are provided
using standardized equipment, which is mounted in vans or trucks bearing
MaxCARE's distinctive colors and signage. Each MaxCARE franchisee receives an
exclusive operating territory, which typically includes one or more counties
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within a state. All franchisees are required to offer the products and
services specified by Maxim. Maxim expects a significant number of MaxCARE
franchises will be operated by CarpetMAX franchisees or other entities that
currently operate retail businesses that are complementary with the services
offered through MaxCARE franchises. Each MaxCARE franchisee is required to
purchase certain products from Maxim and may purchase services from several
of Maxim's divisions including Maxim Marketing. Each franchisee must pay an
initial franchise fee based upon the population in the franchisee's operating
territory, with a minimum initial franchise fee of $12,500. The payment of
the franchise fee is generally financed over a period of five years. MaxCARE
franchise agreements have a term of 10 years, may be renewed for one
additional term of 10 years and may be terminated by (i) the franchisee in
the event that Maxim fails to cure a material breach of the franchise
agreement or (ii) Maxim upon the occurrence of certain events of default
listed in the franchise agreement.
In addition to the initial franchise fee, all MaxCARE franchisees
must purchase one or more specially equipped vans, carpet and wood cleaning
machines and accessories from Maxim or its designated suppliers before they
begin operations. All franchisees must pay a royalty of 6% of their gross
sales, subject to a minimum monthly royalty payment of $200 per month during
the first year, with minimum monthly royalty increases of $200 per month
during each successive year, up to a maximum of $1,000 per month during the
fifth year and thereafter. All franchisees must contribute 2% of gross sales
to a national advertising fund administered by Maxim and must spend not less
than 8% of gross sales on local advertising.
COMPETITION
Competition in the retail floor covering market is intense due to
the significant number of retailers. Large retailers of floor coverings who
provide significant competition include The Home Depot, Inc., Lowe's
Corporation and Sears, Roebuck & Co. The principal areas of competition
within the retail floor covering industry include store location, product
selection, merchandising, customer service and price. Maxim believes that
there are two primary competitors to its CarpetMAX franchise business: Carpet
One and Abbey Rug. Maxim distinguishes its CarpetMAX franchise system from
its competition by offering a full range of services to its franchise members
in addition to the traditional services of purchasing and merchandising.
Management believes that CarpetMAX competitors subcontract most services
(except floor covering purchasing) to outside vendors.
TRADEMARKS, SERVICE MARKS, TRADE NAMES AND COMMERCIAL SYMBOLS
Maxim has registered a number of marks with the U.S. Patent and
Trademark Office including CARPETMAX(R), CARPET MAX(R), CARPETMAX -THE NATIONAL
CARPET EXCHANGE(R), MAKING A WORLD OF
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DIFFERENCE(R), CarpetMax Making a World of Difference(R), MaxCARE(R),
MaxCARE-Professional Cleaning Systems(R), Carpetland USA(R), New York Carpet
World(R), GCO(R) and GCO CARPET OUTLETS(R). Maxim has also applied for
registration of several other marks including CarpetMAX Flooring Idea
Gallery(TM), CarpetsPlus(TM) and design and word marks for Flooring America
(TM). GCO also uses a number of service marks in association with its
standard GCO franchise including a word mark consisting of the words "GCO
Carpet Outlets(TM)," and design and word marks consisting of "GCO Carpet
Outlets(TM)" or "Georgia Carpet Outlets(TM)."
EMPLOYEES
As of October 1, 1999, Maxim employed approximately 4,142 persons.
No employee is a party to any collective bargaining agreement.
GOVERNMENTAL REGULATION
Maxim is subject to Federal Trade Commission ("FTC") regulations
governing the offer and sale of franchises. The FTC's Trade Regulation Rule on
Franchising requires Maxim to furnish to prospective franchisees a
franchise-offering circular containing certain information prescribed by the FTC
rule.
State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship currently exist in a substantial number of
states. Such laws generally require registration of the franchise offering
circular with state authorities prior to the offer or sale of franchises and
regulate the franchise relationship by, for example, requiring the franchisor to
deal with its franchisees in good faith, prohibiting misrepresentations and
interference with the right of free association among franchisees, limiting the
imposition of standards of performance on a franchisee and regulating
discrimination against franchisees in charges, royalties or fees. Although such
laws may restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination, an opportunity to cure a
default and a requirement to repurchase inventory or other compensation, these
provisions have not had a significant effect on Maxim's franchise operations.
Maxim is not currently aware of any pending franchise legislation,
which in its view would have a material adverse effect on the operations of
Maxim. However, various legislative proposals have been or are being debated at
both the state and federal levels, which could result in new laws regulating the
offer and sale of franchises and other aspects of the franchisor-franchisee
relationship. It is possible that such legislation, if enacted, could affect
Maxim's franchise operations. Maxim believes, however, that its operations
comply in all material respects with current federal and state franchise
regulations.
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Each Company-owned store and franchise location is subject to
licensing and regulation by a number of governmental authorities, which may
include health, sanitation, safely, fire, building and other agencies in the
state or municipality in which the business is located. Difficulties in
obtaining, or failure to obtain, the required licenses or approvals could
delay or prevent the procurement of new Company-owned store sites or
franchises in a particular area.
RISK FACTORS
AN INVESTMENT IN MAXIM'S COMMON STOCK INVOLVES A SIGNIFICANT DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE
INFORMATION INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K BEFORE YOU DECIDE TO
PURCHASE ANY OF MAXIM'S SECURITIES.
RISKS ASSOCIATED WITH ACQUISITIONS
THE INTEGRATION OF NEW BUSINESSES, INCLUDING THE RETAIL STORES ACQUIRED FROM
SHAW, HAS RESULTED IN DIFFICULTIES AND MAY CAUSE US TO DEVOTE A
DISPROPORTIONATE AMOUNT OF OUR RESOURCES AND OUR MANAGEMENT'S TIME.
The process of integrating new businesses into our operations
represents a significant challenge. The process of integrating acquired
businesses into Maxim's operations may result in difficulties and may require
a disproportionate amount of resources and management attention.
In particular, prior to their acquisition by Maxim, the Shaw retail
stores incurred significant losses and operated at a lower profit level than
is typical in the retail floor covering industry. Although Maxim has made
improvements in the profitability and sales at these acquired stores, they
continue to operate at a loss and have adversely affected our results of
operations. To the extent such conditions continue, they may affect, not only
the operation of the acquired stores, but also the consolidated results of
operations of Maxim in future periods. There can be no assurance that Maxim
will be able to operate these stores profitably in the future.
In addition, as we expanded our network of Company-owned stores
through acquisitions, some of the acquired stores were located in areas
within existing CarpetMAX franchisees' exclusive territories. As a result,
CarpetMAX franchisees have claimed and may in the future claim that these
expansion activities infringe on their exclusive rights. Additionally, such
acquisitions could cause these CarpetMAX franchisees to attempt to terminate
their franchise agreements and leave the CarpetMAX franchise program, which
would impact the revenue we receive from these franchisees. Any such claims
by franchisees could result in litigation, which would cause us to expend our
resources to defend these claims.
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ANY FUTURE ACQUISITIONS COULD POTENTIALLY HAVE ADDITIONAL ADVERSE CONSEQUENCES
FOR YOU AS A SHAREHOLDER.
As a result of future acquisitions, we may:
- incur significant charges to earnings as a result of
restructuring charges, and
- dilute the ownership of shareholders, as we may need to
finance these acquisitions through the issuance of additional
common stock.
In addition, we can not assure you that competition for acquisition candidates
will not increase, causing the costs of making acquisitions to increase.
MAXIM HAS A RELATIVELY LIMITED HISTORY OF OPENING AND OPERATING COMPANY-OWNED
STORES.
Maxim has limited experience in the acquisition of property for,
construction, opening and direct management of Company-owned stores. Our
growth and future operating results depend principally on our ability to
manage the newly acquired Shaw retail stores and to open and operate stores
during the remainder of fiscal 2000 and beyond.
IF WE ARE UNABLE TO SUCCESSFULLY UPGRADE AND INTEGRATE OUR NEW OPERATIONS WITH
OUR CURRENT SYSTEMS, IT MAY SIGNIFICANTLY AFFECT OUR GROWTH AND PROFITABILITY.
Our growth and profitability is significantly dependent on our
ability to upgrade and integrate all of our operations into a new centralized
management information, accounting, internal control and purchasing system.
We are currently developing a centralized information system to integrate our
store operations and financial data. There can be no assurance that the
implementation of this new information system will be successful or
accomplished in a timely manner. Our inability to implement these upgrades
and integration on a timely basis may have an adverse effect on the
successful operation of our business and our growth strategy.
The SAP Retail enterprise system is currently in a test environment
in one Company-owned retail region. The potential rollout plan is currently
under evaluation. In the event SAP Retail proves not to be a fit for Maxim's
operations, integration of the Company-owned retail network would be delayed.
RISKS OF INDEBTEDNESS
OUR 9 1/4% SENIOR SUBORDINATED NOTES ARE CURRENTLY IN DEFAULT.
Maxim is currently in default of the restricted payment covenant
contained
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in the indenture pursuant to which our senior subordinated notes were issued.
The default occurred in September 1998 when Maxim repurchased shares of its
common stock in amounts exceeding that permitted by the indenture. So long as
the senior subordinated notes are in default, Maxim will not be permitted to
make restricted payments, which includes stock repurchases and dividend
payments, or engage in certain corporate transactions, including mergers
involving Maxim or certain of its subsidiaries. We have reached an agreement
in principle with the holders of the senior subordinated notes to waive this
default. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." Until the default is waived by the note
holders or cured, either the trustee or the holders of not less than 25% in
aggregate principal amount of senior subordinated notes outstanding may
accelerate payment of the senior subordinated notes at any time. There can be
no assurance that such waiver will be granted. As of October 1, 1999, $96
million of senior subordinated notes were outstanding. In the event the
repayment of the senior subordinated notes is accelerated, we may not have
sufficient cash reserves and availability under our senior credit facility to
meet this obligation. This uncertainty has led the Company's independent
public accountants to include a paragraph in their report on our consolidated
financial statements for the year ended January 31, 1999 that questions
Maxim's ability to continue as a going concern. See Note 1 to Maxim's
Consolidated Financial Statements included elsewhere herein.
TO SERVICE OUR CURRENT OBLIGATIONS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF
CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments to satisfy our debt and other
obligations will depend upon our future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, which are beyond our control. Assuming that we can obtain a waiver
of the default under the senior subordinated notes and renegotiate our senior
credit facility, management believes that available cash reserves and cash
flow from operations, together with available borrowings under our senior
credit facility, will be sufficient to service our debt obligations as they
become due for the foreseeable future. If we are unable to service our debt
obligations, we will be required to adopt alternative strategies. These
strategies may include:
- reducing or delaying our capital expenditures,
- curtailing or eliminating the opening of Company-owned stores,
- selling assets,
- restructuring or refinancing our indebtedness, or
- seeking additional equity capital.
We can not assure you that any of these strategies could be implemented on
satisfactory terms, if at all. Our inability to service our debt obligations may
result in the acceleration of some or all of our indebtedness, which would have
a material adverse effect on our financial condition.
OPERATING RISKS
WE COMPETE WITH A SIGNIFICANT NUMBER OF RETAILERS, INCLUDING SOME THAT HAVE
GREATER RESOURCES THAN MAXIM.
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Competition in the retail floor covering market is intense due to the
significant number of retailers in this market. Larger, more diversified
retailers also provide significant competition, including The Home Depot, Inc.,
Lowe's Corporation and Sears, Roebuck & Co. The principal methods of competition
within the retail floor covering industry include store location, product
selection, merchandising, customer service and price. We can make no assurance
that our competitors will not substantially increase resources devoted to the
marketing and sale of products competitive with our products, which could
require us to reduce prices or increase spending on product development,
marketing and sales. This increased competition could have a material adverse
effect on us.
OUR EARNINGS MAY FLUCTUATE FROM QUARTER TO QUARTER, WHICH MAY AFFECT THE PRICE
OF OUR COMMON STOCK.
Our quarterly operating results have fluctuated in the past and are
expected to fluctuate in the future as a result of a variety of factors,
including:
- the timing of store openings and related pre-opening expenses,
- weather conditions,
- price increases by suppliers,
- actions by competitors,
- conditions in the carpet manufacturing, home building and
improvement markets and the floor covering industry in
general, and
- regional and national economic conditions and other factors.
Moreover, we believe that some of this fluctuation is the result of the fact
that our business experiences some measure of seasonality which, Maxim believes,
is typical of the floor covering industry. Individual stores generally
experience lower net sales, operating results and cash flow from operations and
Maxim as a whole experiences lower sales of floor covering products in the first
and fourth fiscal quarters than in the second and third fiscal quarters. We
believe these lower results of operations are primarily due to the effects of
winter weather on home construction and improvement projects. The market price
of our securities could be subject to significant fluctuations in response to
our operating results and other factors, and we can make no assurance that the
market price of our securities will not decline below current levels.
A PROLONGED ECONOMIC DOWNTURN IN THE ECONOMY WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.
The floor covering industry historically has been adversely impacted by
economic downturns. We believe that the industry is significantly influenced by:
- consumer behavior,
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- consumer confidence,
- the level of personal discretionary spending,
- the condition of the residential and commercial construction
industries,
- interest rates,
- credit availability, and
- the overall strength of the economy.
Therefore, a prolonged economic downturn could have a material adverse effect on
our business operations.
OUR SUCCESS IS DEPENDENT UPON, AMONG OTHER THINGS, THE SKILLS, EXPERIENCE AND
EFFORTS OF OUR SENIOR MANAGEMENT.
The loss of the services of members of senior management could have
a material adverse effect on our business and prospects. We have entered into
employment agreements with Mr. Nassar, Maxim's Chief Executive Officer, and
Mr. Thill, Maxim's new Chief Financial Officer. In addition, we believe that
our future success will depend in part upon our ability to continue to
attract, retain and motivate highly qualified senior management and other
personnel. There is serious competition for highly qualified senior
management.
WE DEPEND ON A FEW LARGE SUPPLIERS FOR OUR FLOOR COVERING PRODUCTS AND THE
DISTRIBUTION OF THESE PRODUCTS.
Our retail network relies on several large independent floor
covering manufacturers for the supply of certain floor covering products.
These manufacturers include Shaw and Mohawk Industries, Inc., which together
supplied in excess of 50% of our floor covering purchases during the year
ended January 31, 1999. In addition, our retail inventory management is
highly dependent on the delivery capabilities of these manufacturers. Any
significant change in our relationships with these manufacturers, or in these
manufacturers' production or distribution methods could have a material
adverse effect on our business operations. Although these manufacturers have
been reliable, high quality producers in the past, we can make no assurance
that these manufacturers will be willing or able to meet our requirements and
our franchisees' requirements on a timely basis or that these manufacturers'
pricing and rebate policies will remain competitive. While we believe there
are a number of alternative manufacturers capable of supplying and
distributing our floor covering products, any delays in obtaining alternative
suppliers could have a material adverse effect on our operations and those of
our franchisees. In addition, we rely on some of our suppliers to provide us
with advertising and other vendor support funds to help support our store
operations. If these suppliers do not contribute such vendor support, our
results of operations may be adversely affected.
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MAXIM'S BUSINESS OPERATIONS COULD BE ADVERSELY AFFECTED BY ANY CHANGES IN THE
LAWS THAT REGULATE OUR RELATIONSHIPS WITH OUR FRANCHISEES.
We are subject to federal regulations and state laws that regulate the
offer and sale of franchisees and the franchisor-franchisee relationship. We are
not aware of any pending franchise legislation that is likely to have a material
adverse effect on our operations. We are aware, however, that various
legislative proposals have been or are being debated at both the state and
federal levels which could result in new laws regulating the offer and sale of
franchises and other aspects of the franchisor-franchisee relationship. It is
possible that such legislation, if enacted, could aversely affect our franchise
operations.
IT IS POSSIBLE THAT OUR COMPUTER SYSTEMS, OR THOSE OF OUR MAJOR SUPPLIERS, WILL
FAIL TO OPERATE PROPERLY BEGINNING JANUARY 1, 2000.
Maxim has conducted an assessment of its computer systems to
identify the systems that could be affected by the "Year 2000" issue, which
results from computer programs being written using two digits rather than
four to define the applicable year.
Maxim's Year 2000 readiness efforts are being undertaken on a
project team basis with centralized oversight from an external project
management firm. Each project team has developed and is implementing a plan
to minimize the risk of a significant negative impact on its operations. The
teams are performing an inventory of Year 2000 components (software, hardware
and other equipment), assessing which components may expose Maxim to business
interruptions, reprogramming or replacing components as necessary, testing
each component, and returning each component to production. Maxim is
utilizing predominantly internal resources to reprogram, replace, or test
Maxim's software for Year 2000 compliance. Maxim believes the readiness
effort related to critical systems will be completed by the end of the third
fiscal quarter ending November 6, 1999, which is prior to any anticipated
impact on its operating systems. Maxim believes its other systems will be
Year 2000 compliant by December 31, 1999.
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Maxim has initiated formal communications with all of its significant
suppliers to determine the extent to which Maxim's operations and systems are
vulnerable to third parties' failure. Key vendor initiative documentation has
been received from vendors addressing all Year 2000 compliance issues. No
significant business disruptions are expected. Maxim presently believes that
with the planned conversion to new software and hardware and the planned
modifications to existing software and hardware, the effects of the Year 2000
issue will be timely resolved. All other equipment, machinery and systems
have been identified, replaced or upgraded as needed.
Maxim's contingency plans at the retail store level include the
temporary use of manual processes, which Maxim occasionally utilizes during
system maintenance. The manual processes have been documented and tested with
no significant revenue loss anticipated. A business contingency plan has
been developed utilizing five professional project managers to implement the
plan. The plan includes a business systems implementation schedule listing all
issues related to the Year 2000. The issues include identification of changes
needed, costs, completion dates and staffing.
Maxim currently believes the costs to remediate Year 2000 issues are
approximately $2.8 million, of which $189,000 had been expensed as of January
31, 1999, and approximately $1.6 million remains to be spent as of October 1,
1999. All costs associated with analyzing the Year 2000 issue or making
conversions to existing software are being expensed as incurred. The costs to
Maxim of Year 2000 compliance and the date on which Maxim believes it will
complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. There can be no assurance that
these estimates will be achieved and actual results could differ materially
from those anticipated.
Risks include the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant hardware, software,
computer codes and similar uncertainties. Such risks could result in a system
failure of miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Also, there is the risk that the
systems of other companies upon which Maxim's operations and systems rely will
not be converted timely and will have an adverse effect on Maxim's results of
operations.
THE DISCOVERY OF ADVERSE HEALTH EFFECTS RESULTING FROM CARPET COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR OPERATIONS AND THOSE OF OUR FRANCHISEES.
The effect of carpet and other floor covering products on indoor air
quality has been the subject of debate in recent years. Although it is uncertain
whether emissions from carpet pose a health hazard, there can be no assurance
that researchers will not detect hazardous levels of emissions from carpet. The
discovery of adverse health effects resulting from carpet, or the public
perception of these effects, could have a material adverse effect on our
operations and those of our franchisees.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
WE ARE RESTRICTED IN MANY WAYS BY THE INDENTURE GOVERNING THE TERMS OF OUR
SENIOR SUBORDINATED NOTES.
The indenture governing the terms of our senior subordinated notes
contains covenants which limit our ability to, among other things:
- incur additional indebtedness,
- pay dividends on the common stock,
- redeem our capital stock,
- make certain investments,
- issue the capital stock of our subsidiaries,
- create liens on our subsidiaries and other restrictions
affecting our subsidiaries,
- issue guarantees,
- transact business with affiliates, and
- sell assets and/or merge and consolidate with other entities.
WE ARE ALSO RESTRICTED BY OUR SENIOR CREDIT FACILITY, WHICH CONTAINS ADDITIONAL
RESTRICTIVE COVENANTS AND REQUIRES US TO SATISFY CERTAIN FINANCIAL TESTS.
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Our senior credit facility contains other restrictive covenants and
requires us to satisfy certain financial tests, including maintaining certain
ratios relating to levels of total debt, consolidated senior debt, and
earnings. Our ability to comply with these covenants and to satisfy these
financial tests may be affected by events beyond our control. A breach of any
of these covenants could result in an event of default under the senior
credit facility and the indenture. In the event of default under the senior
credit facility, our lenders could elect to declare all amounts borrowed,
together with accrued interest, to be immediately due and payable. The
lenders under the senior credit facility could also terminate all commitments
under the credit facility and, if such borrowed amounts are not paid, enforce
their rights pursuant to the security interests on certain assets of the
Company. In addition, default under the senior credit facility could
constitute default under the indenture, and vice-versa. Because the senior
subordinated notes are currently in default, the credit facility is also
deemed to be in default. Maxim's senior lenders have entered into a
forbearance agreement with respect to such default, which forbearance
currently extends to February 1, 2000.
IF THERE IS A CHANGE IN CONTROL OF MAXIM, WE MAY NOT HAVE SUFFICIENT FUNDS TO
REPAY THE INDEBTEDNESS, WHICH WE COULD BE REQUIRED TO PAY UNDER THE TERMS OF OUR
SENIOR SUBORDINATED NOTES.
Upon the occurrence of a change in the control of Maxim, each holder of
our senior subordinated notes may require us to purchase all or a portion of the
holder's notes at 101% of the principal amount of the notes, with interest
accrued, if any, from the last interest payment date. Under these circumstances,
we may be required to:
- repay all or a portion of the outstanding principal of, and
pay any accrued interest on, our senior indebtedness, or
- obtain a consent from our lenders to permit the purchase.
If we are unable to repay all of the indebtedness or are unable to obtain the
necessary consents, we may not be able to offer to purchase the notes, which
would cause us to be in default under the indenture. We may not have sufficient
funds available at the time of any change in control of Maxim to make any debt
payment as described above. Even if we were able to obtain refinancing, we can
make no assurance that the financing will be on terms acceptable to us.
THE SAME TYPES OF EVENTS THAT WOULD CAUSE US TO BE IN DEFAULT UNDER THE SENIOR
SUBORDINATED NOTES MAY ALSO CAUSE US TO BE IN DEFAULT UNDER OUR OTHER
INDEBTEDNESS.
The events that constitute a change in the control of Maxim under
the indenture may also cause us to be in default under the senior credit
facility or our other senior indebtedness. Such a default may permit the
holders of our debt instruments to reduce their borrowings or accelerate the
debt and, if the debt is not paid, to enforce their rights pursuant to
security interests on certain of our assets.
OTHER RISKS
THE ULTIMATE RESOLUTION OF THE CLASS ACTION LAWSUITS AND THE SEC INQUIRY MAY
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Since the May 18, 1999 announcement that Maxim would be restating
financial results for fiscal 1999 and certain of the quarters therein,
eleven lawsuits claiming to be class actions have been filed against Maxim
and certain of its current and former executive officers and directors. In
addition, the Securities and Exchange Commission commenced an informal
inquiry in connection with the matters relating to the restatement. See "Item
3. Legal Proceedings." While we have made all adjustments considered
necessary in restating our financial statements, we can provide no assurances
that additional adjustments will not be necessary as a result of a review by
the SEC.
We do not believe that it is feasible to predict or determine the
final outcome of the class action lawsuits or the SEC inquiry and their
effect on Maxim's financial results, its business or its management. In
addition, it is not feasible to estimate the amounts or potential range of
loss with respect thereto. The potential outcomes or resolutions of the class
action lawsuits could include a judgment against us or settlements that could
require substantial payments by us. Potential outcomes of the SEC inquiry
could include administrative or other sanctions being imposed on Maxim and/or
certain of its officers. In addition, the timing of the final resolution of
these matters is uncertain. We believe that material adverse outcomes with
respect to the class action lawsuits or the SEC inquiry could have a material
adverse effect on our financial condition, results of operations and cash
flows.
24
<PAGE>
MAXIM'S CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS THAT COULD SERVE TO
DETER OR PREVENT TAKE-OVER ATTEMPTS BY A POTENTIAL PURCHASER OF SHARES OF OUR
COMMON STOCK WHO WOULD BE WILLING TO PAY A PREMIUM OVER MARKET PRICE.
Our Certificate of Incorporation contains provisions which give the
board of directors the ability to deter or prevent a merger with, or a sale of
control to a third party even though a majority of our stockholders may vote in
favor of such a transaction. We are also subject to the provisions of Section
203 of the Delaware General Corporation Law, which may have the effect of
delaying, deferring, or preventing a change in control of Maxim by limiting
transactions between Maxim and those stockholders who generally own 15% or more
of our outstanding capital stock.
In addition, our Certificate of Incorporation includes a number of
additional anti-takeover provisions which:
- require a staggered board of directors, which means that only
one-third of the members of our board of directors is elected
each year,
- limit the ability of stockholders to call special meetings,
- eliminate stockholder action by unanimous consent,
- restrict the ability of the stockholders to amend certain
provisions of the Certificate of Incorporation,
- permit the board of directors to amend our Bylaws without
stockholder consent, and
- authorize the issuance of up to 1,000,000 shares of preferred
stock by the board of directors without stockholder action.
These provisions make it more difficult for a third party to achieve a change in
control of Maxim through the acquisition of a large block of our common stock
and may have the effect of encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with our board of
directors rather than pursue non-negotiated takeover attempts. As a result, you
may be deprived of opportunities to sell some or all of your shares at prices
that represent a premium over market price.
ITEM 2. PROPERTIES.
As of October 1, 1999, Maxim leased approximately 259 facilities and
owned approximately 64 facilities, through which it conducts its retail
operations. Maxim's corporate staff is located in an owned 150,000 square
foot facility on a 13-acre site in Kennesaw, Georgia, a suburb of Atlanta.
ITEM 3. LEGAL PROCEEDINGS.
Since the May 18, 1999 announcement that Maxim would be restating
financial results for fiscal 1999 and certain of the quarters therein, eleven
lawsuits claiming to be class actions have been filed against Maxim and
certain of its current and former executive officers and directors. Each of
these actions was filed in the U. S. District Court for the Northern District
of Georgia. The plaintiffs in these actions purport to represent a class of
all persons who purchased or otherwise acquired the common stock of Maxim
between August 31, 1998 and May 19, 1999. The Complaints allege that Maxim
and certain of its current and former officers and directors violated the
federal securities laws by, among other things, issuing materially false and
misleading statements regarding Maxim's financial results for fiscal 1999 and
for certain quarters therein, which had the effect of artificially inflating
the market price of Maxim's common stock. The Complaints allege that by
virtue of this conduct the defendants violated Section 10(b) of the
Securities Exchange Act of 1934 (the "34 Act") and SEC Rule 10b-5 thereunder.
The Complaints also allege that the individual defendants were controlling
persons within the meaning of Section 20 of the 1934 Act and are therefore
liable to the plaintiffs on that basis as well. The Complaints seek
compensatory and punitive damages along with pre-judgment interest,
reasonable attorneys fees, expert witness fees and other costs.
On August 16, 1999, the defendants moved to dismiss all the
complaints on the grounds that they do not plead sufficient facts to set
forth a fraud claim. The proposed lead plaintiff, Rudman Partners, LP, has
opposed the motion and sought leave to file a consolidated, amended complaint.
Maxim and its named officers and directors intend to vigorously
defend these claims. These actions have only recently been filed, however,
and it is not possible at this time to determine the outcome of these
lawsuits or the effect of their resolution on Maxim's financial position or
operating results. Management believes that Maxim's defenses have merit;
however, there can be no assurance that Maxim will be successful in its
defense or that these lawsuits will not have a material adverse effect on
Maxim's results of operations for some period or on Maxim's financial
position. See "Item 1. Business--Risk Factors."
Maxim has made a claim under its directors and officers liability
insurance policy with respect to the litigation. There can be no assurance,
however, that this policy will be sufficient to cover all liability in the
event of an adverse outcome in the lawsuits.
Since the May 18, 1999 announcement that Maxim would be restating
financial results for fiscal 1999 and certain of the quarters therein, the
Securities and Exchange Commission commenced an informal inquiry in
connection with the matters relating to the restatement. The SEC may convert
the informal inquiry into a formal investigation of the matters relating to
the restatement. The staff of the SEC has advised Maxim that its inquiry
should not be construed as an indication by the SEC or its staff that any
violations of law have occurred.
Except as discussed above, there are no material pending legal
proceedings to which Maxim is a
25
<PAGE>
party or of which any of its properties are subject; nor are there material
proceedings known to Maxim to be contemplated by any governmental authority; nor
are there material proceedings known to Maxim in which any director, officer or
affiliate or any principal security holder of Maxim, or any associate of any of
the foregoing is a party or has an interest adverse to Maxim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 17, 1998, Maxim held a Special Meeting of Shareholders
to approve an amendment to its Certificate of Incorporation and an amendment
to its 1993 Stock Option Plan. At the meeting, Maxim's shareholders approved
an amendment to Maxim's Certificate of Incorporation to increase the number
of authorized shares of common stock from 25 million shares to 75 million
shares. The number of votes cast in favor of adoption of the amendment to the
Certificate of Incorporation was 16,502,599 and the number of votes cast
against adoption of the amendment was 2,417,017. There were 6,451 abstentions
and broker non-votes.
At the meeting, Maxim's shareholders also approved an amendment to
Maxim's 1993 Stock Option Plan to increase the number of shares available for
grant thereunder from 4,000,000 shares to 5,000,000 shares. The number of votes
cast in favor of adoption of the amendment to the 1993 Stock Option Plan was
9,606,070 and the number of votes cast against adoption of the amendment was
2,807,984. There were 6,512,013 abstentions and broker non-votes.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Maxim's common stock is traded on the New York Stock Exchange under the
symbol "MXG." The common stock began trading on the New York Stock Exchange on
June 27, 1997. The common stock had previously traded on the Nasdaq National
Market. The following table sets forth for the periods indicated the high and
low sales prices of the common stock as reported by the New York Stock Exchange
and the Nasdaq National Market, as applicable.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 1999 HIGH LOW
---- ---
<S> <C> <C>
FIRST QUARTER $19 3/8 $16 13/16
SECOND QUARTER 23 1/2 15
THIRD QUARTER 22 9/16 14 1/16
FOURTH QUARTER 25 5/8 15 5/8
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 1998 HIGH LOW
---- ---
<S> <C> <C>
FIRST QUARTER $17 1/2 $ 8
SECOND QUARTER 14 7/8 9 3/4
THIRD QUARTER 17 7/16 13 3/4
FOURTH QUARTER 17 3/16 13 3/4
</TABLE>
As of October 1, 1999, there were 197 holders of record of the
Common Stock. Management of the Company believes that there are in excess of
3,000 beneficial holders of its Common Stock.
Maxim has never declared or paid any dividends on its common stock.
Maxim does not intend to declare or pay any cash dividends for the
foreseeable future, and intends to retain earnings, if any, for the future
operation and expansion of Maxim's business. Future cash dividends, if any,
will be at the discretion of Maxim's board of directors and will depend upon,
among other things, Maxim's future earnings, operations, capital requirements
and surplus, availability of cash, general financial condition, contractual
restrictions and such other factors as the board of directors may deem
relevant. Currently, Maxim is restricted in its ability to declare or pay
cash dividends under the terms of its senior credit facility and senior
subordinated notes.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected consolidated
financial and operating data of Maxim for the periods indicated which have
been derived from the Consolidated Financial Statements of Maxim. These
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial
information included herein. Financial data give retroactive effect to the
merger of a wholly-owned subsidiary of Maxim and GCO on September 28, 1994
and the merger of a wholly-owned subsidiary of Maxim and Image on August 30,
1996, which transactions were accounted for as poolings-of-interests. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
27
<PAGE>
<TABLE>
<CAPTION>
TEN MONTHS
ENDED FISCAL YEAR
FISCAL YEAR ENDED JANUARY 31, JANUARY 31, ENDED MARCH 31,
------------------------------------- ----------- ---------------
1999 1998 1997 1996(1) 1995
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales of floor covering products $ 608,916 $ 303,560 $ 250,968 $ 186,568 $ 174,935
Fees from franchise services 24,960 29,860 26,336 13,432 13,876
Fiber and PET sales 26,716 26,059 28,853 24,072 12,886
Other 3,834 5,648 3,564 3,479 1,644
--------- --------- --------- --------- ---------
Total revenues 664,426 365,127 309,721 227,551 203,341
Cost of sales 457,339 249,381 222,290 161,723 139,521
--------- --------- --------- --------- ---------
Gross profit 207,087 115,746 87,431 65,828 63,820
Selling, general and administrative
expenses 220,748 83,955 72,366 59,197 46,870
Nonrecurring charges 23,713(2) -- -- 6,569(2) --
Merger-related costs -- -- 4,900(4) -- 500(3)
Other income (expense):
Interest income 1,754 1,233 613 415 397
Interest expense (15,097) (6,948) (7,006) (4,695) (1,839)
Gain on sale of Image 24,863 -- -- -- --
Other, net 1,023 394 302 78 421
--------- --------- --------- --------- ---------
(Loss) income before income taxes and
extraordinary charge (24,831) 26,470 4,074 (4,140) 15,429
Benefit (provision) for income taxes 5,656 (10,314) (1,929) (105) (5,787)
--------- --------- --------- --------- ---------
(Loss) income before extraordinary charge (19,175) 16,156 2,145 (4,245) 9,642
Extraordinary charge, net of tax benefit (377) (785) -- -- --
--------- --------- --------- --------- ---------
Net (loss) income $ (19,552) $ 15,371 $ 2,145 $ (4,245) $ 9,642
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
(Loss) earnings per share:
Basic $ (1.10) $ 0.95 $ 0.16 $ (0.32) $ 0.76
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted $ (1.10) $ 0.92 $ 0.15 $ (0.32) $ 0.72
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents $ 89,901 $ 28,880 $ 6,439 $ 4,207 $ 2,365
Receivables, net 56,012 59,190 45,716 34,660 29,882
Inventories 58,744 54,693 42,148 49,170 38,137
Property, plant and equipment, net 71,766 137,207 101,403 93,879 68,832
Total assets 388,768 321,494 219,673 202,085 162,723
Total debt and capital lease obligations 124,447 131,663 96,289 94,185 57,459
Stockholders' equity 160,867 133,775 76,154 72,150 71,424
OTHER FINANCIAL DATA:
Image revenues (5) $ 197,796 $ 178,011 $ 162,681 $ 128,260 $ 127,250
EBITDA, as adjusted (6) 5,548 43,741 25,583 14,639 22,175
Depreciation and amortization 19,209 11,950 10,518 8,008 5,225
Capital expenditures 62,564 47,673 17,444 15,580 25,941
Gross margin 31.2% 31.7% 28.2% 28.9% 31.4%
EBITDA margin, as adjusted 0.8% 12.0% 8.3% 6.4% 10.9%
</TABLE>
28
<PAGE>
(1) On January 31, 1996, Maxim changed its fiscal year end from March 31 to
January 31.
(2) Certain of Maxim's acquired stores had not performed as anticipated at
the time of purchase. The results from these operations led management to
assess the realizability of the goodwill and store assets recorded in
connection with these acquisitions. The result of this assessment indicated a
permanent impairment of goodwill necessitating a write off totaling $6.6
million in fiscal 1996 and $4.2 million in fiscal 1999. Fiscal 1999
nonrecurring charges also include a write off of vendor receivables of $2.4
million, claims reserves of $9.5 million, write down of obsolete equipment of
$492,000, and store closure and carrying costs of $7.1 million. See "Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Year Ended January 31, 1999 Compared to
Year Ended January 31, 1998-Nonrecurring Charges" and Note 10 of Notes to
Maxim's Consolidated Financial Statements.
(3) Represents a charge of $500,000 related to the merger with GCO, which was
accounted for as a pooling-of-interests.
(4) Represents a charge of $4.9 million related to the mergers with Image and
Bailey & Roberts Flooring, Inc. which were accounted for as
poolings-of-interests.
(5) Includes revenues generated from manufactured carpet, fiber and PET sales.
(6) EBITDA, as adjusted, is defined as earnings before interest; taxes;
depreciation; amortization; other, net; gain on sale of Image and
nonrecurring charges. While EBITDA should not be construed as a substitute
for operating income or as a better measure of liquidity than cash flows from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is a measure commonly used in Maxim's
industry and is included herein because management believes it is useful and
provides additional information with respect to the ability of Maxim to meet
future debt service, capital expenditures and working capital requirements.
EBITDA, as adjusted, reported above excludes nonrecurring charges of
$500,000, $6.6 million, $4.9 million and $23.7 million for fiscal 1995, 1996,
1997 and 1999, respectively, and extraordinary charges of $785,000 and
$377,000 in fiscal 1998 and 1999, respectively.
29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF MAXIM, INCLUDING THE NOTES THERETO CONTAINED IN
THIS ANNUAL REPORT ON FORM 10-K.
GENERAL
From fiscal 1991 through fiscal 1994, Maxim's operations consisted of
selling floor covering products, securing franchisees and brokering the
purchase of floor covering products, principally carpet, from major suppliers
on behalf of its franchisees. During this period, Maxim derived the majority
of its revenues and operating profits from sales of floor covering products,
franchise fees and royalties, as well as fees from the provision of various
services to the franchisees. In May 1994, Maxim commenced a strategy of
acquiring independent floor covering retailers, with the goal of building a
network of Company-owned stores in addition to its franchise network. This
acquisition program included selected CarpetMAX franchises, other independent
dealers and GCO, Inc. (accounted for as a pooling-of-interests).
In April 1995, Maxim commenced opening Company-owned stores to
expand its market share. Accordingly, Maxim's results of operations since
that date reflect the costs and expenses associated with the new store
openings.
During the year ended January 31, 1999, Maxim acquired the retail
store assets of Shaw for consideration of 3,150,000 shares of Maxim's common
stock valued at $55.2 million, an $18.0 million promissory note, adjusted to
$11.5 million after the effect of purchase price adjustments, and $25.0
million in cash. These assets were purchased effective August 9, 1998 and
included 266 retail floor covering centers. The acquisition of these assets
resulted in a substantial increase in the number of Company-owned stores. As
reflected in the following discussion, the acquisition of these assets
materially impacted Maxim's financial condition and results of operations in
fiscal 1999.
The acquired retail stores are currently being integrated into
Maxim. Maxim is evaluating the strengths of the acquired brands and is
currently making merchandise shifts to maximize the stores' potential.
Changes will include rebranding of these stores to the Flooring America
brand, adjusting merchandising fixtures and displays, closing certain stores
and reviewing current operational practices at each store.
The Shaw retail stores incurred significant losses in periods prior
to their acquisition by Maxim. These stores historically operated at a lower
profit level than those typical in the retail flooring industry. To the
extent such conditions continue before and after Maxim's integration of these
stores, such conditions may affect not only the operation of the acquired
stores, but also the consolidated results of operations of Maxim. Moreover,
the acquired stores' geographic areas and product lines overlapped with the
Company's existing stores in certain areas causing the need to close or
remodel certain stores.
In order to focus its full efforts and resources on the growth and
efficiency
30
<PAGE>
of the retail operations, Maxim sold its carpet manufacturing operations of
Image in January 1999 to Mohawk Industries, Inc., for total consideration of
$210.7 million which included the assumption of $48.1 million in debt and
short-term liabilities. With this sale of Maxim's manufacturing assets,
management believes that Maxim is positioned as a dominant pure flooring
retailer. As of October 1, 1999, Maxim's retail network consisted of 323
Company-owned stores and 1,035 franchise centers/locations.
During the year ended January 31, 1999, Maxim operated three
reportable segments: (i) retail; (ii) manufacturing; and (iii) franchise
services. The retail segment is a highly integrated chain of stores and
support centers. The manufacturing segment includes the operations of Image.
With the sale of substantially all the assets of Image in January 1999, Maxim
no longer engages in manufacturing operations. The franchise services segment
includes franchise fees, general corporate charges, interest expense and
corporate non-operating items not directly relating to the manufacturing or
retail segments. See Note 18 to Maxim's Consolidated Financial Statements for
certain financial information relating to these three segments.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1999 COMPARED TO YEAR ENDED JANUARY 31, 1998
TOTAL REVENUES. Total revenues increased 82.0% to $664.4 million for
the year ended January 31, 1999 ("fiscal 1999") from $365.1 million for the
year ended January 31, 1998 ("fiscal 1998"). The components of total
revenues, exclusive of the effect of intersegment eliminations, are discussed
below. Intersegment eliminations, which totaled $43.9 million in fiscal 1999
and $6.7 million in fiscal 1998, include sales of floor covering products by
Image to Maxim's retail stores and certain intercompany allocations.
31
<PAGE>
RETAIL REVENUE. Retail revenue primarily consists of sales of floor
covering products by Maxim's retail stores. Retail revenues increased
192.2% to $439.1 million for fiscal 1999 from $150.3 million for
fiscal 1998. The growth in retail sales of floor covering products was
primarily due to the impact of the acquisition of the retail store
assets of Shaw and, to a lesser extent, to internal growth.
MANUFACTURING REVENUE. Manufacturing revenue includes the sale of
manufactured carpet and polyethylene tereptalate ("PET"), fiber and
flake. Manufacturing revenues increased 11.1% to $197.8 million for
fiscal 1999 from $178.0 million for fiscal 1998. Sales of
manufactured carpet increased 12.6% to $171.1 million for fiscal
1999 from $151.9 million for fiscal 1998. Unit sales of manufactured
carpet increased 6.9% to 29.3 million square yards for fiscal 1999
from 27.4 million square yards in fiscal 1998. Sale of PET, fiber
and flake increased 2.3% to $26.7 million for fiscal 1999 from $26.1
million for fiscal 1998. Unit sales decreased 7.8% to 59.0 million
pounds for fiscal 1999 from 64.0 million pounds for fiscal 1998. The
average selling price per pound of PET, fiber and flake for fiscal
1999 increased by 11.0% from fiscal 1998.
FRANCHISE SERVICES REVENUE. Franchise services revenue is
generated from three primary sources: (i) one-time franchise fees
from new franchisees (revenue recognized at time of franchise
agreement signing), (ii) brokerage fees and/or royalties on certain
floor covering products purchased by the franchisee; and (iii)
franchise service fees for services such as advertising, which are
offered to franchisees. Franchise services revenue increased 64.1%
to $71.4 million for fiscal 1999 from $43.5 million for fiscal 1998.
The increase in franchise services revenue is due to, among other
things, increases in national accounts revenue, rebates from
floor covering vendors and growth in the demand for franchise
services, particularly the MAXCare franchise.
GROSS PROFIT. Gross profit increased 78.9% to $207.1 million for fiscal
1999 from $115.7 million for fiscal 1998. As a percentage of total revenue,
gross profit was 31.2% for fiscal 1999 compared to 31.7% for fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 162.9% to $220.7 million for fiscal 1999
from $84.0 million for fiscal 1998. The increase in selling and
administrative expenses reflects an overall growth in the size of Maxim's
retail base, including the retail store assets acquired from Shaw. These
stores incurred higher levels of advertising costs than other Maxim Brands.
These acquired stores also incurred selling, general and administrative
expense relating to the integration of these stores into Maxim. As a
percentage of total revenue, selling, general and administrative expenses
increased to 33.2% for fiscal 1999 from 23.0% for fiscal 1998. The increase
in selling, general and administrative expenses, both as a percentage of
revenues and operating expenses reflect Maxim's changing revenue mix.
Selling, general and administrative expenses of Maxim's retail segment, which
operates on a higher cost basis than the manufacturing segment, increased as
a percentage of selling, general and administrative expenses due to the
purchase of Shaw's retail store assets in August 1998. With the sale of
Maxim's manufacturing operations in January 1999, the retail segment will
comprise a substantial portion of Maxim's operations in future periods. Also
contributing to the increase in selling, general and administrative expenses
in fiscal 1999 were increases in advertising, bad debt and compensation
expenses.
OPERATING INCOME/LOSS. Operating income/loss decreased to a loss of
$37.4 million for fiscal 1999 from operating income of $31.8 million for
fiscal 1998. The components of operating income/loss, exclusive of the effect
of intersegment eliminations, are discussed below. Intersegment eliminations
totaled $7.3 million in fiscal 1999 and a benefit of $1.0 million in fiscal
1998.
RETAIL OPERATING INCOME/LOSS. Retail operating income/loss decreased
to a loss of $18.9 million for fiscal 1999 from income of $184,000
for fiscal 1998. This decrease was primarily due to the impact of
the acquisition of the retail store assets of Shaw. These stores
have higher selling, general and administrative expense related to
advertising, as well as, higher costs related to remodeling and
rebranding into the Maxim Brand.
MANUFACTURING OPERATING INCOME/LOSS. Manufacturing operating income
decreased 39.0% to $14.2 million for fiscal 1999 from $23.2 million
for fiscal 1998. This decrease was due to cost of sales increasing
during fiscal 1999. During fiscal 1998, the Company experienced
unusually low raw material costs related to bottle costs, while in
fiscal 1999 these bottle costs returned to historical rates.
FRANCHISE SERVICES OPERATING INCOME/LOSS. Franchise services operating
income/loss decreased to a loss of $25.3 million for fiscal 1999 from
operating income of $7.3 million for fiscal 1998. This loss is due to a
$23.7 million nonrecurring charge discussed below, as well as
increased expenses relating to, among other things, advertising, bad
debt and compensation.
INTEREST EXPENSE. Interest expense increased 117.3% to $15.1 million
for fiscal 1999 from $6.9 million for fiscal 1998 due principally to a higher
debt balances and a higher interest rate during fiscal 1999. See "Liquidity
and Capital Resources."
NONRECURRING CHARGES. During the second quarter of fiscal 1999, Maxim
32
<PAGE>
reevaluated its retail business strategy and determined to expand its focus
on its retail operations. As a result of this revised business strategy,
Maxim amended the franchise agreements for one of its franchised line of
retail stores, closed certain Company-owned stores, and wrote-down to fair
value certain retail assets, including goodwill. The Company recorded a $28.5
million charge for these nonrecurring items during the three-month period
ended July 31, 1998. The initial charge was subsequently reduced by $4.8
million, as revised estimates for claim reserves and store closure costs were
less than initially expected, offset in part by a ten store net increase in
the number of stores to be closed from the initial estimate of fifteen. The
$23.7 million pretax nonrecurring charge related to the following items:
<TABLE>
<S> <C>
Write off of vendor receivables $ 2.4 million
Claims reserves 9.5 million
Write-down of equipment 0.5 million
Store closure and carrying costs 7.1 million
Write-down of goodwill 4.2 million
--------------
Total nonrecurring charges $23.7 million
--------------
--------------
</TABLE>
During fiscal 1999, Maxim amended its franchise agreement with the
majority of its CarpetMAX franchisees, whereby Maxim established certain
requirements for more uniformity in the appearance and merchandising of the
franchised stores. As part of the amended franchise agreement, Maxim reduced
the number of floor covering vendors available to CarpetMAX franchisees.
Maxim wrote off certain vendor receivables and established a reserve to
settle claims that may arise from the franchise network. In addition, Maxim
has written down to fair value certain assets made obsolete by the amended
franchise agreement. Maxim also accrued for the costs of closing certain
Company-owned retail stores, most of which were closed as of January 31, 1999.
In connection with the reevaluation of Maxim's retail strategy
described above, Maxim analyzed the performance of its Company-owned retail
stores. This analysis indicated that significant strategic and operational
changes would be necessary in some stores, including changes in the customer
mix, location, store design, and merchandising. These factors caused management
to assess the realizability of the goodwill recorded.
The determination of goodwill impairment was made by comparing the
unamortized goodwill balance at July 31, 1998, to the estimate of the related
market's undiscounted future cash flows. The assumptions used reflected
earnings, market and industry conditions, as well as current operating plans.
The assessment indicated a permanent impairment of goodwill for certain markets.
As a consequence, such goodwill was written down to fair market value, which
resulted in a write-off of goodwill totaling $4.2 million during fiscal 1999.
33
<PAGE>
GAIN ON SALE OF IMAGE. Maxim recorded a gain on sale of Image of
$24.9 million as a result of the sale of its Image subsidiary in January
1999. With the sale of substantially all the assets of Image, Maxim no longer
engages in manufacturing operations.
INCOME TAX EXPENSE (BENEFIT). Maxim recorded an income tax benefit of
$5.7 million for fiscal 1999 compared to a $10.3 million expense for fiscal
1998. The decrease in income tax expense is due to Maxim recording a loss in
fiscal 1999 as compared to income in fiscal 1998. The fiscal 1999 effective
tax benefit of 22.8% was due to higher non-deductible costs and valuation
allowances related to state net operating losses.
EXTRAORDINARY CHARGES. The extraordinary charges recorded in fiscal
1999 and 1998 resulted from the write-off of unamortized financing fees
associated with Maxim's former revolving credit facilities. The charges amounted
to $377,000, net of an income tax benefit of $236,000 for fiscal 1999, and
$785,000, net of an income tax benefit of $546,000, for fiscal 1998.
YEAR ENDED JANUARY 31, 1998 COMPARED TO YEAR ENDED JANUARY 31, 1997
TOTAL REVENUES. Total revenues increased 17.9% to $365.1 million for
fiscal 1998 from $309.7 million for fiscal year 1997. The components of total
revenues, exclusive of the effect of intersegment eliminations, are discussed
below. Intersegment eliminations, which totaled $6.7 million in fiscal 1998
and $3.7 million in fiscal 1997, include sales of floorcovering products by
Image to Maxim's retail stores and certain intercompany allocations.
RETAIL REVENUE. Retail revenue primarily consists of sales of floor
covering products by Maxim's retail stores. Retail revenues
increased 25.1% to $150.3 million for fiscal 1998 from $120.1
million for fiscal 1997. The growth in retail sales of floor
covering products was primarily due to the impact of the acquisition
of floor covering retailers and, to a lesser extent, to increased
same-store sales. The results of these acquired retailers are not
fully reflected in the prior year periods, as such acquisitions were
made at various times during the year.
MANUFACTURING REVENUE. Manufacturing revenue includes the sale of
manufactured carpet and the sale of PET, fiber and flake.
Manufacturing revenues increased 9.4% to $178.0 million for fiscal
1998 from $162.7 million for fiscal 1997. Sales of manufactured
carpet increased 13.5% to $151.9 million for fiscal 1998 from $133.8
million for fiscal 1997. Unit sales of manufactured carpet increased
22.3% to 27.4 million square yards for fiscal 1998 from 22.4 million
square yards in fiscal 1997. Sale of PET, fiber and flake decreased
9.7% to $26.1 million for fiscal 1998 from $28.9 million for fiscal
1997. Unit sales increased 13.1% to 64.0 million pounds for fiscal
1998 from 56.6 million pounds for fiscal 1997. The unit sales
increase was the net result of an increase in PET sales, partially
offset by a decline in fiber sales, as additional pounds of fiber
were allocated to carpet manufacturing. The average selling price
per pound of PET, fiber and flake declined by 20.0% compared to the
prior year period, resulting in lower revenue despite higher
shipments during the period.
FRANCHISE SERVICES REVENUE. Franchise services revenue are generated
from three primary sources: (i) one-time franchise fees from new
franchisees (revenue recognized at time of franchise agreement
signing), (ii) brokerage fees and/or royalties on certain floor
covering products purchased by the franchisee; and (iii) franchise
service fees for services such as advertising, which are offered to
franchisees. Franchise services revenue increased 42.0% to $43.5
million for fiscal 1998 from $30.6 million for fiscal 1997. This
increase was attributable to increases in brokering activity generated
from new CarpetMax and GCO franchisees, growth in demand for franchise
services from existing CarpetMax and GCO franchisees, greater
utilization of advertising and other services offered to franchisees
and an expansion of advertising services offered by Maxim.
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GROSS PROFIT. Gross profit increased 32.4% to $115.7 million for fiscal
1998 from $87.4 million for fiscal 1997. As a percentage of total revenue, gross
profit was 31.7% for fiscal 1998 compared to 28.2% for fiscal 1997. Contributing
to the increase in gross profit as a percentage of total revenue was the
continuing change in the retail business mix of Maxim to a revenue base
consisting principally of the net sales of floor covering products and a lower
cost of raw materials at Image.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 16.0% to $84.0 million for fiscal 1998 from
$72.4 million for fiscal 1997. Increases in operating expenses on an absolute
basis reflect an overall growth in the size of Maxim's operations required to
serve the growing retail base, as well as increased selling costs at Image
related to the addition of sales people to service newly created territories.
As a percentage of total revenue, selling, general and administrative
expenses decreased to 23.0% for fiscal 1998 from 23.4% for fiscal 1997 as a
result of spreading fixed costs over a larger revenue base.
OPERATING INCOME/LOSS. Operating income/loss increased 212.7% to
$31.8 million for fiscal 1998 from $10.2 million for fiscal 1997. The
components of operating income/loss, exclusive of the effect of intersegment
eliminations, are discussed below. Intersegment eliminations were a benefit
of $1.0 million in fiscal 1998 and a $50,000 loss in fiscal 1997.
RETAIL OPERATING INCOME/LOSS. Retail operating income increased to
$184,000 for fiscal 1998 from a loss of $396,000 for fiscal 1997.
This increase was primarily due to the impact of the acquisition of
floor covering retailers.
MANUFACTURING OPERATING INCOME/LOSS. Manufacturing operating income
increased 167.2% to $23.2 million for fiscal 1998 from $8.7 million
for fiscal 1997. This increase was due to cost of sales decreasing
during fiscal 1998. During fiscal 1998, the Company experienced
unusually low raw material costs related to bottle costs.
FRANCHISE SERVICES OPERATING INCOME/LOSS. Franchise services operating
income increased 282.9% to $7.3 million for fiscal 1998 from $1.9
million for fiscal 1997. This increase is related to the revenue growth
of franchise services.
INTEREST EXPENSE. Interest expense decreased to $6.9 million for
fiscal 1998 from $7.0 million for fiscal 1997 due principally to a reduction in
debt of approximately $47.9 million with the net proceeds from a public offering
in February 1997. In October 1997, Maxim issued $100 million of 9-1/4% senior
subordinated notes, which increased interest expense in the last quarter of
fiscal 1998.
INCOME TAX EXPENSE. Maxim recorded income tax expense of $10.3 million
for fiscal 1998 compared to $1.9 million for fiscal 1997. The increase in tax
expense is due to higher net income for fiscal 1998, as compared to fiscal 1997.
The effective tax rate for fiscal 1998 was 39.0%.
EXTRAORDINARY CHARGE. An extraordinary charge was recorded in fiscal
1998 for the write-off of unamortized financing fees associated with Maxim's
credit facility, which was replaced during fiscal 1998. The resultant one-time
charge amounted to $785,000, net of an income tax benefit of approximately
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$546,000.
SEASONALITY
Historically, Maxim's retail floor covering sales are subject to some
seasonal fluctuation typical to this industry, with higher sales occurring in
the summer and fall months during Maxim's second and third quarters, and lower
sales occurring during the fourth quarter holiday season. Increases occur in the
second quarter as construction schedules increase during the summer, and the
largest increase occurs in the third quarter as a consequence of a combination
of ongoing construction and fall and pre-Christmas home remodeling. See Note 20
of Notes to Consolidated Financial Statements included elsewhere herein for
summary quarterly data.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Maxim's primary capital requirements are for new store
openings and working capital. Maxim historically has met its capital
requirements through a combination of cash flow from operations, net proceeds
from the sale of equity and debt securities, bank lines of credit,
disposition of assets, and standard payment terms from suppliers.
STOCK REPURCHASE PROGRAM. In March 1997, the Board of Directors of
Maxim authorized a stock repurchase program pursuant to which Maxim has
periodically repurchased shares of its common stock in the open market. As of
October 1, 1999, Maxim had repurchased an aggregate of 2.4 million shares of
common stock in the open market for $34.8 million. These purchases were
financed from borrowings under Maxim's revolving credit facility and cash
balances. As discussed below, the ability of Maxim to repurchase its common
shares is limited by certain restrictions contained in the indenture relating
to Maxim's senior subordinated notes. See "--Senior Subordinated Notes."
SALE OF IMAGE. On January 29, 1999, Maxim sold substantially all the
assets of its Image subsidiary to Aladdin Manufacturing Corporation, a wholly
owned subsidiary of Mohawk Industries, Inc. This transaction was valued at
approximately $210.7 million, including the assumption of $30.0 million in
related debt and $18.1 million in short-term liabilities. Proceeds from the
sale were used to retire bank indebtedness incurred as a result of the
acquisition of the Shaw retail network.
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Under the terms of the indenture governing Maxim's senior
subordinated notes, Maxim is required to invest the proceeds from the sale of
Image to repay senior debt and in capital expenditures, properties,
inventories and other assets that will be used in Maxim's business.
Approximately $84.5 million of the net proceeds from the sale of Image was
applied to repay Maxim's senior credit facility. Maxim intends to apply the
remaining net proceeds in a manner consistent with the requirements of the
indenture. To the extent that proceeds are not so invested within 365 days of
the sale of Image (and exceed $10.0 million), Maxim is required to use such
excess proceeds to make an offer to purchase outstanding notes at a price
equal to 100% of the principal amount plus accrued interest.
CREDIT FACILITY. On May 18, 1999, Maxim entered into an amended and
restated credit facility, which provides for aggregate commitments of $75
million. The credit facility consists of a revolving facility that matures
three years from the closing of the credit facility. Borrowings under the
amended credit facility are secured by accounts receivable, inventories,
certain real and personal property, and certain intangible assets of Maxim
and its subsidiaries, as well as the capital stock of all of its
subsidiaries. As additional collateral security for the amended credit
facility, Maxim has established a cash collateral account with the lenders.
As of October 1, 1999 the cash collateral account balance was $41.9 million.
As of October 15, 1999, the Company had $10.3 million available under the
revolver. Amounts outstanding under the amended credit facility bear interest
at various variable rates. The amended credit facility contains a number of
covenants customary for credit transactions of this type and requires Maxim
to meet certain financial ratios. Because of Maxim's violation of various
covenants (principally related to failures to provide required financial
information and other documentation), certain events of default exist under
the amended credit facility. Maxim and its senior lenders have entered into a
forbearance agreement with respect to such events of default, which
forbearance currently extends to November 15, 1999. Maxim is currently in
discussions with its senior lenders to amend or replace its current credit
facility. The negotiations involve enhanced credit availability, a new
maturity date and improved advance ratios on existing collateral.
SENIOR SUBORDINATED NOTES. On October 16, 1997, Maxim issued $100
million of 9-1/4% Notes due 2007 (the "Senior Notes"). The net proceeds to
Maxim from the offering of the Senior Notes were approximately $96 million
net of an initial issue discount and fees and related costs. Maxim used the
net proceeds from the offering of the Senior Notes to repay all borrowings
outstanding under its revolving credit facility of approximately $82.7
million and for general corporate purposes, including capital expenditures.
Each of Maxim's operating subsidiaries has fully and unconditionally
guaranteed the Senior Notes on a joint and several basis. The guarantor
subsidiaries comprise all of the direct and indirect operating subsidiaries
of Maxim. Maxim has not presented separate financial statements and other
disclosures concerning the guarantor subsidiaries because management has
determined that such information is not material to investors. There are no
significant restrictions on the ability of the guarantor subsidiaries to make
distributions to Maxim.
Maxim is currently in default of the restricted payment covenant
contained in the Indenture (the "Indenture") pursuant to which the Senior
Notes were issued. The default occurred on September 3, 1998 when Maxim
repurchased shares of its common stock in the open market pursuant to its
ongoing stock repurchase program.
On November 12, 1998, Maxim notified the Trustee under the
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Indenture of its default of the restricted payment covenant in the Indenture.
In accordance with the terms of the Indenture, the Trustee on November 17,
1998 notified Maxim that such default would become an event of default on
December 17, 1998 (30 days after the date of the Trustee's notice to Maxim)
if not cured or waived prior to that date. To date, Maxim has not been able
to obtain the consent of the Noteholders for a waiver of this covenant
violation. Accordingly, the Trustee or the holders of not less than 25% in
aggregate principal amount of Senior Notes outstanding may declare all unpaid
principal of, premium, if any, and accrued and unpaid interest of all Notes
to be due and payable.
Because either the Trustee or the holders of not less than 25% in
aggregate principal amount of Senior Notes outstanding may accelerate payment
of the Senior Notes, the Senior Notes are classified as a current liability
on Maxim's January 31, 1999 balance sheet. If Maxim receives the requisite
consent to the waiver from the Senior Noteholders, however, the Senior Notes
will again be classified as long-term debt of Maxim.
In an effort to resolve the pending default of the Senior Notes,
Maxim has reached an agreement in principle with an ad hoc committee
consisting of Noteholders who own a majority of the principal amount of the
outstanding Senior Notes. The agreement in principle provides for Maxim to
commence, on or before October 31, 1999, an offer to purchase not less than
$40.0 million of Senior Notes at a purchase price of 102%, plus accrued and
unpaid interest and other fees and charges. Maxim will pay a cash consent fee
of $50 per $1,000 principal amount of Senior Notes to those Noteholders who
consent to the default waiver and whose Senior Notes are not purchased by
Maxim.
The following additional terms would apply to Senior Notes which are not
purchased by Maxim:
- The interest rate will increase from 9-1/4% per annum to 12-3/4% per
annum and will increase by 25 basis points on October 15, 2000 and
further increase every six months thereafter (increasing instead by
50 basis points if the bond rating assigned to the Senior Notes by
Standard & Poor's is less than "B-");
- The Senior Notes will be secured by a second lien on certain assets;
- Maxim will, on an annual basis beginning on February 1, 2001,
make an offer to purchase not less than $10.0 million of outstanding
Senior Notes at a purchase price of 102%, plus accrued and unpaid
interest and other fees and charges (increasing to 103% if the bond
rating assigned to the Senior Notes by Standard & Poor's is less
than "B");
- Maxim will offer to purchase any Senior Notes which remain
outstanding on October 15, 2002 at a price of 106.375%, plus accrued
and unpaid interest and other fees and charges, and
- Maxim will maintain a fixed charge coverage ratio to be determined.
Consummation of the transactions contemplated by the agreement in
principle is subject to, among other things, negotiation of an amended or
replacement senior credit facility acceptable to the Noteholders, delivery to
Noteholders of definitive solicitation materials, receipt of consents from
Noteholders representing at least a majority in aggregate principal amount of
outstanding Senior Notes, and certain other customary conditions. Maxim
expects to complete the transactions contemplated by the agreement in
principle during the fourth quarter of fiscal 2000. There can be no assurance
that such a waiver will ultimately be granted. If a waiver is not obtained by
Maxim, repayment of the Senior Notes may be accelerated, as discussed above.
SYNTHETIC LEASE FINANCING. Maxim has established a $10 million
synthetic lease facility with a lending group with amounts outstanding of
approximately $5.0 million as of October 1, 1999. Under the synthetic lease
facility, which is scheduled to mature no later than November 2003, Maxim has
the ability to direct the lender group to make loans to First Security Bank,
National Association, in its capacity as the co-owner-trustee under the
facility, for acquisition, development or expansion of Maxim's flooring
center locations, which financed locations are then leased back by the
co-owner-trustee to Maxim or a designated subsidiary. Maxim has guaranteed
repayment of the amounts outstanding under the facility. The facility
contains various financial and nonfinancial covenants. As of January 31,
1999, Maxim was not in compliance with certain of these covenants and Maxim
obtained a waiver from the lenders under the synthetic lease facility. These
lenders waived the noncompliance and forfeited their right to accelerate
payment of amounts outstanding under the facility because of such
noncompliance.
OTHER DEBT. As of October 1, 1999, Maxim also had approximately
$12.1 million of debt outstanding under various term loans at interest rates
averaging 8.75%.
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GOING CONCERN. The Consolidated Financial Statements of Maxim have
been presented on a going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
As of January 31, 1999, Maxim was in default of the restricted
payment covenant contained in the Indenture pursuant to which the Senior
Notes were issued. See "--Senior Subordinated Notes." As of October 15, 1999,
Maxim's available borrowings under its senior credit facility plus cash on
hand were not sufficient to repay the Senior Notes if declared due and payable.
This uncertainty has led Maxim's independent public accountants to
include a paragraph in their report on Maxim's Consolidated Financial
Statements for the year ended January 31, 1999, that questions Maxim's
ability to continue as a going concern. See Note 1 to Maxim's Consolidated
Financial Statements included elsewhere herein.
Maxim has reached an agreement in principle with the holders of the
Senior Notes to obtain the requisite waivers of the default. See "--Senior
Subordinated Notes." Maxim is also in negotiations with its senior lenders to
amend its senior credit facility to allow for enhanced availability, an
extended maturity date, and improved advance ratios on existing collateral.
CONTINGENCIES. Since the May 18, 1999 announcement that Maxim would
be restating financial results for fiscal 1999 and certain of the quarters
therein, eleven lawsuits claiming to be class actions have been filed against
Maxim and certain of its current and former executive officers and directors.
In addition, the Securities and Exchange Commission commenced an informal
inquiry in connection with the matters relating to the restatement. See "Item
1. Business--Risk Factors" and "Item 3. Legal Proceedings."
CASH FLOWS. During fiscal 1999, operating activities used $6.7 million
compared to $3.2 million used in fiscal 1998. The increase in cash used in
operating activities resulted primarily from an increase in accounts receivable
and inventories. The increase in accounts receivable and inventories was mainly
due to higher sales of floor covering products to franchisees and other carpet
retailers.
During fiscal 1998, operating activities used $3.2 million compared to
$17.8 million provided in fiscal 1997. The decrease in cash provided by
operating activities resulted primarily from an increase in accounts receivable
and inventories. The increase in accounts receivables and inventories was mainly
due to higher sales of floor covering products to franchisees and other carpet
retailers.
During fiscal 1999, investing activities provided $83.3 million
compared to using $49.0 million for fiscal 1998. The change is primarily due to
the sale of Image offset by the purchase of CarpetsPlus and the retail store
assets of Shaw.
During fiscal 1998, investing activities used $49.0 million compared to
$18.7 million for fiscal 1997. The increase is primarily due to an increase in
capital expenditures relating to manufacturing operations, the purchase of
carpet retailers, and the purchase of real estate for the expansion of retail
stores.
During fiscal 1999, financing activities used $15.6 million compared
to $74.6 million provided in fiscal 1998. This decrease is primarily due to
proceeds received from the issuance of common stock in a public offering and
the issuance of senior subordinated notes in fiscal 1998. No such financing
activities occurred in fiscal 1999.
During fiscal 1998 financing activities provided $74.6 million compared
to $3.1 million provided in fiscal 1997. This increase is primarily due to
proceeds received from the issuance of common stock in a public offering and the
issuance of senior subordinated notes, partially offset by Maxim's repurchase of
common stock and repayment of amounts outstanding under its credit facilities.
CAPITAL EXPENDITURES. Maxim anticipates that it will require
approximately $30.0 million for fiscal 2000, of which approximately $20.0
million has been spent through October 1, 1999, to (i) rebrand its various
retail formats under the singular Flooring America name, including signage
and interior store changes, (ii) reconfigure existing stores including
certain of the stores acquired from Shaw, and (iii) upgrade its management
information systems.
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RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 98-1 ("SOP 98-1"),
"Accounting for Costs of Computer Software Developed or Obtained for Internal
Use". SOP 98-1 requires capitalization of certain costs of internal-use
software. Maxim adopted this statement in the first quarter of fiscal 2000
and has determined that it will have no material impact on the financial
statements.
In April 1998, the AICPA issued Statement of Position 98-5 ("SOP
98-5"), "Reporting on the Costs of Start-Up Activities," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-5 requires
entities to expense certain start-up costs and organization costs as they are
incurred. Maxim does not expect SOP 98-5 to have a material impact on Maxim's
financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 "Accounting for Derivatives Instruments and Hedging Activities," which
is effective for fiscal years beginning after June 15, 2000. The statement
establishes accounting and reporting standards for derivative instruments and
transactions involving hedge accounting. Maxim does not anticipate that this
statement will have a material impact on its financial statements.
YEAR 2000
Maxim has conducted an assessment of its computer systems to
identify the systems that could be affected by the "Year 2000" issue, which
results from computer programs being written using two digits rather than
four to define the applicable year.
Maxim's Year 2000 readiness efforts are being undertaken on a
project team basis with centralized oversight from an external project
management firm. Each project team has developed and is implementing a plan
to minimize the risk of a significant negative impact on its operations. The
teams are performing an inventory of Year 2000 components (software, hardware
and other equipment), assessing which components may expose Maxim to business
interruptions, reprogramming or replacing components as necessary, testing
each component, and returning each component to production. Maxim is
utilizing predominantly internal resources to reprogram, replace, or test
Maxim's software for Year 2000 compliance. Maxim believes the readiness
effort related to critical systems will be completed by the end of the third
fiscal quarter ending November 6, 1999, which is prior to any anticipated
impact on its operating systems. Maxim believes its other systems will be
Year 2000 compliant by December 31, 1999.
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Maxim has initiated formal communications with all of its
significant suppliers to determine the extent to which Maxim's operations and
systems are vulnerable to third parties' failure. Key vendor initiative
documentation has been received from vendors addressing all Year 2000
compliance issues. No significant business disruptions are expected. Maxim
presently believes that with the planned conversion to new software and
hardware and the planned modifications to existing software and hardware, the
effects of the Year 2000 issue will be timely resolved. All other equipment,
machinery and systems have been identified, replaced or upgraded as needed.
Maxim's contingency plans at the retail store level include the
temporary use of manual processes, which Maxim occasionally utilizes during
system maintenance. The manual processes have been documented and tested with
no significant revenue loss anticipated. A business contingency plan has been
developed utilizing five professional project managers to implement the plan.
The plan includes a business systems implementation schedule listing all
issues related to the Year 2000. The issues include identification of changes
needed, costs, completion dates and staffing.
Maxim currently believes the costs to remediate Year 2000 issues are
approximately $2.8 million, of which $189,000 had been expensed as of January
31, 1999, and approximately $1.6 million remains to be spent as of October 1,
1999. All costs associated with analyzing the Year 2000 issue or making
conversions to existing software are being expensed as incurred. The costs to
Maxim of Year 2000 compliance and the date on which Maxim believes it will
complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. There can be no assurance that
these estimates will be achieved and actual results could differ materially
from those anticipated.
Risks include the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant hardware, software,
computer codes and similar uncertainties. Such risks could result in a system
failure of miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Also, there is the risk that the
systems of other companies upon which Maxim's operations and systems rely will
not be converted timely and will have an adverse effect on Maxim's results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE SENSITIVITY. Maxim has limited exposure to market
volatility in interest rates. As of January 31, 1999, exposure from interest
rates was not material to Maxim's financial position, results of operations,
or cash flows, as $99.4 million of Maxim's $116.3 million of debt has been
fixed at a rate of 9 1/4% until 2007. In the event that the 9 1/4% notes are
called by the noteholders or the Company elects to purchase the Senior Notes,
the Company will be subject to interest rate volatility based on the market's
forward curve. The Company also has two interest rate swap agreements for a
total notional amount of less than $2.5 million. These swap agreements were
terminated in May 1999. Based on Maxim's low overall floating interest rate
exposure at January 31, 1999, a near-term 100 basis point change in interest
rates would not materially affect Maxim's financial statements.
COMMODITY PRICE AND FOREIGN CURRENCY SENSITIVITY. Increases or
decreases in the market price of carpet, hardwood and vinyl flooring may
affect the valuation of Maxim's inventories and purchases and, accordingly,
Maxim's earnings. Maxim does not use futures or options contracts to manage
volatility with respect to this exposure. The potential increase in cost of
inventories and purchases based on commodity activity is generally also
reflected as a corresponding increase in Maxim's prices, and therefore, is
not material to Maxim's financial position and results of operations.
The majority of Maxim's sales and purchases are denominated in
U.S. dollars and it is Maxim's policy to eliminate short-term exchange
rate volatility in the event foreign currency transactions occur. As of
January 31, 1999, there was no exposure to foreign currency exchange rate
volatility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this report:
Report of Independent Public Accountants
Consolidated Balance Sheets - January 31, 1999 and 1998
Consolidated Statements of Operations - Years ended January
31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Years ended
January 31, 1999, 1998 and 1997
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Consolidated Statements of Cash Flows - Years ended January
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of Maxim are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH MAXIM
<S> <C> <C>
Ronald H. McSwain................ 57 Chairman of the Board
A.J. Nassar...................... 43 President, Chief Executive Officer and Director
Thomas P. Leahey................. 38 Executive Vice President - Finance, Treasurer and Director
Leonard H. Thill................. 45 Chief Financial Officer and Secretary
Karen A. McClelland.............. 40 Executive Vice President - Customer Service
Paul D. Bumblauskas.............. 42 Executive Vice President - Operations
Paul R. Renn..................... 44 Executive Vice President - Sales and Marketing
Mack Hale........................ 59 Executive Vice President - Merchandising
Sandra Fowler.................... 37 Executive Vice President - Administration
Michael L. DeGrace............... 54 President - Franchise Divisions
Michael Cherico.................. 41 President - GCO Carpet Outlet Division
Ronald E. Dunn................... 44 President - CarpetsPlus Division
Joseph J. Jillson ............... 56 Director
Richard A. Kaplan ............... 54 Director
J. Michael Nixon ................ 54 Director
Larry T. Solari ................. 57 Director
Herb Wolk ....................... 67 Director
</TABLE>
The executive officers of Maxim are appointed by the Board of Directors
and hold office at the pleasure of the Board.
RONALD H. MCSWAIN has served as Chairman of the Board of Maxim since
June 1999. Since 1968, Mr. McSwain has served as the President and owner of
McSwain's Carpets, a retail floorcovering business. Mr. McSwain serves as a
director of Johnson Investment Mutual Fund Trust, an investment company.
A.J. NASSAR has served as President, Chief Executive Officer and a
Director of Maxim since December 1990. From 1986 to 1990, Mr. Nassar served as
Vice President and Chief Operating Officer of Kenny Carpet and Linoleum, Inc., a
multistore retail carpet chain in western New York. He was previously employed
in the carpet manufacturing industry by Trend Carpet Mills and Queen Carpet
Mills, where he was responsible for sales of floor covering products to floor
covering retailers.
THOMAS P. LEAHEY has served as Executive Vice President - Finance of
Maxim since August 1993, as Treasurer since July 1994 and as a director since
November 1998. Mr. Leahey was employed by the Wachovia Bank of Georgia, N.A.
from September 1991 to August 1993 as a Vice President in the Corporate
Banking Division. Mr. Leahey's banking career began in January 1984 and
included service with Barnett Bank of Central Florida, N.A. and, from March
1987 to July 1991, with Fleet/Norstar Financial Group.
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LEONARD H. THILL has served as Chief Financial Officer and Secretary
of Maxim since September 1999. Mr. Thill served in various capacities with
the United States Securities and Exchange Commission from 1987 to September
1999, including most recently as Assistant Chief Accountant with the
Commission's Division of Enforcement.
KAREN A. MCCLELLAND has served as Executive Vice President -
Customer Service of Maxim since June 1999. Ms. McClelland served as Vice
President - Retail of Maxim from April 1999 to June 1999. Prior to joining
Maxim, Ms. McClelland served as President of McClelland Associates, Inc., a
consulting firm, from 1995 to March 1999. Ms. McClelland served as Vice
President of Operations/Technology of Sound Floor Coverings, Inc., a floor
covering retailer, from 1993 to 1994, and was a Senior Manager for the
accounting firm of Price Waterhouse from 1988 to 1993.
PAUL D. BUMBLAUSKAS has served in various capacities with Maxim
since June 1998, including most recently as Executive Vice President -
Operations. Mr. Bumblauskas served as Regional Vice President of Shaw
Industries, Inc., a floor covering manufacturer, from December 1995 to June
1998, as Regional Vice President of Carpetland USA, Inc., a floor covering
retailer, from July 1994 to December 1995, and was a partner with SV
Associates, an accounting firm, from April 1992 to July 1994.
PAUL R. RENN has served in various capacities with Maxim since
October 1997, including most recently as Executive Vice President - Sales and
Marketing. Mr. Renn served as Sales Manager-Southwest Region of Abbey
Carpets, a floor covering cooperative, from April 1995 to October 1995, and
as General Manager-Texas of Carpet Exchange, a floor covering retailer, from
September 1989 to March 1995.
MACK HALE has served in various capacities with Maxim since May
1993, including Executive Vice President - Merchandising since April 1998.
From January 1992 to May 1993, Mr. Hale served as Executive Vice President of
Unituft, Inc., a floor covering marketing support company. Mr. Hale served as
Vice President of Sales and Director of Marketing of Mohawk Industries, Inc.,
a major carpet manufacturer, from 1983 to 1991. At Mohawk, Mr. Hale was
responsible for all marketing and promotional functions. Prior to his
employment at Mohawk, Mr. Hale served as Vice President, Sales of Horizon
Industries, Inc., a major carpet manufacturer.
SANDRA FOWLER has served as Executive Vice President - Administration
of Maxim since September 1993. From 1982 to September 1993, Ms. Fowler served
in various capacities with Shaw, the nation's largest carpet manufacturer,
including Manager of Corporate Accounts, where she acted as the liaison between
that company and its corporate customers in all areas, ranging from sales to
administration.
MICHAEL L. DEGRACE has served as President - Franchise Divisions of
Maxim since February 1999. From 1997 to January 1999, Mr. DeGrace served as Vice
President - Sales and Marketing of Image Industries, Inc., which was a
wholly-owned subsidiary of Maxim from August 1996 to January 1999. Mr. DeGrace
served as Vice President of Sales and Marketing of Beulieu of America, Inc., a
carpet manufacturer, from 1995 to 1996, and served in various capacities,
including most recently as Regional Vice President, of Shaw Industries, Inc., a
carpet manufacturer, from 1979 to 1995.
MICHAEL CHERICO has served in various capacities with Maxim since
1993, including most recently as President of its GCO Carpet Outlet Division.
RONALD E. DUNN has served as President of Maxim's CarpetsPlus
Division since September 1998. Mr. Dunn served as Chairman of the Board and
Chief Executive Officer of CarpetsPlus of America, LLC, a national resource
company specializing in the floor covering industry, from 1997 until
September 1998. Mr. Dunn served as Vice President of Sales of Mohawk
Industries, Inc., a floor covering manufacturer, from 1990 to 1996.
JOSEPH J. JILLSON has served as a director of Maxim since November
1998. Mr. Jillson has served as an executive officer and co-owner of Q.I.
Corporation, a building materials contractor, since 1967.
RICHARD A. KAPLAN has served as Chairman Emeritus of Maxim since
February 1995 and served as Chairman of the Board of Maxim from 1989 to
February 1994. Mr. Kaplan founded Maxim in 1989. Mr. Kaplan has also served
as President and Chief Executive Officer of Pictometry International, LLC, a
technology company, since August 1999. Mr. Kaplan served as Chairman of the
Board of Worksmart International, Inc., a personnel consulting company, from
1995 to 1998, and as Chairman of the Board of Richland Industries Corp., a
retail floor covering chain based in Rochester, New York, from 1972 to 1995.
J. MICHAEL NIXON has served as a Director of Maxim since February 1996.
Mr. Nixon has served as the President and co-owner of Q.I. Corporation, a
building materials contractor, since 1967.
LARRY T. SOLARI has served as a director of Maxim since April 1999. Mr.
Solari has served as Chairman of the Board and Chief Executive Officer of BSI
Holdings, Inc., a builder services company, since 1998. Mr. Solari served as
Chairman of the Board and Chief Executive Officer of Sequential Products, Inc.,
a manufacturer in the building materials industry, from 1996 to 1997, as
President of the Building Materials Group of Domtar, Inc. from 1994 to 1996, and
as President of the Construction Products Group of The Owens - Corning Company
from 1989 to 1994. Mr. Solari is a director of Beazer Homes, Inc., a single
family homebuilder, Therma - Tru, Inc. and Pacific Coast Building Products, Inc.
43
<PAGE>
HERB WOLK has served as a director of Maxim since 1991. Mr. Wolk is the
owner and President of Cadillac Carpet Distributors and has served in various
capacities with that company since 1976.
There are no family relationships between any director or executive
officer and any other director or executive officer of Maxim.
BOARD OF DIRECTORS
The Board of Directors of Maxim currently consists of eight persons.
Maxim's Certificate of Incorporation provides that the Board of Directors shall
consist of not less than three nor more than 15 members, the precise number to
be determined from time to time by the Board of Directors. Maxim's Board of
Directors has four standing committees -- the Audit Committee, the Compensation
Committee, the Stock Option Committee and the Directors' Nominating Committee.
The Audit Committee presently consists of Richard A. Kaplan, Joseph
J. Jillson and J. Michael Nixon. The Audit Committee has been assigned the
principal functions of: (i) recommending the independent auditors; (ii)
reviewing and approving the annual report of the independent auditors; (iii)
approving the annual financial statements; and (iv) reviewing and approving
summary reports of the auditor's findings and recommendations.
The Compensation Committee presently consists of Richard A. Kaplan,
J. Michael Nixon and Herb Wolk. The Compensation Committee has been assigned
the functions of approving and monitoring the remuneration arrangements for
senior management.
The Stock Option Committee presently consists of Richard A. Kaplan and
Herb Wolk. The Stock Option Committee has been assigned the functions of
administering Maxim's 1993 Stock Option Plan and granting options thereunder.
The Directors' Nominating Committee presently consists of Richard A.
Kaplan, A.J. Nassar and Herb Wolk. The Directors' Nominating Committee has been
assigned the functions of making recommendations to the full Board for the
selection of director nominees.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Maxim's
directors, executive officers and persons who own more than 10% of the
outstanding Common Stock of Maxim, to file with the Securities and Exchange
Commission reports of changes in ownership of the Common Stock of Maxim held by
such persons. Officers, directors and greater than 10% shareholders are also
required to furnish Maxim with copies of all forms they file under this
regulation. To Maxim's knowledge, based solely on a review of the copies of such
reports furnished to Maxim and representations that no other reports were
required, during the fiscal year ended January 31, 1999 all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
shareholders were complied with, except for Richard A. Kaplan, a director of
Maxim, who failed to file on a timely basis one report relating to one
transaction and A. J. Nassar, the President and Chief Executive Officer of
Maxim, who failed to file on a timely basis one report relating to one
transaction.
Although it is not Maxim's obligation to make filings pursuant to
Section 16 of the Securities Exchange Act of 1934, Maxim has adopted a policy
requiring all Section 16 reporting persons to report monthly to the Director
of Financial Reporting of Maxim as to whether any transactions in Maxim's
Common Stock occurred during the previous month.
44
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides certain summary information for the fiscal
years ended January 31, 1999, 1998 and 1997 concerning compensation paid or
accrued by Maxim to or on behalf of Maxim's Chief Executive Officer and each of
the other five most highly compensated executive officers of Maxim during the
year ended January 31, 1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------
OTHER NUMBER OF
NAME AND ANNUAL OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDED COMPENSATION
------------------ ----- --------- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
A.J. Nassar..................... 1999 $600,000 $1,920,012 $27,591(2) 250,000 $ --
President and Chief 1998 350,012 265,000 10,750(2) 275,000 --
Executive Officer 1997 229,479 -- 10,670(2) 200,000 --
David E. Cicchinelli............ 1999(3) 177,884 152,707 -- 450,000 --
Chief Operating Officer
Thomas P. Leahey................ 1999 108,839 37,000 1,633 50,000 --
Executive Vice President, 1998 96,147 30,000 1,436 25,000 --
Finance 1997 75,762 6,195 1,125 -- --
Mack Hale....................... 1999(4) 140,768 10,000 1,962 25,000
Executive Vice President,
Merchandising
Gary F. Brugliera............... 1999(5) 119,231 -- -- 75,000 --
Executive Vice President and
Chief Financial Officer
H. Stanley Padgett.............. 1999(6) 297,180 -- -- -- 2,180
Senior Executive 1998 295,000 -- -- 25,000 10,926
Vice President 1997(7) 170,200 -- -- -- --
</TABLE>
- -------------------
(1) Except as otherwise indicated, represents Maxim's matching contribution
under its 401(k) plan.
(2) Includes auto allowance and other perquisites, in addition to Maxim's
matching contribution under its 401(k) plan.
(3) Mr. Cicchinelli joined Maxim in May 1998 and became its Chief Operating
Officer in July 1998. Mr. Cicchinelli resigned effective April 12, 1999.
(4) Mr. Hale became an executive officer of Maxim in April 1998.
(5) Mr. Brugliera joined Maxim in June 1998 and resigned effective
September 21, 1999.
(6) Mr. Padgett resigned effective January 29, 1999.
(7) Amounts indicated include compensation paid to Mr. Padgett by (i) Maxim
and Image subsequent to the acquisition of Image by Maxim on August 30,
1996 and (ii) Image for the period from June 30, 1996 to August 30, 1996.
EMPLOYMENT AGREEMENTS
A.J. NASSAR. On June 4, 1997, Maxim entered into an Employment
Agreement with A.J. Nassar, pursuant to which Mr. Nassar serves as Chief
Executive Officer of Maxim. The Employment Agreement, which was amended on
January 1, 1998, is for a term of three years, expiring on June 4, 2000, and
provides for an annual base salary of $600,000 plus an annual bonus of
$200,000 for each fiscal year in which Maxim attains certain earnings targets
established by the Board of Directors. The Employment Agreement will
automatically renew unless it is earlier terminated or either Maxim or Mr.
Nassar elects not to renew the Employment Agreement. The
45
<PAGE>
Employment Agreement provides for certain severance payments to be paid to
Mr. Nassar in the event of a change in control of Maxim. In the event of a
change in control, Mr. Nassar will be entitled, during the term of his
Employment Agreement, to terminate his employment with Maxim and, subject to
certain adjustments, to receive a lump sum cash payment equal to two years'
salary, as well as 12 months' provision of employee benefits and a pro rata
portion of his annual bonus. In the event Mr. Nassar is terminated by Maxim
without cause, he will receive during the balance of his term of employment
(not to exceed 24 months), the annual base salary which would otherwise be
payable to Mr. Nassar had he remained in the employ of Maxim. In addition,
all unvested stock options will become immediately exercisable and Mr. Nassar
will receive 12 months' provision of employee benefits and a pro rata portion
of his annual bonus. The Employment Agreement contains non-compete and
non-solicitation provisions, effective through the actual date of termination
of the Employment Agreement and for a period of two years thereafter.
LEONARD H. THILL. On September 27, 1999, Maxim entered into an
Employment Agreement with Leonard H. Thill, pursuant to which Mr. Thill
serves as Chief Financial Officer of Maxim. The Employment Agreement is for a
term of three years, expiring on September 27, 2002, and provides for an
annual base salary of $225,000 plus an annual bonus of up to 50% of his base
salary if Maxim attains certain operating and financial goals established by
Maxim's executive management team and the Compensation Committee of its Board
of Directors. The Employment Agreement will automatically renew unless it is
earlier terminated or either Maxim or Mr. Thill elects not to renew the
Employment Agreement. In the event Mr. Thill is terminated by Maxim without
cause, he will receive, for a period of 12 months thereafter, the annual base
salary which would otherwise be payable to Mr. Thill had he remained in the
employ of Maxim. In addition, all unvested stock options will become
immediately exercisable. The Employment Agreement contains non-solicitation
provisions, effective through the actual date of termination of the
Employment Agreement and for a period of three years thereafter.
H. STANLEY PADGETT. On August 30, 1996 and again on July 30, 1997,
H. Stanley Padgett entered into amendments to his employment agreement with
Image. Under the amended agreement, Mr. Padgett served as a Senior Executive
Vice President of Maxim and as the President and Chief Executive Officer of
Image. Mr. Padgett's employment agreement was assigned to Aladdin Carpets on
January 29, 1999, in connection with the sale of Image. At the same time, Mr.
Padgett resigned all positions with Maxim and Image.
COMPENSATION OF DIRECTORS
Directors of Maxim who are compensated as officers of Maxim serve
without compensation for their services as directors. All directors of Maxim
are reimbursed by Maxim for all out-of-pocket expenses reasonably incurred by
them in the discharge of their duties as directors, including out-of-pocket
expenses incurred in attending meetings of the Board of Directors and of any
committees of the Board of Directors. Certain of Maxim's outside directors
have also been granted options to purchase shares of Maxim common stock. In
addition, from time to time, certain of Maxim's outside directors assist in
conducting workshops and orientation sessions for Maxim's franchisees, for
which they customarily have been paid consulting fees of $10,000 annually.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Compensation
Committee of the Board of Directors during the year ended January 31, 1999:
Richard A. Kaplan, J. Michael Nixon, M.B. Seretean and Herb Wolk. None of the
members of the Compensation Committee has been an officer or employee of
Maxim or any of its subsidiaries. Except as set forth herein under "Item 13.
Certain Relationships and Related Transactions," there were no material
transactions between Maxim and any of the members of the Compensation
Committee during the fiscal year ended January 31, 1999.
STOCK OPTION PLAN
Maxim offers a 1993 Stock Option Plan (the "1993 Plan") for
employees who contribute significantly to the management or operation
of the business of Maxim or its subsidiaries as determined by Maxim's Board
of Directors or the committee administering the 1993 Plan. The 1993 Plan
provides for the grant of options to purchase up to 5,000,000 shares of
Common Stock at the discretion of the Board of Directors of Maxim or a
committee designated by the Board of Directors to administer the 1993 Plan.
The option exercise price must be at least
46
<PAGE>
100% (110% in the case incentive stock options granted to a holder of 10% or
more of the Common Stock) of the fair market value of the Common Stock on the
date the option is granted and the options are exercisable by the holder
thereof in full at any time prior to their expiration in accordance with the
terms of the 1993 Plan. Stock options granted pursuant to the 1993 Plan will
expire on or before (1) the date which is the tenth anniversary of the date
the option is granted, or (2) the date which is the fifth anniversary of the
date an incentive stock option is granted in the event that the option is
granted to a key employee who owns more than 10% of the total combined voting
power of all classes of stock of Maxim or any subsidiary of Maxim.
The following table provides certain information concerning
individual grants of stock options under the 1993 Plan made during the fiscal
year ended January 31, 1999 to the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
GRANTED TO EXERCISE OR PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN BASE PRICE OPTION TERM (1)
GRANTED FISCAL ($ PER EXPIRATION ------------------------
NAME (#) YEAR SHARE) DATE 5% 10%
---- ------- ------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
A.J. Nassar................... 250,000(2) 20.1 $14.25 10/14/06 $1,700,925 $4,074,025
David E. Cicchinelli.......... 250,000(3) 20.1 15.13 6/6/08 2,378,793 6,028,325
200,000(2) 16.7 14.25 10/14/06 1,360,740 3,259,220
Thomas P. Leahey.............. 50,000(2) 4.2 14.25 10/14/06 340,185 814,805
Mack Hale..................... 25,000(4) 2.1 14.25 10/14/06 170,093 407,403
Gary F. Brugliera............. 50,000(5) 4.2 15.75 6/22/08 495,254 1,255,072
25,000(4) 2.1 14.25 10/14/06 170,093 407,403
H. Stanley Padgett............ -- -- -- -- -- --
</TABLE>
- ------------------
(1) The dollar amounts under these columns represent the potential
realizable value of each grant of option assuming that the market price
of the Company's common stock appreciates in value from the date of
grant at the 5% and 10% annual rates prescribed by the SEC and therefore
are not intended to forecast possible future appreciation, if any, of
the price of Maxim's common stock.
(2) Options vest on July 31, 2006; provided, however, that options vest on
April 30, 2000 if the closing price of Maxim's common stock is greater
than $25.00 per share for any period of ten consecutive trading days
prior to April 30, 2000.
(3) Options vest in increments of 20% per year beginning on June 16, 1999
and on each June 16 thereafter until fully vested. These options
terminated upon the resignation of Mr. Cicchinelli in April 1999.
(4) Options vest on July 31, 2006; provided, however, that options vest in
increments of 25% per year beginning on April 30, 2000 and on each April
30 thereafter until fully vested if the closing price of Maxim's common
stock is greater than $25.00 per share for any period of ten consecutive
trading days prior to April 30, 2000.
(5) Options vest in increments of 20% per year beginning on June 22, 1999 and
on each June 22 thereafter until fully vested.
47
<PAGE>
The following table provides certain information concerning options
exercised during fiscal 1999 and the value of unexercised options held by the
Named Executive Officers as of January 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END AT FISCAL YEAR-END (1)
----------------------- ----------------------
ACQUIRED ON VALUE EXER- UNEXER- EXER- UNEXER-
NAME EXERCISE (#) REALIZED ($) CISABLE CISABLE CISABLE CISABLE
- ---- ------------ ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
A.J. Nassar................... -- $ -- 715,480 259,520 $7,907,311 $2,199,184
David E. Cicchinelli.......... -- -- 15,000 450,000 129,375 3,548,750
Thomas P. Leahey.............. 12,500 210,156 46,500 71,000 777,188 688,875
Mack Hale..................... 10,000 172,500 36,380 35,517 601,034 290,629
Gary F. Brugliera............. -- -- -- 75,000 -- 553,125
H. Stanley Padgett............ -- -- 171,320 -- 3,438,435 --
</TABLE>
- ---------------------------
(1) Dollar values were calculated by determining the difference between the
closing price of $22.625 per share of common stock on January 29, 1999, and
the exercise price of the options.
EMPLOYEE RETIREMENT SAVINGS PLAN
Maxim has established a savings and profit-sharing plan that
qualifies as a tax-deferred savings plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") for its salaried employees who are at least
21 years old and who have completed one year of service with Maxim. Under the
401(k) Plan, eligible employees may contribute up to 20% of their gross
salary to the 401(k) Plan or $10,000, whichever is less. Each participating
employee is fully vested in contributions made by such employee. Maxim
presently matches 25% of the amount contributed by an employee up to 6% of
the employee's salary, but Maxim's policy regarding matching contributions
may be changed annually in the discretion of the Board of Directors. All
amounts contributed under the 401(k) Plan are invested in one or more
investment accounts administered by an independent plan administrator.
48
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of October 1, 1999, with respect to (i) each
person known by Maxim to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each of Maxim's directors, (iii) each of the
Named Executive Officers (as defined herein), and (iv) all directors and
executive officers as a group. Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) TOTAL
- ---------------- --------------------- --------------
<S> <C> <C>
Joseph J. Jillson......................................... 130,000(2) *
Richard A. Kaplan......................................... 110,956 *
Thomas P. Leahey.......................................... 52,500(3) *
Ronald H. McSwain......................................... 76,900(4) *
A.J. Nassar............................................... 949,628(5) 4.8
J. Michael Nixon.......................................... 140,000 *
Larry T. Solari........................................... 40,000(2) *
Herb Wolk................................................. 200,000 1.0
Mack Hale................................................. 39,758(3) *
Gary F. Brugliera ........................................ 10,500(6) *
David E. Cicchinelli...................................... 15,000(3) *
H. Stanley Padgett........................................ 138,179(7) *
FMR Corp.................................................. 1,324,600(8) 7.0
Julian D. Saul............................................ 1,826,984(9) 9.6
Linda Saul Schejola....................................... 1,260,000(10) 6.6
All directors and executive
officers as a group (17 persons)........................ 1,882,522(11) 9.4
</TABLE>
- --------------------
*Less than one percent of outstanding shares.
(1) "Beneficial Ownership" includes shares for which an individual, directly
or indirectly, has or shares voting or investment power or both and also
includes options which are exercisable within sixty days of the date
hereof. Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 of the Securities Exchange Act
of 1934. The percentages are based upon 19,038,347 shares outstanding
as of October 1, 1999, except for certain parties who hold options to
purchase shares which are exercisable within the next 60 days. The
percentages for those parties who hold presently exercisable options are
based upon the sum of 19,038,347 shares plus the number of shares
subject to options held by them which are exercisable within the
next 60 days, as indicated in the following notes.
(2) Includes 20,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(3) Represents shares of Common Stock subject to stock options exercisable
within the next 60 days.
(4) Includes 6,000 shares of Common Stock owned by a foundation with respect
to which Mr. McSwain serves as trustee.
(5) Includes 725,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(6) Includes 10,000 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(7) Includes 125,002 shares of Common Stock subject to stock options
exercisable within the next 60 days.
(8) According to an amended Schedule 13G dated June 9, 1999 filed with the
Commission by FMR Corp. ("FMR"),
49
<PAGE>
Edward C. Johnson III and Abigail P. Johnson. Mr. Johnson is the Chairman
of FMR and the owner of 12% of the aggregate outstanding voting stock of
FMR and Ms. Johnson is a director of FMR and the owner of 24.5% of the
aggregate outstanding voting stock of FMR and each may be deemed to be
members of a controlling group with respect to FMR. The Schedule 13G
states that (i) Fidelity Management & Research Company, a registered
investment adviser and a wholly-owned subsidiary of FMR ("Fidelity"), is
the beneficial owner of 1,253,700 shares of Common Stock as a result of
acting as investment advisor to various registered investment companies
(the "Funds"), (ii) Mr. Johnson, FMR (through its control of Fidelity)
and the Funds each has sole power to dispose of the 1,253,700 shares
owned by the Funds, and (iii) the power to vote all of the 1,253,700
shares resides with the Board of Trustees of the Funds. The Schedule 13G
further states that (i) Fidelity Management Trust Company ("Fidelity
Management"), a wholly-owned subsidiary of FMR and a bank as defined in
Section 3(a)(6) of the Exchange Act, is the beneficial owner of 70,900
shares of Common Stock as a result of it serving as investment manager
of the institutional account(s) and (ii) each of Mr. Johnson and FMR
(through its control of Fidelity Management) has sole voting and
dispositive power over 70,900 shares of Common Stock owned by such
institutional account(s). Maxim makes no representation as to the
accuracy or completeness of the information reported. The address of FMR
Corp. is 82 Devonshire Street, Boston, Massachusetts 02109.
(9) According to a Schedule 13G dated October 12, 1998 filed with the
Commission by Mr. Saul, his beneficial ownership (i) includes 18,947
shares owned individually by Mr. Saul and 1,808,037 shares owned by a
trust of which Mr. Saul is the sole trustee, (ii) excludes 63,016 shares
owned by Mr. Saul's spouse, with respect to which he disclaims
beneficial ownership. Maxim makes no representation as to the accuracy
or completeness of the information reported. Mr. Saul's address is 702
Mt. Sinai Road, Dalton, Georgia 30720.
(10) According to a Schedule 13G dated October 12, 1998 filed with the
Commission by Ms. Schejola, her beneficial ownership includes 12,631
shares owned individually by Ms. Schejola and 1,247,369 shares owned by
a trust of which Ms. Schejola is the sole trustee. Maxim makes no
representation as to the accuracy or completeness of the information
reported. Ms. Schejola's address is Via Bottazzi, 2, 15057 Tortona (AI),
Italy.
(11) Includes an aggregate of 929,038 shares of Common Stock subject to
stock and call options exercisable within the next 60 days.
50
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of October 1, 1999, a total of $935,000 was owed to Maxim by
A.J. Nassar, Maxim's President and Chief Executive Officer. During fiscal
1999, loans totaling $850,326 were made to Mr. Nassar by Maxim. These loans
accrued interest at an annual rate of 9 1/4% and were repaid by Mr. Nassar
during fiscal 1999. The largest aggregate amount of indebtedness outstanding
from Mr. Nassar to Maxim since the beginning of fiscal 1999 was $1.5 million.
All amounts currently owed by Mr. Nassar bear interest at an annual rate of
8%. Mr. Nassar has agreed to repay all outstanding obligations to Maxim in
annual installments of $200,000 per year (plus accrued interest) on each
March 1 until maturity. In connection therewith, the Board of Directors of
Maxim has approved the payment to Mr. Nassar of an annual bonus in an amount
sufficient to allow Mr. Nassar to pay the annual installments on this loan.
All borrowings were made by Mr. Nassar to fund certain of his personal
expenses. No additional loans will be made by Maxim to Mr. Nassar.
In January 1998, Maxim loaned $100,000 to Herb Biggers, who at the
time was serving as Maxim's Chief Operating Officer. This loan accrued
interest at an annual rate of 8.5%, payable monthly, with principal due on
demand. This loan was made to Mr. Biggers to fund certain of his personal
expenses. The maximum aggregate amount of indebtedness outstanding from Mr.
Biggers to Maxim since the beginning of fiscal 1999 was $102,000. Upon the
termination of Mr. Biggers' employment in June 1998, Maxim repurchased
certain stock options, previously granted to Mr. Biggers for $453,000, which
represents the aggregate spread between the fair market value of Maxim's
common stock on that date and the exercise price of these stock options. In
July 1998, Mr. Biggers used a portion of the proceeds from this transaction
to repay his debt to Maxim.
In May 1998, Maxim loaned $100,000 to Sandra Fowler, the Executive
Vice President - Administration of Maxim. This loan accrued interest at an
annual rate of 8.5%, payable monthly, with principal due on demand. This loan
was made to Ms. Fowler to fund certain of her personal expenses. This loan
was repaid by Ms. Fowler in December 1998.
In September 1998, Maxim loaned $100,000 to David E. Cicchinelli,
who at the time was serving as Maxim's Chief Operating Officer and a
director. This loan bears interest at an annual rate of 8.5%, payable
monthly, with principal due on demand. The loan was made to Mr. Cicchinelli
to fund certain of his personal expenses. As of October 1, 1999,
$109,000, including accrued interest, remained outstanding on this loan.
Herb Wolk and Ronald H. McSwain, directors of Maxim, each own a
floor covering retailer which is a franchisee of Maxim. During fiscal 1999,
Mr. Wolk's floor covering company paid less than $1,000 to Maxim for
miscellaneous items and received $128,000 in rebates and other consideration
from Maxim. During fiscal 1999, Mr. McSwain's floor covering company paid
$11,000 to Maxim for various services and received $567,000 in rebates and
other consideration from Maxim.
Julian D. Saul, who owns 9.6% of the outstanding shares of Maxim
common stock, serves as President and a director of Shaw Industries, Inc.,
one of Maxim's suppliers of floor covering products. During fiscal 1999,
Maxim purchased approximately $84 million of floor covering products from
Shaw and received approximately $12 million of rebates and other vendor
support payments from Shaw. In addition, in connection with the acquisition
of the retail store assets of Shaw in August 1998, Maxim issued to Shaw a
promissory note in the principal amount of $18 million. This note is due
November 1999 and bears interest at a rate equal to the rate paid by Maxim on
its senior credit facility. Approximately $12 million remained outstanding on
this note as of October 1, 1999.
The ability of Maxim to enter into future transactions with
affiliates is limited by the terms of its Senior Notes and Senior Credit
Facility.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
1. FINANCIAL STATEMENTS. The following financial statements and
accountants' reports have been filed as Item 8 in Part II of this Form 10-K:
Report of Independent Public Accountants
Consolidated Balance Sheets - January 31, 1999 and 1998
Consolidated Statements of Operations - Years ended January
31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity -
Years ended January 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years
ended January 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedule of The Maxim Group, Inc.
for the years ended January 31, 1999, 1998 and 1997 is included pursuant to
Item 8 in Part II of this Form 10-K:
Report of Independent Public Accountants on Schedule . . . . . . .. S-1
Schedule II Valuation and Qualifying Accounts . . . . . . . . S-2
52
<PAGE>
Schedules not listed above have been omitted because they are not
applicable or the information required to be set forth therein is included in
the consolidated financial statements or notes thereto.
3. EXHIBITS.
The following exhibits are filed with or incorporated by reference into
this Form 10-K. The exhibits which are denominated by an asterisk (*) were
previously filed as a part of, and are hereby incorporated by reference from
either (i) a Registration Statement on Form SB-2 for the Registrant,
Registration No. 33-66926 (referred to as "SB-2"), (ii) Amendment No. 2 to the
Registrant's Registration Statement on Form SB-2 (referred to as "SB-2 Amendment
No. 2)", (iii) the Registrant's Annual Report on Form 10-KSB for the year ended
March 31, 1995 (referred to as "1995 10-K"), (iv) the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995 (referred to as
"1995 10-Q"), (v) a Registration Statement on Form S-3 for the Registrant,
Registration No. 333-20105 (referred to as "S-3"), (vi) the Registrant's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1997 (referred to
as "4-30-97 10-Q"), (vii) a Registration Statement on Form S-4 for the
Registrant, Registration No. 333-39819 (referred to as "S-4"), (viii) a
Registration Statement on Form S-4 for the Registrant, Registration No. 333-8713
(referred to as "1996 S-4"), (ix) a Registration Statement on Form S-8 for the
Registrant, Registration No. 333-47299 (referred to as "S-8"), (x) the
Registrant's Annual Report on Form 10-K for the year ended January 31, 1997
(referred to as "1997 10-K"), (xi) the Registrant's Annual Report on Form 10-K
for the year ended January 31, 1998 (referred to as "1998 10-K"), (xii) the
Registrant's Current Report on Form 8-K dated June 23, 1998 (referred to as
"6/23/98 8-K"), (xiii) the Registrant's Current Report on Form 8-K dated August
9, 1998 (referred to as "8/9/98 8-K"), and (xiv) the Registrant's Current Report
on Form 8-K dated January 29, 1999 (referred to as "1/29/99 8-K"). Except as
otherwise indicated, the exhibit number corresponds to the exhibit number in the
referenced document.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
*3.1 - Certificate of Incorporation of the Company (SB-2)
*3.1.1 - Certificate of Amendment dated August 29, 1996 (1997 10-K)
3.1.2 - Certificate of Amendment dated December 17, 1998
*3.2 - By-Laws of the Company (SB-2)
*3.2.1 - Amendment No. 1 to By-Laws effective August 29, 1996 (1997
10-K)
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
*4.1 - Specimen Certificate of Common Stock (SB-2 Amendment
No. 2)
*4.2 - Indenture dated as of October 16, 1997 between The Maxim
Group, Inc. and its subsidiaries as Guarantors and State
Street Bank and Trust Company, as Trustee (S-4)
*4.5 - Form of The Maxim Group, Inc. 9 1/4% Senior Subordinated Notes
due 2007, Series B (contained in the Indenture filed as
Exhibit 4.2)
*10.1 - 1993 Incentive Stock Option Plan (SB-2)
*10.1.1 - Amendment No. 1 to 1993 Incentive Stock Option Plan (1995
10-K)
*10.1.2 - Amendment No. 2 to 1993 Stock Option Plan (1996 S-4)
*10.1.3 - Amendment No. 3 to 1993 Stock Option Plan (S-8)
10.1.4 - Amendment No. 4 to 1993 Stock Option Plan
10.1.5 - Amendment No. 5 to 1993 Stock Option Plan
10.3 - Form of CarpetMAX Franchise Membership Agreement
*10.10 - Employment Agreement dated July 30, 1993 by and between Image
Industries, Inc. and H. Stanley Padgett (S-3, Exhibit 10.4)
*10.11 - Extension of Employment Agreement dated July 30, 1996 by and
between Image Industries, Inc. and H. Stanley Padgett (S-3,
Exhibit 10.5)
*10.12 - Amended Employment Agreement dated August 30, 1996 by and
between the Registrant, Image Industries, Inc. and H. Stanley
Padgett (S-3, Exhibit 10.6)
*10.12.1 - Second Amendment to Employment Agreement dated July 31, 1997
by and among Image Industries, Inc., H. Stanley Padgett and
The Maxim Group, Inc. (1998 10-K)
*10.13 - Employment Agreement dated June 4, 1997 between the Company
and A.J. Nassar (4-30-97 10-Q)
*10.13.1 - Amendment No. 1 dated September 25, 1997 to Employment
Agreement dated June 4, 1997 by and between A.J. Nassar and
The Maxim Group, Inc. (S-4)
</TABLE>
54
<PAGE>
<TABLE>
<S> <C>
*10.13.2 - Amendment No. 2 dated January 1, 1998 to Employment Agreement
dated June 4, 1997, as amended, by and between A.J. Nassar and
The Maxim Group, Inc. (1998 10-K)
10.23 - Amended and Restated Credit Agreement among the Company, as
Borrower, the Domestic Subsidiaries of the Company, as
Guarantors, the Lenders identified therein, and NationsBank,
N.A., as Administrative Agent, dated as of May 18, 1999, in
the aggregate principal amount of $75.0 million.
10.23.1 - First Amendment to Credit Agreement and Forbearance, dated
July 23, 1999, among the Company, as Borrower, the Domestic
Subsidiaries of the Company, as Guarantors, Bank of
America, N.A. (formerly NationsBank, N.A.), as
Administrative Agent, and the Lenders party thereto.
10.23.2 - Second Amendment to Credit Agreement, Forbearance and
Waiver, dated September 7, 1999, among the Company, as
Borrower, the Domestic Subsidiaries of the Company, as
Guarantors, Bank of America, N.A. (formerly NationsBank,
N.A.), as Administrative Agent, and the Lenders party
thereto.
10.23.3 - Third Amendment to Credit Agreement and Forbearance, dated
October 11, 1999, among the Company, as Borrower, the
Domestic Subsidiaries of the Company, as Guarantors, Bank
of America, N.A. (formerly NationsBank, N.A.), as
Administrative Agent, and the Lenders party thereto.
*10.24 - Agreement and Plan of Merger, dated as of June 23, 1998,
between The Maxim Group, Inc., CMAX Acquisition, Inc., Shaw
Industries, Inc. and Shaw Carpet Showplace, Inc. (6/23/98 8-K,
exhibit 2.1)
*10.24.1 - Amendment, dated August 9, 1998, to Agreement and Plan of
Merger, dated as of June 23, 1998, between The Maxim Group,
Inc., CMAX Acquisition, Inc., Shaw Industries, Inc. and Shaw
Carpet Showplace, Inc. (8/9/98 8-K, exhibit 2.1.1)
*10.25 - Asset Purchase Agreement, dated as of November 12, 1998, as
amended and restated on January 29, 1999, by and among The
Maxim Group, Inc., Image Industries, Inc. and Aladdin
Manufacturing Corporation (1/29/99 8-K, exhibit 2.1)
10.26 - Employment Agreement, dated September 27, 1999, by and
between the Company and Leonard H. Thill.
21.1 - Subsidiaries of the Registrant
23.1 - Consent of Arthur Andersen LLP
27.1 - Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K. The following reports on Form 8-K were filed during the
quarter ended January 31, 1999: (i) Current Report on Form 8-K dated November
12, 1998 (reporting execution of definitive agreement to sell Image Industries,
Inc.), and (ii) Current Report on Form 8-K dated January 29, 1999 (reporting
sale of Image Industries, Inc.).
55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Maxim Group, Inc.:
We have audited the accompanying consolidated balance sheets of THE MAXIM GROUP,
INC. (a Delaware corporation) and subsidiaries as of January 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Maxim Group, Inc. and
subsidiaries as of January 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is not in compliance with a certain
restricted payment covenant contained in the indenture which references the
Company's $100 million Senior Subordinated Notes due October 2007 (the
"Senior Notes") and as a result, the trustee or the holders of not less than
25% of the Senior Notes may declare all unpaid principal plus any accrued
interest of all of the Senior Notes due and payable. The Company's available
borrowings under its Senior Credit Facility plus cash on hand are not
sufficient to repay the Senior Notes if declared due and payable. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 11, 1999
F-1
<PAGE>
THE MAXIM GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
----------------------
(In thousands, except share data) 1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents, including restricted cash of $22,786 at 1998 $ 89,901 $ 28,880
Current portion of franchise license fees receivable, net of allowance of $565 and
$528 in 1999 and 1998, respectively 2,013 3,107
Receivables, net of allowance for doubtful accounts of $5,049 and $2,178 in 1999
and 1998, respectively 56,012 59,190
Inventories 58,744 54,693
Refundable income taxes -- 2,558
Deferred income taxes 7,361 5,714
Prepaid expenses 6,316 3,406
--------- ---------
Total current assets 220,347 157,548
Property, plant and equipment, net 71,766 137,207
Franchise license fees receivable, less current portion, net of allowance of $570
and $210 in 1999 and 1998, respectively 2,337 2,718
Notes receivable from franchisees, less current portion, net of allowance of
$1,200 in 1999 8,228 3,506
Deferred income taxes 1,065 --
Intangible assets, net of accumulated amortization of $2,666 and $1,626 in 1999 and
1998, respectively 71,341 13,640
Other assets 13,684 6,875
--------- ---------
Total assets $ 388,768 $ 321,494
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 16,952 $ 384
Senior subordinated notes 99,387 --
Current portion of capital lease obligations 6,635 501
Accounts payable 26,706 23,376
Rebates payable to franchisees 749 3,975
Deposits 14,769 2,897
Deferred revenue 2,254 1,750
Income taxes payable 2,633 --
Other accrued liabilities 55,827 14,333
--------- ---------
Total current liabilities 225,912 47,216
--------- ---------
Long-term debt, less current portion 4 129,349
--------- ---------
Capital lease obligations, less current portion 1,469 1,429
--------- ---------
Deferred income taxes -- 9,725
--------- ---------
Other long-term liabilities 516 --
--------- ---------
Commitments and Contingencies (Note 16)
Stockholders' equity:
Preferred stock - $.001 par value; 1,000,000 shares authorized; no shares issued -- --
Common stock - $.001 par value; 75,000,000 shares authorized; shares issued:
21,315,664 in 1999 and 17,352,521 in 1998 21 17
Additional paid-in capital 185,828 119,264
Retained earnings 9,836 29,388
Treasury stock - shares at cost: 2,365,900 in 1999 and 1,221,000 in 1998 (34,818) (14,894)
--------- ---------
Total stockholders' equity 160,867 133,775
--------- ---------
Total liabilities and stockholders' equity $ 388,768 $ 321,494
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
THE MAXIM GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------
(In thousands, except per share data) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Sales of floor covering products $ 608,916 $ 303,560 $ 250,968
Fees from franchise services 24,960 29,860 26,336
Fiber and PET sales 26,716 26,059 28,853
Other 3,834 5,648 3,564
--------- --------- ---------
Total revenues 664,426 365,127 309,721
Cost of sales 457,339 249,381 222,290
--------- --------- ---------
Gross profit 207,087 115,746 87,431
Selling, general and administrative expenses 220,748 83,955 72,366
Nonrecurring charges 23,713 -- --
Merger-related costs -- -- 4,900
--------- --------- ---------
Operating (loss) income (37,374) 31,791 10,165
Other income (expense):
Interest income 1,754 1,233 613
Interest expense (15,097) (6,948) (7,006)
Gain on sale of Image 24,863 -- --
Other, net 1,023 394 302
--------- --------- ---------
(Loss) income before income taxes and extraordinary charge (24,831) 26,470 4,074
Benefit (provision) for income taxes 5,656 (10,314) (1,929)
--------- --------- ---------
(Loss) income before extraordinary charge (19,175) 16,156 2,145
Extraordinary charge on early retirement of debt, net of tax benefit (377) (785) --
--------- --------- ---------
Net (loss) income $ (19,552) $ 15,371 $ 2,145
--------- --------- ---------
--------- --------- ---------
Basic (loss) earnings per share before extraordinary charge $ (1.08) $ 1.00 $ 0.16
Extraordinary charge per share (0.02) (0.05) --
--------- --------- ---------
Basic (loss) earnings per share $ (1.10) $ 0.95 $ 0.16
--------- --------- ---------
--------- --------- ---------
Diluted (loss) earnings per share before extraordinary charge $ (1.08) $ 0.96 $ 0.15
Extraordinary charge per share (0.02) (0.04) --
--------- --------- ---------
Diluted (loss) earnings per share $ (1.10) $ 0.92 $ 0.15
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
THE MAXIM GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Retained Treasury
(In thousands, except share data) Shares Amount Capital Earnings Stock Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1996 12,397,280 $ 12 $ 60,392 $ 11,746 $ -- $ 72,150
Purchase and retirement of treasury stock (28,000) -- (336) -- -- (336)
Issuance of common stock 93,333 -- 1,278 -- -- 1,278
Common stock issued upon exercise of
stock options 95,576 -- 719 -- -- 719
Pooling of Bailey & Roberts Flooring, Inc. 242,288 1 71 126 -- 198
Net income -- -- -- 2,145 -- 2,145
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 31, 1997 12,800,477 13 62,124 14,017 -- 76,154
Purchase of 1,221,000 shares of treasury stock -- -- -- -- (14,894) (14,894)
Issuance of common stock 3,372,365 3 50,240 -- -- 50,243
Common stock issued upon exercise of
stock options 1,179,679 1 6,900 -- -- 6,901
Net income -- -- -- 15,371 -- 15,371
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 31, 1998 17,352,521 17 119,264 29,388 (14,894) 133,775
Purchase of 1,144,900 shares of treasury stock -- -- -- -- (19,924) (19,924)
Issuance of common stock 3,474,698 4 61,395 -- -- 61,399
Common stock issued upon exercise of
stock options 488,445 -- 5,169 -- -- 5,169
Net loss -- -- -- (19,552) -- (19,552)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1999 21,315,664 $ 21 $ 185,828 $ 9,836 $ (34,818) $ 160,867
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
THE MAXIM GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------
(In thousands) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (19,552) $ 15,371 $ 2,145
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Nonrecurring charges 7,540 -- --
Depreciation and amortization 19,209 11,950 10,518
Deferred income taxes (12,437) 3,353 335
Gain on sale of Image (24,863) -- --
(Gain) loss on sale of assets (809) 469 367
Changes in operating assets and liabilities, net of effects of
acquisitions and disposition:
Receivables (3,420) (18,651) (10,254)
Inventories (10,843) (12,410) 7,544
Refundable income taxes 2,558 (1,247) 866
Prepaid expenses and other assets (4,534) (5,575) (1,865)
Accounts payable and other liabilities 40,480 3,518 8,164
--------- --------- ---------
Net cash (used in) provided by operating activities (6,671) (3,222) 17,820
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets, net of cash sold and selling expenses 172,097 52 47
Capital expenditures (62,564) (47,673) (17,444)
Acquisitions, net of cash acquired (26,267) (1,339) (1,284)
--------- --------- ---------
Net cash provided by (used in) investing activities 83,266 (48,960) (18,681)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net -- 47,243 606
Proceeds from exercise of stock options 5,169 6,901 719
Purchase of treasury stock (19,924) (14,894) (336)
Long-term debt proceeds 93,900 162,580 89,806
Long-term debt repayments (94,098) (126,478) (87,241)
Principal payments on capital lease obligations (621) (729) (461)
--------- --------- ---------
Net cash (used in) provided by financing activities (15,574) 74,623 3,093
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 61,021 22,441 2,232
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 28,880 6,439 4,207
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 89,901 $ 28,880 $ 6,439
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 14,009 $ 4,956 $ 7,123
Income taxes 693 6,672 293
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued in connection with acquisitions $ 61,399 $ 3,000 $ 672
Note payable issued in connection with acquisition 11,496 -- --
Assets acquired pursuant to capital lease obligations 5,983 -- --
Assets acquired pursuant to debt obligations 4,877
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
THE MAXIM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES.
DESCRIPTION OF BUSINESS
The Maxim Group, Inc. and subsidiaries (the "Company" or "Maxim") are
engaged in retail and commercial sales of floor covering products
throughout North America through a network of Company-owned retail stores
and a network of franchisees. The Company is also engaged in the sale of
franchises for the retail floor covering industry and other related
products and services to its franchises. Substantially all of the assets
of Image Industries, Inc. ("Image"), a wholly owned manufacturing
subsidiary of Maxim, were sold on January 29, 1999 (See Note 3). Image
is engaged in the manufacturing of residential carpet and plastics
recycling.
RISK FACTORS
The Company relies on several large floor covering manufacturers for the
supply of its floor covering products. While the Company believes there
are a number of alternative manufacturers capable of supplying and
distributing its products, delays in obtaining alternative sources, if
necessary, could have a significant adverse effect on the Company's results
of operations.
The Company also has certain other risk factors, which include, but are
not limited to, risks associated with integration of acquisitions and
new computer systems, litigation, competition, possible economic downturns
and changes in laws and regulations.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Maxim
Group, Inc. and all wholly owned subsidiaries. All intercompany balances
and transactions are eliminated in consolidation. The financial statements
give retroactive effect to the merger of the Company and Image on August
30, 1996, which was accounted for as a pooling-of-interests, as described
in Note 3.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed below, the
Company is not in compliance with a certain restricted payment covenant
contained in the indenture which references the Company's $100 million
Senior Subordinated Notes due October 2007 (the "Senior Notes") and as a
result, the trustee or the holders of not less than 25% of the Senior
Notes may declare all unpaid principal plus any accrued interest of all
of the Senior Notes due and payable. The Company's available borrowings
under its Senior Credit Facility, as amended May 18, 1999, plus cash on
hand are not sufficient to repay the Senior Notes if declared due and
payable. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to
these matters are discussed below. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash balances include short-term interest-bearing deposits with original
maturities of three months or less. Short-term investments are stated at
cost, which approximates fair value.
F-6
<PAGE>
Restricted cash of $22,786,000 at January 31, 1998 consists of proceeds
received from the sale of revenue bonds to finance the expansion of
fiber extrusion capabilities at an Image manufacturing plant.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Revenue from retail and commercial sales is recognized upon completion of
the floor covering installation or at the time of delivery for floor
coverings not installed by the Company or its authorized installers. Sales
from the manufacturing operations are recognized at the time products are
shipped.
The Company recognizes franchise license fees as income on the date the
related franchise agreement is signed; at which time, the Company has
performed substantially all of its obligations under the franchise
agreement.
The Company finances a portion of its franchise sales over terms of four
to fifteen years, generally at a 10 percent interest rate. An allowance
for doubtful accounts is provided based on the Company's collection
experience and periodic reviews of the accounts.
The Company recognizes vendor merchandising support as either revenue
or a reduction of product costs over the periods in which the agreements'
criteria are met.
FEES FROM FRANCHISE SERVICES
The Company negotiates volume rebates with various floor covering
manufacturers on behalf of its franchisees. In exchange for this service,
the Company earns a portion of the rebates as the shipments are made to its
franchisees. The Company receives these rebates from the manufacturers
throughout the year. The franchisees who meet certain criteria typically
receive their portion of the rebates semiannually. Accordingly, the
Company has recorded revenue or a reduction of cost of sales, receivables
from manufacturers, and rebates payable to franchisees related to these
rebates. During 1999, certain franchisees did not meet the criteria to
receive their portion of the rebate payable. Accordingly, the Company
reduced rebates payable by approximately $3.8 million as of January 31,
1999.
The Company develops and offers its franchisees marketing and promotional
programs, including television, radio and print advertising, and direct
mail campaigns and sales literature. Advertising production fees,
excluding direct mail, are considered earned once the advertisement is
produced, and the related media commission fees, if applicable, are
considered earned once the commercial is aired. Direct mail commissions
are earned on the date of the franchisee's promotion or sale.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed
as incurred.
INVENTORIES
Inventories for retail operations, consisting of goods held for resale, are
recorded at the lower of cost or market. Cost is determined on a specific
identification basis for retail sales, which approximates the first-in,
first-out method.
Inventories for manufacturing operations are valued at the lower of cost
(first-in, first-out) or market. Costs include raw materials, direct labor
and manufacturing overhead. Market is based on current replacement cost
F-7
<PAGE>
for raw materials and supplies and net realizable value for finished goods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost, which includes interest
on funds borrowed to finance construction. When assets are retired or
otherwise disposed of, the related cost and accumulated depreciation are
removed from the respective accounts and the net difference, less any
amount realized, is reflected in the consolidated statements of operations.
The Company's buildings, furniture, fixtures, and equipment are depreciated
using the straight-line method over the estimated useful lives of the
assets for book purposes, with accelerated methods used for tax
purposes. Improvements to leased property are amortized using the
straight-line method over the life of the lease, or the useful life of the
improvement, whichever is shorter.
The Company's property, plant and equipment are depreciated using the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings 10 to 40 years
Leasehold improvements 3 to 20 years
Machinery and equipment 3 to 10 years
Furniture and fixtures 5 to 7 years
Transportation equipment 5 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill. Goodwill arises in
connection with business combinations accounted for as purchases. Goodwill
is amortized on a straight-line basis over 15 to 20 years. Amortization of
$1,935,000, $652,000, and $564,000 was charged to expense in 1999, 1998,
and 1997, respectively.
REALIZATION OF LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of its long-lived
assets, including goodwill, in relation to their operating performance and
future undiscounted cash flows of the underlying businesses. The Company
adjusts the carrying amount of the assets or goodwill if the unamortized
balance exceeds the estimate of future cash flows. See Note 10 for
discussion of charges recorded based on management's assessment of the
realization of certain intangible and fixed assets.
DEFERRED LOAN COSTS
Deferred loan costs, which are included in other assets, represent fees and
expenses incurred to obtain long-term debt. The costs are amortized to
expense over the life of the related financing agreement.
F-8
<PAGE>
SELF-INSURANCE
The Company is self-insured for health care and workers' compensation up to
predetermined amounts above which third-party insurance applies. Losses are
accrued based on the Company's estimates of the aggregate liability for
claims incurred using certain actuarial assumptions used in the insurance
industry and based on Company experience.
EARNINGS PER SHARE
Basic earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during
each period. Diluted earnings (loss) per common share is computed based on
the weighted average number of common shares outstanding, adjusted for
potentially dilutive issuances of common stock pursuant to the exercise
of outstanding stock options.
Income (loss) available to common stockholders, the numerator in the
basic and diluted earnings per share computations, was $(19,552,000),
$15,371,000 and $2,145,000 for the years ended January 31, 1999, 1998 and
1997, respectively. The following table reconciles the denominator for the
basic and diluted earnings (loss) per share computations.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
(In thousands) 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average common shares outstanding 17,833 16,158 13,468
Plus shares issued upon assumed conversion of
outstanding stock options -- 608 469
------ ------ ------
Weighted average common shares outstanding
and potentially dilutive common shares
in diluted earnings (loss) per common share 17,833 16,766 13,937
------ ------ ------
------ ------ ------
</TABLE>
- --------------------------------------------------------------------------------
The fiscal year 1999 weighted average common shares outstanding and
potentially dilutive common shares outstanding do not reflect the
assumed conversion of outstanding stock options due to the
antidilutive effect of the assumed conversions for the period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
carrying amounts of cash, accounts receivable, and accounts payable
approximate their fair values because of their short-term maturity. The
carrying amounts of the Company's credit facility and Summerville loan
approximate their fair values, because interest rates on the debt are
periodically adjusted and approximate current market rates. The estimated
fair value for the Company's senior subordinated notes was based on quoted
market prices or current rates for similar instruments with the same
maturities. The estimated fair value of the Company's senior subordinated
notes at January 31, 1999 and 1998 was approximately
F-9
<PAGE>
$99,850,000 and $101,250,000, compared with a carrying value of $99,387,000
and $99,316,000, respectively.
The Company does not use derivatives for trading purposes. As of
January 31, 1999 and 1998, the Company had derivative financial
instruments outstanding for an aggregate notional amount of less
than $2,500,000 related to certain borrowings.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." The Company has adopted the disclosure option of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 requires that companies who do
not choose to account for stock-based compensation as prescribed by the
statement shall disclose the pro forma effects on earnings and earnings per
share as if SFAS No. 123 had been adopted. Additionally, certain other
disclosures are required with respect to stock compensation and the
assumptions used to determine the pro forma effects of SFAS No. 123. Pro
forma net income (loss) and earnings (loss) per share impacts are presented
in Note 14 as if the fair value method had been applied.
RECLASSIFICATIONS
Certain prior year financial statement balances have been reclassified to
conform to the current year presentation.
GOING CONCERN
The consolidated financial statements of the Company have been presented
on a going concern basis which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
As of January 31, 1999, the Company was not in compliance with a certain
restricted payment covenant contained in the Indenture which references
the Senior Notes.
During the three-month period ended October 31, 1998, the Company's
restricted payments exceeded that allowed under the Indenture. As of
January 31, 1999 the Company was not in compliance with the terms of the
Indenture and as a result, the trustee or the holders of not less than
25% of the Senior Notes may declare all unpaid principal plus any
accrued interest of all of the Senior Notes due and payable.
Accordingly, the Senior Notes are classified as a current liability in
the accompanying consolidated balance sheet as of January 31, 1999 (See
Note 11).
As of October 11, 1999, the Company's available borrowings under its
Senior Credit Facility plus cash on hand are not sufficient to repay the
Senior Notes if declared due and payable.
The Company is currently negotiating with the holders of the Senior
Notes to obtain the requisite consent to waive the default. Any such
consent may include, among other things, the redemption of a portion of
the Senior Notes, the payment of a consent fee by Maxim and a higher
interest rate on the Senior Notes which remain outstanding. There can be
no assurance that such waiver will be granted. If a waiver is not
obtained by Maxim, repayment of the Senior Notes may be accelerated, as
discussed above.
Additionally, the Company is currently in negotiations with its senior
lenders to amend its Senior Credit Facility to allow for enhanced
availability, an extended maturity date, and improved advance ratios on
existing collateral.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS.
During June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement established accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows derivative gains and losses to offset related results on the hedged
item in the statements of operations and requires, that a company must
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000, although earlier adoption is permitted. SFAS
No. 133 cannot be applied retroactively. The Company does not believe
this Statement will have a material impact on the financial statements.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ("SOP 98-1"),"Accounting
for Costs of Computer Software Developed or Obtained for Internal Use",
which is effective for fiscal years beginning after December 15, 1998.
SOP 98-1 requires capitalization of certain costs of internal-use
software. The Company does not expect this statement to have a material
impact on the financial statements.
In April 1998, the AICPA issued Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Costs of Start-Up Activities," which is effective for
fiscal years beginning after December 15, 1998. SOP 98-5 requires entities
to expense certain start-up costs and organization costs as they are
F-10
<PAGE>
incurred. The Company does not expect this statement to have a material
impact on the financial statements.
NOTE 3. ACQUISITIONS AND DISPOSITION.
Effective August 9, 1998, the Company acquired substantially all of the
residential retail store assets of Shaw Industries, Inc. and its wholly
owned subsidiary, Shaw Carpet Showplace, Inc. (collectively, "Shaw"). Under
the terms of the merger agreement, the Company issued to Shaw 3,150,000
shares of common stock of the Company valued at approximately $55,188,000
for financial statement purposes. The Company also signed a one-year note
in the principal amount of $18,000,000 (adjusted to $11,496,000 after
giving effect to purchase price adjustments), paid Shaw $25,000,000 in cash
and assumed certain liabilities. The acquisition has been recorded using
the purchase method of accounting. The purchase price has been allocated
to the assets acquired and liabilities assumed based upon estimates of
the fair values at the date of acquisition. As a result of this
acquisition, the Company recorded goodwill of approximately $51,000,000,
which is being amortized over 20 years. The purchase price as of January
31, 1999 may be subject to further adjustment, and any adjustments to the
purchase price will be reflected as an increase or decrease in intangible
assets.
Effective September 25, 1998, the Company acquired CarpetsPlus of
America, LLC, a floor covering-buying group. The acquisition has been
recorded using the purchase method of accounting at a price of
approximately $8,485,000, consisting of a cash payment of $2,275,000 and
the issuance of 324,698 shares of the Company's common stock valued at
approximately $6,210,000. In addition, as of January 31, 1999, 36,078 of
the Company's common shares were placed in escrow pending the outcome of
certain contingencies. In addition to the consideration received at
closing, the shareholders of CarpetsPlus of America, LLC may receive
shares of common stock of the Company having a value of up to $2,300,000
based on the profitability of the acquired company during the two-year
period ending January 31, 2001. As a result of this acquisition, the
Company recorded goodwill of approximately $8,400,000, which is being
amortized over 20 years.
On August 30, 1996, the Company acquired all of the common stock of Image
in exchange for 5,266,285 shares of the Company's common stock. The
acquisition of Image was accounted for under the pooling-of-interests
method of accounting, and accordingly, the Company's historical financial
statements were restated to include the accounts and results of operations
of Image. The Company incurred approximately $4,700,000 in one-time costs
related to the merger (primarily legal, accounting, investment advisory
fees, and merger-related restructuring charges). In addition, the Company
F-11
<PAGE>
incurred an additional $200,000 in merger-related costs related to the
merger with Bailey & Roberts Flooring, Inc. in November 1996. These
merger-related amounts, totaling $4,900,000 have been presented separately
in the accompanying statements of operations for the year ended January 31,
1997. The Bailey & Roberts Flooring, Inc. acquisition, in which the Company
issued 242,288 shares, was accounted for as a pooling-of-interests. The
consolidated financial statements of the Company were not restated for
the Bailey & Roberts Flooring, Inc. merger for the periods prior to
February 1, 1996, as the effect of the restatement would not have been
material to such periods.
On January 29, 1999, the Company sold substantially all of the assets of
its Image subsidiary to Mohawk Industries, Inc. ("Mohawk") for total
consideration of $210,666,000, which included the assumption of $48,136,000
in related debt and short-term liabilities. Proceeds were used to retire
debt and to fund the Company's working capital requirements.
Under the terms of the Indenture (See Note 11), the Company is required
to invest the proceeds from certain asset sales, including the sale of
Image, to repay senior debt and in capital expenditures, properties,
inventories and other assets that will be used in the Company's
business. To the extent that such proceeds are not so invested within
365 days of the asset sale (and exceed $10,000,000), the Company will be
required to use such excess proceeds to make an offer to purchase
outstanding notes at a price equal to 100% of the principal amount plus
accrued interest.
NOTE 4. PRO FORMA FOR ACQUISITIONS AND DISPOSITION.
The operating results of the retail stores acquired from Shaw are
included in the Company's consolidated statements of operations from the
date of acquisition. The following unaudited pro forma summary presents
the consolidated results of operations of the Company as if the
acquisition of the retail store assets of Shaw and the disposition of
all of the assets of Image (see Note 3) had occurred on February 1,
1997. The pro forma expenses include the recurring costs that are
directly attributable to the acquisition, such as interest expense and
amortization of goodwill, and their related tax effects.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
(In thousands, except per share data) 1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenue $ 753,160 $ 705,192
Net loss (43,215) (3,795)
Basic loss per share $ (2.23) $ (0.20)
Diluted loss per share (2.23) (0.20)
</TABLE>
NOTE 5. RECEIVABLES.
Receivables consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
(In thousands) 1999 1998
-------- --------
<S> <C> <C>
Trade accounts receivable $ 50,736 $ 58,349
Receivable from asset sale 5,020 --
Receivables from officers, directors
and employees 1,900 1,593
Notes due from franchisees 3,405 1,426
-------- --------
Total receivables 61,061 61,368
Less reserves (5,049) (2,178)
-------- --------
Receivables, net $ 56,012 $ 59,190
-------- --------
-------- --------
</TABLE>
F-12
<PAGE>
NOTE 6. INVENTORIES.
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------
(In thousands) 1999 1998
------- -------
<S> <C> <C>
Raw materials $ 309 $14,809
Work in process -- 3,363
Finished goods 58,435 36,521
------- -------
Total $58,744 $54,693
------- -------
------- -------
</TABLE>
On a segment basis, the Company's inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
(In thousands) 1999 1998
------- -------
<S> <C> <C>
Retail $56,927 $18,055
Image 1,817 36,638
------- -------
Total $58,744 $54,693
------- -------
------- -------
</TABLE>
NOTE 7. PROPERTY, PLANT AND EQUIPMENT.
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
---------------------------
(In thousands) 1999 1998
--------- ---------
<S> <C> <C>
Land and improvements $ 5,065 $ 5,289
Buildings and leasehold improvements 36,555 46,377
Machinery and equipment 6,656 95,128
Furniture and fixtures 12,166 4,869
Transportation equipment 2,765 3,313
Construction in progress and other 20,297 30,270
--------- ---------
Property, plant and equipment, at cost 83,504 185,246
Less accumulated depreciation and amortization (11,738) (48,039)
--------- ---------
Property, plant and equipment, net $ 71,766 $ 137,207
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
NOTE 8. OTHER ACCRUED LIABILITIES.
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
(In thousands) 1999 1998
------- -------
<S> <C> <C>
Salaries, wages, benefits and related taxes $16,001 $ 5,715
Accrued interest 3,199 2,931
Accrued installer fees 2,001 --
Nonrecurring charge reserve 6,017 --
Accrued closed acquired
location leases 6,350 --
Accrued advertising 3,644 155
Taxes, other than income 1,689 611
Other 16,926 4,921
------- -------
Other accrued liabilities $55,827 $14,333
------- -------
------- -------
</TABLE>
NOTE 9. NOTES RECEIVABLE FROM FRANCHISEES.
The Company has made loans to certain franchisees totaling $12,833,000
and $4,932,000 at January 31, 1999 and 1998, respectively. The loans due
from franchisees are payable in monthly installments and/or are due on
demand. The current portion of these notes is included in receivables
and totals $3,405,000 and $1,426,000 at January 31, 1999 and 1998,
respectively. Interest is payable monthly at rates ranging from prime (7
3/4% at January 31, 1999) to 16 1/2% on the outstanding balance. The
loans are secured by the franchisees' accounts receivable, inventory,
equipment, company common stock, personal guarantees and/or personal
property.
NOTE 10. NONRECURRING CHARGES.
During the three month period ended July 31, 1998, the Company
reevaluated its business strategy and determined to expand its focus on
its retail operations. As a result of the revised retail strategy, the
Company amended the franchise agreement for one of its franchised line
of retail stores, closed certain Company-owned stores, and wrote down to
fair value certain retail assets, including goodwill. The Company
estimated that the changes to the franchise agreement would result in
franchisee claims brought against the Company. The Company recorded a
$28,531,000 charge for these nonrecurring items during the three-month
period ended July 31, 1998. The initial charge was subsequently reduced
by $4,818,000, as revised estimates for franchisee claim reserves and
store closure costs were less than initially expected. The revised
estimates were offset in part by a ten store net increase in the number
of stores to be closed. As of January 31, 1999, $17,696,000 of the
nonrecurring charges was incurred, with $6,017,000 remaining in the
reserve, which is included in accrued liabilities in the accompanying
balance sheet.
On June 1, 1998, the Company amended its franchise agreement with the
majority of its CarpetMAX franchisees, whereby the Company established
certain requirements for more uniformity in the appearance and
merchandising of the franchised stores. As part of the amended franchise
agreement, the number of floor covering vendors available to franchisees
through the Company, to buy and earn rebates from, was reduced. The
Company wrote-off certain vendor receivables and has also
established a reserve to settle claims of franchisees arising from the
F-14
<PAGE>
changes to the franchise agreement. In addition, the Company has written
down to fair value certain assets made obsolete by the amended franchise
agreement. The Company also originally accrued for the costs of closing
15 Company-owned retail stores, most of which were closed as of January
31, 1999. The number of store locations to be closed was revised and the
Company determined that three of the originally identified stores were to
remain open and 13 additional stores were to be closed, bringing the
total number of stores to be closed to 25.
In connection with the reevaluation of the Company's retail strategy
described above, the Company analyzed the performance of its Company-owned
retail stores. This analysis indicated that significant strategic and
operational changes would be necessary in some stores, including changes in
the customer mix, location, store design, and merchandising. These factors
also caused management to assess the realization of the goodwill recorded
for these stores.
The determination of goodwill impairment was made by comparing the
unamortized goodwill balance at July 31, 1998 to the estimate of the
related undiscounted future cash flows. The assumptions used reflected
earnings, and market and industry conditions, as well as current operating
plans. The assessment indicated a permanent impairment of goodwill for
certain markets. As a consequence, such goodwill was written down to fair
market value, which resulted in a write-off totaling $4,200,000.
The major components of the nonrecurring charge balance, the remainder of
which is included in other accrued liabilities on the balance sheet at
January 31, 1999, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 1999
------------------------------------------------------
INITIAL REVISION AMOUNT REMAINING
(In thousands) CHARGE TO CHARGE INCURRED BALANCE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Write-off of vendor receivables $ 2,439 $ -- $ (2,439) $ --
Claim reserves 10,700 (1,214) (6,291) 3,195
Write-down of equipment 492 -- (492) --
Store closure and carrying costs
Original locations 10,700 (7,071) (2,698) 931
Additional locations -- 3,467 (1,576) 1,891
Write-down of goodwill 4,200 -- (4,200) --
-------- -------- -------- --------
$ 28,531 $ (4,818) $(17,696) $ 6,017
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-15
<PAGE>
NOTE 11. DEBT.
Debt at January 31, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
(In thousands) 1999 1998
--------- ---------
<S> <C> <C>
9 1/4 % Senior subordinated notes, net of discount $ 99,387 $ 99,316
Summerville loan -- 30,000
Shaw note 11,496 --
Synthetic lease facility 4,877 --
Other debt with interest rate of 7.5% 583 417
--------- ---------
116,343 129,733
Less senior subordinated notes classified as current (99,387) --
Less synthetic lease facility classified as current (4,877) --
Less current portion (12,075) (384)
--------- ---------
Long-term debt, less current amounts $ 4 $ 129,349
--------- ---------
--------- ---------
</TABLE>
The contractual maturities of long-term debt subsequent to
January 31, 1999 are $12,075,000 for the fiscal year ending
January 31, 2000, with $3,000, $1,000, $4,877,000 and $99,387,000 to
mature in the fiscal years ending January 31, 2001, 2002, 2004 and
2008, respectively.
SENIOR SUBORDINATED NOTES
On October 16, 1997, the Company completed the sale of $100,000,000 of
9 1/4% senior subordinated notes ("Senior Notes"), due 2007, to
institutional buyers in a private offering under Rule 144A promulgated
under the Securities Act of 1933. The net proceeds to the Company from
the offering of the Senior Notes were approximately $96,000,000, net
of an issue discount and fees and related costs.
Each of the Company's operating subsidiaries has fully and
unconditionally guaranteed the Senior Notes on a joint and several basis.
The guarantor subsidiaries comprise all of the direct and indirect
operating subsidiaries of the Company. The Company has not presented
separate financial statements and other disclosures concerning the
guarantor subsidiaries because management has determined that such
information is not material to investors. There are no significant
restrictions on the ability of the guarantor subsidiaries to make
distributions to the Company.
F-16
<PAGE>
As of January 31, 1999, the Company was not in compliance with a certain
restricted payment covenant contained in the indenture (the "Indenture")
which references the Senior Notes.
During the three-month period ended October 31, 1998, the Company's
restricted payments exceeded that allowed under the Indenture. As of
January 31, 1999 the Company was not in compliance with the terms of the
Indenture and as a result, the trustee or the holders of not less than
25% of the Senior Notes may declare all unpaid principal plus any
accrued interest of all of the Senior Notes due and payable.
Accordingly, the Senior Notes are classified as a current liability in
the accompanying consolidated balance sheet as of January 31, 1999.
As of October 11, 1999, the Company's available borrowings under its
Senior Credit Facility plus cash on hand are not sufficient to repay the
Senior Notes if declared due and payable.
The Company is currently negotiating with the holders of the Senior
Notes to obtain the requisite consent to waive the default. Any such
consent may include, among other things, the redemption of a portion of
the Senior Notes, the payment of a consent fee by the Company and a
higher interest rate on the Senior Notes which remain outstanding. There
can be no assurance that such waiver will be granted. If a waiver is not
obtained by the Company, repayment of the Senior Notes may be
accelerated, as discussed above.
Under the terms of the Indenture, the Company is required to invest the
proceeds from certain sales, including the sale of Image, to repay
senior debt and in capital expenditures, properties, inventories and
other assets that will be used in the Company's business. To the extent
that such proceeds are not so invested within 365 days of the asset sale
(and exceed $10,000,000), the Company will be required to use such
excess proceeds to make an offer to purchase outstanding notes at a
price equal to 100% of the principal amount plus accrued interest.
SENIOR CREDIT FACILITY
On November 25, 1998, the Company entered into a Credit Facility which,
as amended through January 31, 1999 (the "Credit Facility"), provided
for aggregate commitments of $25,000,000. The Credit Facility consisted
of a revolving facility that matures three years from the closing of the
Credit Facility. There were no borrowings outstanding under the Credit
Facility as of January 31, 1999 and the Company had availability of
$20,123,000 as of January 31, 1999. The Credit Facility was further
amended and restated as of May 18, 1999 (the "Amended Credit Facility"),
with aggregate commitments thereunder increased to $75,000,000 (See
Note 19).
As of January 31, 1999, borrowings under the Credit Facility were secured
by accounts receivable, inventories, certain real and personal property,
and certain intangible assets of the Company and its subsidiaries, as
well as the capital stock of all of the subsidiaries. Amounts
outstanding under the amended Credit Facility bear interest at a
variable rate equal to, at the Company's option, (i) the base rate
(defined as the greater of the prime rate or the federal funds rate plus
one-half of one percent) or (ii) the adjusted LIBOR rate, in each case
plus the applicable margin. The applicable margin ranges from 0.75% to
1.75% for loans that bear interest at the adjusted LIBOR rate. The
Company is required to pay the lenders under the Credit Facility, on a
quarterly basis, a commitment fee ranging from 0.20% to 0.375% of the
unused portion of the Credit Facility. The Company is required to pay
administration fees quarterly. The Credit Facility contains a number of
covenants, including, among others, covenants restricting the Company
and certain of its subsidiaries with respect to the incurrence of
indebtedness (including contingent obligations); the creation of liens;
the sale, lease, assignment, transfer, or other disposition of assets;
the making of certain investments, loans, advances, and acquisitions;
the consummation of certain transactions, such as mergers or
consolidations. Further, the Credit Facility contains cross default
provisions related to the Company's other indebtedness. The Credit
Facility requires the Company to meet certain financial ratios and
covenants, including debt to equity, minimum tangible net worth,
interest coverage, and asset coverage.
F-17
<PAGE>
Extraordinary charges were recorded in fiscal 1999 and 1998 for the
write-off of unamortized financing fees associated with prior credit
facilities. The resulting one-time charges amounted to $377,000 and
$785,000, net of income tax benefits of $236,000 and $546,000,
respectively.
SHAW NOTE
The Company entered into a promissory note related to the acquisition of
the Shaw retail assets (See Note 3). The note is unsecured and is
subordinate to bank indebtedness. The interest on the promissory note is
at a rate equal to borrowings under the Credit Facility. The principal
amount as of January 31, 1999 of $11,496,000 is due in November 1999.
SUMMERVILLE BONDS
The Development Authority of the City of Summerville, Georgia issued
exempt facility revenue bonds in an aggregate principal amount of
$30,000,000 and subsequently loaned (the "Summerville Loan") the
proceeds to Image to finance the expansion of their fiber extrusion
capabilities. The Summerville Loan matures on September 1, 2017 and the
interest rate is determined weekly from remarketing of the bonds in the
secondary market. For the fiscal year ended January 31, 1999 and 1998,
the weighted average annual interest rate on the Summerville Loan was
3.5% and 3.7%, respectively. The Summerville Loan was assumed by Mohawk
on January 29, 1999, in connection with the sale of substantially all of
the assets of Image (See Note 3).
SYNTHETIC LEASE FACILITY
The Company has established a $10,000,000 synthetic lease facility
with a lending group. Amounts outstanding under the facility were
approximately $4,877,000 as of January 31, 1999. Under the synthetic
lease facility, which is scheduled to mature no later than November 2003,
the Company has the ability to direct the lender group to make loans to
the co-owner-trustee under the facility, for acquisition, development or
expansion of the Company's flooring center locations. These locations are
then leased back by the co-owner-trustee to the Company or a designated
designated subsidiary of the Company. The Company has guaranteed
repayment of the amounts outstanding under the facility and the lenders
have a security interest in the related locations. Availability under
the Company's Amended Credit Facility is reduced by amounts outstanding
under this synthetic lease facility. The facility contains various
covenants. As of January 31, 1999, the Company was not in compliance
with certain of these covenants. The lenders have the right to
accelerate payment of the amounts outstanding under the facility because
of such non-compliance. Accordingly, the amounts outstanding are
classified as current in the accompany January 31, 1999 consolidated
balance sheet.
NOTE 12. INCOME TAXES.
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(In thousands) CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Fiscal year ended January 31, 1999:
U.S. Federal $ 5,880 $(12,384) $ (6,504)
State and local 1,729 (3,000) (1,271)
Valuation allowance -- 2,119 2,119
-------- -------- --------
Provision (benefit) for income taxes $ 7,609 $(13,265) $ (5,656)
-------- -------- --------
-------- -------- --------
Fiscal year ended January 31, 1998:
U. S. Federal $ 4,806 $ 4,402 $ 9,208
State and local 636 470 1,106
-------- -------- --------
Provision for income taxes $ 5,442 $ 4,872 $ 10,314
-------- -------- --------
-------- -------- --------
Fiscal year ended January 31, 1997:
U.S. Federal $ 953 $ 824 $ 1,777
State and local 146 6 152
-------- -------- --------
Provision for income taxes $ 1,099 $ 830 $ 1,929
-------- -------- --------
-------- -------- --------
</TABLE>
F-18
<PAGE>
Income tax (benefit) expense differed from the expected amounts
(computed by applying the United States federal income tax rate of
34% in both 1999 and 1997 and 35% in 1998 to pretax (loss) earnings)
as a result of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------
(In thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed "expected" income tax (benefit) expense $(8,443) $ 9,265 $ 1,385
Increase (reduction) in income taxes resulting from:
Nondeductible goodwill 1,119 139 --
Nondeductible merger costs -- -- 430
Nondeductible compensation 517 -- --
Nondeductible expenses 691 79 243
State and local income taxes, net of federal
income tax benefit (868) 719 100
Valuation allowance 2,119 -- --
Other, net (791) 112 (229)
------- ------- -------
(Benefit) provision for income taxes $(5,656) $10,314 $ 1,929
------- ------- -------
------- ------- -------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets (liabilities) are presented below:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
(In thousands) 1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Deductible goodwill $ 591 $ 1,035
Accounts receivable, principally due to allowance for doubtful accounts 1,693 1,094
Inventories, principally due to additional costs inventoried for tax
purposes 897 1,448
Accrued expenses 4,999 1,865
Stock based compensation 662 116
Net operating loss and credit carryforwards 2,319 1,307
Other 317 762
-------- --------
11,478 7,627
Valuation allowance (2,119) --
-------- --------
Total deferred tax assets 9,359 7,627
-------- --------
Deferred tax liabilities:
Property, plant and equipment (448) (11,162)
Deferred gain on sale of Image (170) --
Other (315) (476)
-------- --------
Total deferred tax liabilities (933) (11,638)
-------- --------
Net deferred tax asset (liability) $ 8,426 $ (4,011)
-------- --------
-------- --------
</TABLE>
The Company has generated net operating loss carryforwards ("NOLs") in
various states which will be utilized to offset taxable income generated
in future years, subject to the applicable limitations and the NOLs'
expiration occurring between 2002 and 2019. A valuation allowance for
certain of the state NOLs has been provided in the accompanying
consolidated financial statements as of January 31, 1999 as it is more
likely than not that some of the NOLs will not be realized.
F-19
<PAGE>
NOTE 13. RELATED-PARTY TRANSACTIONS.
In August 1997, the Company invested $1,000,000 in North Atlantic
Acquisition Corp. ("North Atlantic"), a blind pool investment vehicle.
A.J. Nassar, the President and Chief Executive Officer of the Company, is
a shareholder and former director of North Atlantic. At the time of the
Company's investment in North Atlantic, Mr. Nassar owned 14.1% of the
outstanding Class A common stock of North Atlantic. As a result of North
Atlantic's initial public offering and subsequent merger, Mr. Nassar's
percentage of ownership was reduced to less than one percent of the
outstanding shares of Class A common stock. The Company's investment in
North Atlantic has been included in other assets in the accompanying
balance sheets.
As of January 31, 1999 and 1998, the Company had loans outstanding to
officers, directors and employees for $1,900,000 and $1,593,000,
respectively. The notes receivable have an annual interest rate of
approximately 8.0% - 9.25% and are to be repaid in annual installments
plus accrued interest over the next four years or are due on demand. The
officer, director and employee receivables have been included in
receivables in the accompanying balance sheet.
Ronald H. McSwain and Herb Wolk, directors of the Company, each own a
floor covering retailer, which is a franchisee of the Company. During
fiscal 1999, Mr. McSwain's floor covering company paid $11,000 to the
Company for various services and received $567,000 in rebates and other
consideration from the Company. During fiscal 1999, Mr. Wolk's floor
covering company paid less than $1,000 to the Company for miscellaneous
items and received $128,000 in rebates and other consideration from the
Company.
Julian D. Saul, who owns 9.6% of the outstanding shares of the Company's
common stock, serves as President and a director of Shaw Industries,
Inc., one of the Company's suppliers of floor covering products. During
fiscal 1999, the Company purchased approximately $84,000,000 of floor
covering products from Shaw and received approximately $12,000,000 of
rebates and other vendor support payments from Shaw. In addition, in
connection with the acquisition of the retail store assets of Shaw in
August 1998, the Company issued to Shaw a promissory note in the
principal amount of $18,000,000 (adjusted to $11,496,000 after giving
effect to purchase price adjustments). This note is due November 1999
and bears interest at a rate equal to the rate paid by the Company on
its Senior Credit Facility.
NOTE 14. STOCKHOLDERS' EQUITY.
On February 18, 1997, the Company sold 3,175,773 shares of its common stock
to the public. The Company received approximately $47,900,000 of proceeds
from the offering, and such proceeds were utilized to reduce amounts
outstanding under the Company's credit facility. During the fiscal year
ended January 31, 1999, the Company issued 3,510,776 shares of its common
stock, of which 36,078 are in escrow as of January 31, 1999, for the
purchase of CarpetsPlus and the retail store assets of Shaw (See Note 3).
In March 1997, the board of directors of the Company authorized a stock
repurchase program pursuant to which the Company has periodically
repurchased shares of its common stock in the open market. As of January
31, 1999, the Company had repurchased an aggregate of 2,365,900 shares for
$34,818,000. The ability of the Company to repurchase its common stock is
limited by certain restrictions contained in the Indenture relating to the
Company's Senior Notes (See Note 11).
The Company adopted a stock option plan in fiscal 1994, which, as amended,
provides for the granting of incentive and nonqualified stock options for
up to 5,000,000 shares of common stock to key employees and directors at an
exercise price of at least 100% of fair market value at the date of grant.
Information relating to stock options granted under the Company's stock
option plan is summarized as of and for the fiscal years ended January
31, 1999, 1998, and 1997 as follows:
F-20
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Options outstanding at beginning of
fiscal year 2,333,555 1,455,508 821,308
Options granted 1,409,000 1,309,527 771,000
Options canceled (135,476) (282,562) (41,224)
Options exercised (363,035) (148,918) (95,576)
------------- ------------- -------------
Options outstanding at end of fiscal year 3,244,044 2,333,555 1,455,508
------------- ------------- -------------
------------- ------------- -------------
Option prices per share (excluding replacement stock options):
Options granted $14.25-$17.50 $10.00-$16.00 $ 9.75-$15.50
Options canceled $10.25-$14.50 $10.25-$15.50 $ 5.25-$13.50
Options exercised $ 5.25-$15.50 $ 5.25-$14.50 $ 5.25-$11.75
Options outstanding at end of fiscal year $ 5.25-$17.50 $ 5.25-$16.00 $ 5.25-$15.50
Weighted average option prices per share:
Options granted $ 14.55 $ 12.97 $ 11.91
Options canceled $ 11.88 $ 13.05 $ 11.81
Options exercised $ 11.47 $ 9.26 $ 7.21
Options outstanding at end of fiscal year $ 13.01 $ 10.56 $ 10.24
</TABLE>
Subsequent to January 31, 1999, the Company granted options to purchase a
total of 662,000 shares of common stock to certain employees, officers and
directors. The options granted have exercise prices ranging from $6.13 to
$19.25 per share and generally become exercisable over various terms
ranging from immediate vesting to 20% per year.
The majority of the employee options become exercisable in increments
ranging from 20% to 33 1/3% per year; however certain options have various
other vesting provisions.
At January 31, 1999, the outstanding options had a weighted average
remaining contractual life of approximately 7.8 years and there were
1,406,613 options currently exercisable with option prices ranging from
$5.25 to $16.00 with a weighted average exercise price of $11.62.
Effective August 10, 1993, Image adopted a Plan and Agreement of Conversion
(the "Conversion"), in which all previously outstanding vested and unvested
stock options and unvested stock appreciation units were canceled and a
like number of fully vested replacement stock options were issued. These
options have an exercise price of $.01 per share and expire March 30, 2006.
At January 31, 1999, 195,634 replacement stock options were outstanding,
which are not included in the stock option information presented in the
above table.
F-21
<PAGE>
In connection with the August 1996 merger between the Company and Image,
all outstanding options under the Conversion and the Stock Option Plan were
converted into like options to purchase shares of common stock of the
Company.
SFAS No. 123 defines a fair value-based method of accounting for
employee stock options or similar equity instruments. However, it also
allows an entity to continue to measure compensation cost for those
plans using the method of accounting prescribed by APB Opinion No. 25.
Entities electing to remain with the accounting in APB Opinion No. 25
must make pro forma disclosures of net earnings and earnings per share
as if the fair value-based method of accounting defined in the statement
had been applied.
The Company has elected to account for its stock-based compensation plan
under APB Opinion No. 25; however, the Company has computed for pro forma
disclosure purposes the value of all options granted since April 1, 1995
using the Black-Scholes option pricing model as prescribed by SFAS No. 123
using the following weighted average assumptions for such grants with
respect to fiscal 1999, 1998, and 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------------
1999 1998 1997
--------- ----------- ----------
<S> <C> <C> <C>
Risk-free interest rate 4.50% 5.95%-6.75% 5.5%-6.8%
Expected dividend yield -- -- --
Expected life 5.0 years 7.5 years 7.5 years
Expected volatility 43% 49% 50%
</TABLE>
The weighted average fair value per share of awards granted in fiscal 1999,
1998, and 1997 was $6.41, $6.93, and $7.59, respectively. The total value
of the options granted during the years ended January 31, 1999, 1998, and
1997 was computed as approximately $9,045,000, $7,014,000, and $4,779,000,
respectively, which would be amortized over the vesting period of the
options. If the Company had accounted for the stock option plans in
accordance with SFAS No. 123, the Company's reported pro forma net (loss)
income and pro forma net (loss) earnings per share for the years ended
January 31, 1999, 1998, and 1997 would have decreased to the following pro
forma amounts:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------------
(In thousands, except per share data) 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma net (loss) income:
As reported in the financial statements $ (19,552) $ 15,371 $ 2,145
Pro forma in accordance with SFAS No. 123 (21,761) 14,096 1,560
Pro forma diluted (loss) earnings per common share:
As reported in the financial statements $ (1.10) $ 0.92 $ 0.15
Pro forma in accordance with SFAS No. 123 (1.22) 0.84 0.11
</TABLE>
F-22
<PAGE>
NOTE 15. EMPLOYEE BENEFIT PLAN.
The Company has a 401(k) retirement savings plan, which is open to all
employees who have completed one year of service. The Company's matching
contribution is twenty-five percent of the contributions made by the
employee limited to 6% of the employee's salary. The Company's matching
contribution vests to the employees over a six-year period. The expense
incurred for the plan was $458,000, $171,000 and $169,000 for the years
ended January 31, 1999, 1998 and 1997, respectively.
NOTE 16. COMMITMENTS AND CONTINGENCIES.
LEASES
The Company is a party to noncancelable lease agreements involving property
and equipment, which extend for varying periods up to 20 years. Certain of
these leases have options to renew at varying terms.
Rental expense for operating leases amounted to $21,906,000, $6,431,000,
and $5,225,000 for the years ended January 31, 1999, 1998, and 1997,
respectively.
Included in property, plant and equipment are the following assets held
under capital leases:
<TABLE>
<CAPTION>
RELATED
(In thousands) PARTY OTHER TOTAL
------- ------- -------
<S> <C> <C> <C>
JANUARY 31, 1999:
Buildings and leasehold improvements $ 2,318 $ 5,801 $ 8,119
Machinery and equipment 4 1,460 1,464
------- ------- -------
Assets under capital leases 2,322 7,261 9,583
Less accumulated amortization (1,329) (163) (1,492)
------- ------- -------
Assets under capital leases, net $ 993 $ 7,098 $ 8,091
------- ------- -------
------- ------- -------
January 31, 1998:
Buildings and leasehold improvements $ 2,389 $ 1,080 $ 3,469
Machinery and equipment -- 469 469
------- ------- -------
Assets under capital leases 2,389 1,549 3,938
Less accumulated amortization (1,157) (489) (1,646)
------- ------- -------
Assets under capital leases, net $ 1,232 $ 1,060 $ 2,292
------- ------- -------
------- ------- -------
</TABLE>
F-23
<PAGE>
The Company is in default of certain of its capital lease obligations.
The obligations under such leases are classified as current liabilities
in the accompanying financial statements.
Minimum future lease obligations on long-term noncancelable leases in
effect at January 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES
--------------------------------------
RELATED OPERATING
(In thousands) PARTY OTHER TOTAL LEASES
-------- -------- -------- --------
<S> <C> <C> <C> <C>
2000 $ 342 $ 1,066 $ 1,408 $ 33,606
2001 232 1,083 1,315 31,149
2002 197 904 1,101 27,808
2003 177 777 954 19,234
2004 46 1,607 1,653 16,282
2005 and thereafter -- 5,766 5,766 60,572
-------- -------- -------- --------
Total minimum lease payments 994 11,203 12,197 $188,651
--------
--------
Less amounts representing interest (128) (3,965) (4,093)
Less current portion (325) (908) (1,233)
-------- -------- --------
$ 541 $ 6,330 $ 6,871
-------- -------- --------
-------- -------- --------
</TABLE>
The Company sold certain land and buildings for $21,471,000 in January
1999. The assets were leased back from the purchasers over a period of 15
years and substantially all are being accounted for as operating leases.
The leases require the Company to pay customary operating and repair
expenses and to observe certain customary operating restrictions. The
leases contain renewal options at lease termination.
GUARANTEE
In connection with the Company's consumer credit program, it guarantees
the obligations of its franchisees related to charge backs for customer
disputes in the event that the franchisee is unable to correct the
defect and is insolvent, has terminated its business or is in bankruptcy.
LEGAL PROCEEDINGS
Since the May 18, 1999 announcement that the Company would be restating
financial results for fiscal 1999 and certain of the quarters therein,
eleven lawsuits claiming to be class actions have been filed against the
Company and certain of its current and former executive officers and
directors. Each of these actions was filed in the U. S. District Court
for the Northern District of Georgia. The plaintiffs in these actions
purport to represent a class of all persons who purchased or otherwise
acquired the common stock of the Company between August 31, 1998 and May
19, 1999. The Complaints allege that the Company and certain of its
current and former officers and directors violated the federal
securities laws by, among other things, issuing materially false and
misleading statements regarding the Company's financial results for
fiscal 1999 and for certain quarters therein, which had the effect of
artificially inflating the market price of the Company's common stock.
The Complaints allege that by virtue of this conduct the defendants
violated Section 10(b) of the Securities Exchange Act of 1934 (the "1934
Act") and SEC Rule 10b-5 thereunder. The Complaints also allege that the
individual defendants were controlling persons within the meaning of
Section 20 of the 1934 Act and are therefore liable to the plaintiffs on
that basis as well. The Complaints seek compensatory and punitive
damages along with pre-judgment interest, reasonable attorneys fees,
expert witness fees and other costs.
On August 16, 1999, the defendants moved to dismiss all the complaints on
the grounds that they do not plead sufficient facts to set forth a fraud
claim. The proposed lead plaintiff, Rudman Partners, LP, has opposed the
motion and sought leave to file a consolidated, amended complaint.
The Company and its named officers and directors intend to vigorously
defend these claims. These actions have only recently been filed,
however, and it is not possible at this time to determine the outcome of
these lawsuits or the effect of their resolution on the Company's
financial position or operating results. Management believes that the
Company's defenses have merit; however, there can be no assurance that
the Company will be successful in its defense or that these lawsuits
will not have a material adverse effect on the Company's results of
operations for some period or on the Company's financial position.
The Company has made a claim under its directors and officers liability
insurance policy with respect to the litigation described above. There
can be no assurance, however, that this policy will be sufficient to
cover all liability in the event of an adverse outcome in those lawsuits.
Since the May 18, 1999 announcement that the Company would be restating
financial results for fiscal 1999 and certain of the quarters therein,
the Securities and Exchange Commission ("SEC") commenced an informal
inquiry in connection with the matters relating to the restatement. The
SEC may convert the informal inquiry into a formal investigation of the
matters relating to the restatement. The staff of the SEC has advised
Maxim that its inquiry should not be construed as an indication by the
SEC or its staff that any violations of law have occurred.
Except as discussed above, management is not aware of any asserted or
pending litigation or claims whose ultimate disposition will have a
material adverse effect on the Company's consolidated financial position
or results of operations.
F-24
<PAGE>
NOTE 17. EXPORT SALES
In fiscal years 1999, 1998 and 1997, export sales accounted for
approximately 3%, 5% and 6%, respectively, of the Company's revenues.
Export sales were related to Image and made principally to customers in the
Middle East, Europe and Canada.
NOTE 18. SEGMENT INFORMATION.
SFAS No. 131 - "Disclosures about Segments of an Enterprise and Related
Information" - became effective for fiscal year 1999 and for all
succeeding interim reporting periods. In accordance with the
requirements of SFAS No. 131, the Company has identified three
reportable segments through which it conducts its operating activities:
retail, manufacturing operations and franchise services. These three
segments reflect an aggregation of the operating segments used by
Company management for making decisions and assessing performance.
Management determines operating segments based primarily upon the
operations' line of business and geographic location. Operating segments
were aggregated into reportable segments based upon characteristics such
as products and services, operating methods, customers, and distribution
methods. The retail segment is comprised of retail floor covering stores
and distribution support centers. The manufacturing segment is comprised
of the operations of Image. The franchise services segment includes
store development, marketing, advertising, production, consumer credit,
training and product sourcing activities as well as interest expense and
corporate non-operating items not directly relating to the manufacturing
or retail segments.
Intersegment sales and transfers occur as carpet is transferred from Image
to the Company's retail segment and as the retail segment purchases
advertising, training or product sourcing services from the franchise
services segment. Intersegment transactions are accounted for on the
same basis as transactions with third parties.
Identifiable assets consist of cash, property, plant and equipment used
in the operations of the segment, as well as inventory, receivables
and other assets directly related to the segment. The Company has no
assets located outside the United States.
F-25
<PAGE>
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
FRANCHISE INTERSEGMENT
(In thousands) MANUFACTURING RETAIL SERVICES ELIMINATIONS TOTAL
------------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1999:
Revenues $ 197,796 $ 439,137 $ 71,408 (43,915) $ 664,426
Nonrecurring charges -- -- 23,713 -- 23,713
Operating income (loss) 14,171 (18,879) (25,330) (7,336) (37,374)
Interest expense 5,945 3,964 14,411 (9,223) 15,097
Income tax benefit (provision) (12,070) 3,580 14,146 -- 5,656
Extraordinary charge -- -- 377 -- 377
Net (loss) income 21,677 (19,458) (21,771) -- (19,552)
Depreciation and amortization 10,054 5,564 3,591 -- 19,209
Capital expenditures 29,043 15,375 18,146 -- 62,564
Total assets 7,765 205,486 175,517 -- 388,768
--------- --------- ---------- --------- ---------
Year Ended January 31, 1998:
Revenues $ 178,011 $ 150,290 $ 43,505 (6,679) $ 365,127
Operating income (loss) 23,236 184 7,336 1,035 31,791
Interest expense 4,851 2,523 6,288 (6,714) 6,948
Income tax benefit (provision) (6,933) 540 (3,921) -- (10,314)
Extraordinary charge -- -- 785 -- 785
Net (loss) income 11,509 (1,354) 5,216 -- 15,371
Depreciation and amortization 8,820 2,237 893 -- 11,950
Capital expenditures 20,002 21,322 6,349 -- 47,673
Total assets 185,183 67,483 68,828 -- 321,494
--------- --------- ---------- --------- ---------
Year Ended January 31, 1997:
Revenues $ 162,681 $ 120,089 $ 30,635 (3,684) $ 309,721
Operating income (loss) 8,695 (396) 1,916 (50) 10,165
Interest expense 4,140 1,188 4,246 (2,568) 7,006
Income benefit (provision) (1,494) 306 (741) -- (1,929)
Net (loss) income 2,878 (743) 10 -- 2,145
Depreciation and amortization 7,907 1,767 844 -- 10,518
Capital expenditures 15,425 1,106 913 -- 17,444
--------- --------- ---------- --------- ---------
</TABLE>
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Revenues:
Domestic $644,133 $345,132 $291,985
Foreign 20,293 19,995 17,736
-------- -------- --------
Total $664,426 $365,127 $309,721
-------- -------- --------
-------- -------- --------
</TABLE>
F-26
<PAGE>
NOTE 19. SUBSEQUENT EVENTS.
SENIOR NOTES
In March 1999, the Company purchased the principal amount of $4,000,000
of its Senior Notes in the open market. The amount paid approximated the
face amount of the Senior Notes.
CREDIT FACILITY
On May 18, 1999, the Company entered into an amended and restated credit
facility, which provides for aggregate commitments of $75,000,000 (the
"Amended Credit Facility"). The Amended Credit Facility consists of a
revolving facility that matures three years from the closing of the
Amended Credit Facility. Borrowings under the Amended Credit Facility
are secured by accounts receivable, inventories, certain real and
personal property, and certain intangible assets of Maxim and its
subsidiaries, as well as the capital stock of all of its subsidiaries.
As additional collateral security for the Amended Credit Facility, the
Company has established a cash collateral account with the lenders. As
of October 11, 1999 the cash collateral account balance was $41.9
million. As of October 11, 1999, the Company had $6,275,000 available
under the revolver. Amounts outstanding under the Amended Credit
Facility bear interest at various variable rates. The Amended Credit
Facility contains a number of covenants customary for credit
transactions of this type and requires the Company to meet certain
financial ratios. Because of the Company's violation of various
covenants (principally related to failures to provide required financial
information and other documentation), certain events of default exist
under the Amended Credit Facility. The Company and its senior lenders
have entered into a forebearance agreement with respect to such events
of default, which forebearance currently extends to November 15, 1999.
The Company is currently in discussions with its senior lenders to amend
or replace the Amended Credit Facility. The negotiations involve
enhanced credit availability, a new maturity date and improved advance
ratios on existing collateral.
Amounts outstanding under the Amended Credit Facility bear interest at a
variable rate equal to, at the Company's option, (i) the base rate
(defined as the greater of the prime rate or the federal funds rate plus
one-half of one percent) or (ii) the adjusted LIBOR rate, in each case
plus the applicable margin. The applicable margin ranges from 1.25% to
2.50% for loans that bear interest at the adjusted LIBOR rate. The
Company is required to pay the lenders under the Amended Credit Facility,
on a quarterly basis, a commitment fee ranging from 0.25% to 0.50% of
the unused portion of the Amended Credit Facility. The Company is
required to pay administration fees quarterly. The Amended Credit
Facility contains a number of covenants, including, among others,
covenants restricting the Company and certain of its subsidiaries with
respect to the incurrence of indebtedness (including contingent
obligations); the creation of liens; the sale, lease, assignment,
transfer, or other disposition of assets; the making of certain
investments, loans, advances, and acquisitions; the consummation of
certain transactions, such as mergers or consolidations. Further, the
Amended Credit Facility contains cross default provisions related to the
Company's other indebtedness. The Amended Credit Facility requires the
Company to meet certain financial ratios and covenants, including debt
to equity, debt to capital, minimum tangible net worth, minimum EBITDAR
and fixed charges.
Because of the Company's violation of various covenants (principally
related to failures to provide required financial information and other
documentation) certain events of default exist under the Amended Credit
Facility. The Company and its senior lenders have entered into a
forebearance agreement with respect to such events of default, which
extends to November 15, 1999.
ACQUISITIONS
Subsequent to the fiscal year ended January 31, 1999, the Company
acquired 15 retail locations for an aggregate amount of approximately
$20,700,000. The related purchase agreements also provide for additional
consideration to be paid based on certain locations' future financial
performance.
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(In thousands, except per share data) QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1999:
Net revenues $ 96,632(1) $ 95,581 (1) $ 249,572 (1) $ 222,641
Gross profit 27,068(1) 22,760 (1) 85,973 (1) 71,286
Income (loss) before extraordinary charge 1,318(1) (21,600)(1) 2,631 (1) (1,524)
Extraordinary charge, net of taxes -- -- 377 --
Net income (loss) 1,318(1) (21,600)(1) 2,254 (1) (1,524)
Basic earnings (loss) per common share before
extraordinary charge 0.08(1) (1.32)(1) 0.14 (1) (0.08)
Extraordinary charge -- -- (0.02) --
Basic earnings (loss) per common share 0.08(1) (1.32)(1) 0.12 (1) (0.08)
Diluted earnings (loss) per common share before
extraordinary charge 0.08(1) (1.32)(1) 0.13 (1) (0.08)
Extraordinary charge -- -- (0.02) --
Diluted earnings (loss) per common share 0.08(1) (1.32)(1) 0.11 (1) (0.08)
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(In thousands, except per share data) QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended January 31, 1998:
Net revenues $ 86,225 $ 92,243 $ 98,328 $ 88,331
Gross profit 27,070 29,172 31,476 28,028
Income before extraordinary charge 3,251 4,585 5,182 3,138
Extraordinary charge, net of taxes -- -- (785) --
Net income 3,251 4,585 4,397 3,138
Basic earnings per common share before
extraordinary charge 0.20 0.28 0.32 0.20
Extraordinary charge, net of taxes -- -- (0.05) --
Basic earnings per common share 0.20 0.28 0.27 0.20
Diluted earnings per common share before
extraordinary charge 0.20 0.28 0.31 0.19
Extraordinary charge, net of taxes -- -- (0.05) --
Diluted earnings per common share 0.20 0.28 0.26 0.19
</TABLE>
- ----------------
(1) Amounts as restated in the Company's Quarterly Reports on Form 10-Q/A for
the quarters ended April 30, 1998, July 31, 1998 and October 31, 1998, as
filed with the Securities and Exchange Commission. In connection with its
year-end audit process, the Company recorded certain adjustments that it
deemed necessary to more accurately state the previously filed fiscal 1999
interim financial statements. These adjustments included changes in
recognition and/or timing of certain vendor support funds, certain expense
accruals, and asset write-downs.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Maxim Group, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of THE MAXIM GROUP, INC. AND SUBSIDIARIES
as of January 31, 1999 and 1998 and for each of the three years in the period
ended January 31, 1999 included in the Company's annual report on Form 10-K
for the period ended January 31, 1999, and have issued our report thereon
dated October 11, 1999. Our report on the consolidated financial statements
includes an explanatory paragraph with respect to the preparation of the
financial statements assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the Company is
not in compliance with a certain restricted payment covenant contained in the
indenture which references the Company's $100 million Senior Subordinated
Notes due October 2007 (the "Senior Notes") and as a result, the trustee or
the holders of not less than 25% of the Senior Notes may declare all unpaid
principal plus any accrued interest of all of the Senior Notes due and
payable. The Company's available borrowings under its Senior Credit Facility
plus cash on hand are not sufficient to repay the Senior Notes if declared
due and payable. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 11, 1999
S-1
<PAGE>
SCHEDULE II
THE MAXIM GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Balance at Charge to Charge to
Beginning of Costs and Other Balance at
(In thousands) Year Expense Accounts (b) Deductions End of Year
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1999:
Allowance for doubtful accounts (a) $2,916 $6,801 $1,009 $(3,342) $7,384
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
YEAR ENDED JANUARY 31, 1998:
Allowance for doubtful accounts (a) $2,269 $2,105 $ 125 $(1,583) $2,916
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
YEAR ENDED JANUARY 31, 1997:
Allowance for doubtful accounts (a) $2,373 $1,192 $ 223 $(1,519) $2,269
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
(a) The Company's other valuation and qualifying accounts are not significant
and are omitted in accordance with Rule 4.02 or are presented in the notes
to the Company's Consolidated Financial Statements.
(b) These amounts include reserves of acquired operations.
S-2
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Form
10-K to be signed on its behalf by the undersigned, in the City of Kennesaw,
State of Georgia on October 18, 1999.
THE MAXIM GROUP, INC.
By: /s/ A. J. Nassar
----------------
A. J. Nassar
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald H. McSwain Chairman of the Board October 18, 1999
- ---------------------
Ronald H. McSwain
/s/ A. J. Nassar President, Chief Executive October 18, 1999
- --------------------- Officer and Director
A. J. Nassar (Principal Executive officer)
* Chief Financial Officer and October __, 1999
- --------------------- Secretary (Principal Financial
Leonard H. Thill Officer)
/s/ Thomas P. Leahey Executive Vice President - Finance, October 18, 1999
- --------------------- Treasurer and Director
Thomas P. Leahey
/s/ Stephen P. Coburn Senior Vice President and October 18, 1999
- --------------------- Corporate Controller
Stephen P. Coburn (Principal Accounting Officer)
</TABLE>
* Mr. Thill was recently appointed Chief Financial Officer of the Registrant
and, due to his lack of familiarity with the Registrant, Mr. Thill has not
signed this Annual Report on Form 10-K.
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Joseph J. Jillson Director October 14, 1999
- ---------------------
Joseph J. Jillson
/s/ Richard A. Kaplan Director October 14, 1999
- ---------------------
Richard A. Kaplan
/s/ J. Michael Nixon Director October 14, 1999
- ---------------------------
J. Michael Nixon
/s/ Larry T. Solari Director October 14, 1999
- -------------------
Larry T. Solari
Director October , 1999
- -------------
Herb Wolk
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3.1.2 Certificate of Amendment dated December 17, 1998
10.1.4 Amendment No. 4 to 1993 Stock Option Plan
10.1.5 Amendment No. 5 to 1993 Stock Option Plan
10.3 Form of CarpetMAX Franchise Membership Agreement.
10.23 Amended and Restated Credit Agreement, by and among the Company, as
Borrower, the Domestic Subsidiaries of the Company, as Guarantors, the
Lenders identified therein, and NationsBank, N.A., as Administrative
Agent, dated as of May 18, 1999, in the aggregate principal amount of
$ 75.0 million.
10.23.1 First Amendment to Credit Agreement and Forbearance, dated
July 23, 1999, among the Company, as Borrow, the Domestic
Subsidiaries of the Company, as Guarantors, Bank of
America, N.A. (formerly NationsBank, N.A.), as
Administrative Agent, and the Lenders party thereto.
10.23.2 Second Amendment to Credit Agreement, Forbearance and
Waiver, dated September 7, 1999, among the Company, as
Borrower, the Domestic Subsidiaries of the Company, as
Guarantors, Bank of America, N.A. (formerly NationsBank,
N.A.), as Administrative Agent, and the Lenders party
thereto.
10.23.3 Third Amendment to Credit Agreement and Forbearance, dated October
11, 1999, among the Company, as Borrower, the Domestic Subsidiaries
of the Company, as Guarantors, Bank of America, N.A. (formerly
NationsBank, N.A.), as Administrative Agent, and the Lenders party
thereto.
10.26 Employment Agreement, dated September 27, 1999, by and between the
Company and Leonard H. Thill.
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 3.1.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE MAXIM GROUP, INC.
The Maxim Group, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST, that at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted which proposed an amendment to the Certificate of
Incorporation of the Corporation, declaring said amendment to be advisable and
directing that said amendment be considered at a special meeting of the
stockholders of the Corporation.
SECOND, that thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of said amendment.
THIRD, that said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH, that the capital of the Corporation shall not be reduced under
or by reason of said amendments.
FIFTH, that in accordance therewith, the Certificate of Incorporation
of the Corporation is hereby amended as follows:
Article IV of the Certificate of Incorporation of the Corporation shall
be amended by deleting the first two paragraphs thereof in their entirety and
replacing them as follows:
"The Corporation shall have authority to issue 76,000,000
shares of capital stock, which shall be divided into classes and shall
have the following designations, preferences, limitations and relative
rights:
A. COMMON STOCK. One class shall consist of 75,000,000 shares
of common stock having a par value of $.001 per share, designated
"Common Stock." Subject to the rights of the holders of Preferred
Stock, the holders of Common Stock shall be entitled to elect all of
the members of the Board of Directors of the Corporation, and such
holders shall be entitled to vote as a class on all matters required or
permitted to be submitted to the shareholders of the Corporation."
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its duly authorized officers this 17th day of
December, 1998.
THE MAXIM GROUP, INC.
By: /s/ A. J. Nassar
--------------------------
A. J. Nassar, President
<PAGE>
Exhibit 10.1.4
AMENDMENT NO. 4
1993 STOCK OPTION PLAN
THE MAXIM GROUP, INC.
WHEREAS, the Board of Directors of The Maxim Group, Inc. (the "Company")
has previously adopted, and the shareholders of the Company have approved, the
1993 Stock Option Plan, as amended (the "Plan") pursuant to which options to
purchase stock of the Company may be issued to eligible directors, officers and
key employees of the Company; and
WHEREAS, the Board of Directors of the Company deems it desirable to
amend the Plan so as to increase the number of shares available for issuance
pursuant to the exercise of options granted under the Plan;
NOW, THEREFORE, the Plan is amended upon the terms, and subject to the
conditions, set forth herein:
ARTICLE I
AMENDMENT TO PLAN
1.1 Section 4 of the Plan shall be amended by deleting the second
sentence thereof in its entirety and substituting the following sentence
therefor:
"The maximum number of shares which shall be reserved
and made available for sale under the Plan shall be
4,000,000."
ARTICLE II
EFFECTIVE DATE OF AMENDMENT
2.1 The amendment effected hereby shall be effective for options granted
under the Plan on or after the date this amendment is approved by the Board of
Directors of the Company, but subject to approval of a majority of the shares of
Common Stock of the Company entitled to vote thereon represented in person and
by proxy at a meeting of shareholders. In the event shareholder approval of
adoption of this amendment is not obtained within twelve months of the date this
amendment is approved by the Board of Directors of the Company, then any option
granted in the intervening period shall be void.
<PAGE>
Exhibit 10.1.5
AMENDMENT NO. 5
1993 STOCK OPTION PLAN
THE MAXIM GROUP, INC.
WHEREAS, the Board of Directors of The Maxim Group, Inc. (the "Company")
has previously adopted, and the shareholders of the Company have approved, the
1993 Stock Option Plan, as amended (the "Plan") pursuant to which options to
purchase stock of the Company may be issued to eligible directors, officers and
key employees of the Company; and
WHEREAS, the Board of Directors of the Company deems it desirable to
amend the Plan so as to increase the number of shares available for issuance
pursuant to the exercise of options granted under the Plan and to conform the
plan administration provisions of the Plan to the requirements of SEC Rule
16b-3;
NOW, THEREFORE, the Plan is amended upon the terms, and subject to the
conditions, set forth herein:
ARTICLE I
AMENDMENTS TO PLAN
1.1 Section 4 of the Plan shall be amended by deleting the second
sentence thereof in its entirety and substituting the following sentence
therefor:
"The maximum number of shares which shall be reserved
and made available for sale under the Plan shall be
5,000,000."
1.2 Section 5 of the Plan shall be amended by deleting the first
paragraph thereof in its entirety and substituting the following therefor:
"The Plan shall be administered by the Board of
Directors of the Company or the Committee. The
Committee shall be comprised of not less the two (2)
Non-Employee Directors. "Non-Employee Director" shall
have the meaning set forth in Rule 16b-3(b)(3) as
promulgated by the Commission under the Securities
Exchange Act of 1934, as amended, or any successor
definition adopted by the Commission."
ARTICLE II
EFFECTIVE DATE OF AMENDMENT
2.1 The amendment effected hereby shall be effective for options granted
under the Plan on or after the date this amendment is approved by the Board of
Directors of the Company, but, with
<PAGE>
respect to the amendment set forth in Section 1.1 hereof, subject to approval of
a majority of the shares of Common Stock of the Company entitled to vote thereon
represented in person and by proxy at a meeting of shareholders. In the event
shareholder approval of adoption of Section 1.1 of this amendment is not
obtained within twelve months of the date this amendment is approved by the
Board of Directors of the Company, then any option granted in the intervening
period shall be void.
<PAGE>
Exhibit 10.3
CARPETMAX -REGISTERED TRADEMARK- FRANCHISE AGREEMENT
BETWEEN
CARPETMAX, L.P.
AND
-------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
1. GRANT OF FRANCHISE................................................................................1
2. FRANCHISE FEE.....................................................................................3
3. TERM..............................................................................................3
4. PROPRIETARY MARKS.................................................................................3
5. OBLIGATIONS OF THE COMPANY........................................................................4
6. DEALER'S OPERATIONAL COVENANTS....................................................................5
7. ADVERTISING AND MARKETING.........................................................................9
8. CONFIDENTIAL INFORMATION..........................................................................9
9. DISCLAIMER OF WARRANTY AND LIMITATIONS ON LIABILITY..............................................10
10. RESTRICTIVE COVENANT.............................................................................10
11. RIGHT TO ACCESS, INSPECTION AND FINANCIALS.......................................................10
12. INDEMNIFICATION AND INSURANCE....................................................................11
13. TERMINATION......................................................................................11
14. RIGHTS AND DUTIES OF PARTIES UPON TERMINATION....................................................14
15. TRANSFERABILITY OF INTEREST......................................................................15
16. GOVERNING LAW....................................................................................17
17. INDEPENDENT CONTRACTOR...........................................................................17
18. WAIVERS..........................................................................................17
19. INJUNCTIVE RELIEF................................................................................18
20. RIGHT TO OFFSET..................................................................................18
21. NOTICES..........................................................................................18
22. ATTORNEYS' FEES AND LATE CHARGES.................................................................18
23. SEVERABILITY AND CONSTRUCTION....................................................................18
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
24. ARBITRATION......................................................................................19
25. LIMITATION ON CERTAIN LIABILITY..................................................................20
26. ENTIRE AGREEMENT.................................................................................20
27. MISCELLANEOUS PROVISIONS.........................................................................20
</TABLE>
Schedule "A" - Dealer's Exclusive Area and Miscellaneous Information
Schedule "B" - Merchandise Introductory Package
Schedule "C" - State-Specific Amendments
Schedule "D" - Guaranty by The Maxim Group, Inc.
-ii-
<PAGE>
CARPETMAX -REGISTERED TRADEMARK- FRANCHISE AGREEMENT
THIS AGREEMENT, made this ______ day of __________________, 19__,
between Carpetmax, L.P., a Georgia limited partnership with its principal place
of business at 210 TownPark Drive, Kennesaw, Georgia 30144 (the "Company"), and
___________________ ____________________________________ (the "Dealer") a (check
one) ____ individual ____ partnership or ____ corporation organized under the
laws of the State of ___________________ with its principal place of business
set forth on Schedule "A" hereto.
WITNESSETH:
WHEREAS, through the expenditure of considerable time, effort and
money, the Company and its general partner, The Maxim Group, Inc. ("Maxim"),
have developed a special expertise for the operation of a retail floor
covering business which include certain unique and proprietary products,
goods and services and business methodologies, operational procedures,
business techniques, advertising, sales and promotional techniques, personnel
training, purchasing practices, merchandising programs, access to favorable
pricing from suppliers and distributors of floor covering products, and other
matters relating to the efficient operation of such businesses (hereinafter
collectively referred to as the "System") which will be marketed to the
public under the name CarpetMAX -REGISTERED TRADEMARK- and such other
trademarks, service marks, trade names, logotypes, trade symbols, emblems,
signs, slogans, and insignias as may from time to time be created and
licensed by the Company for use in connection with the franchise granted
hereunder (collectively, the "Proprietary Marks"). The Company has expended
substantial sums of time, effort and money in developing and improving the
System and in advertising and promoting the Proprietary Marks. By these
efforts, the Company has established valuable goodwill in connection with the
System and Proprietary Marks;
WHEREAS, the Dealer currently operates one or more retail floor covering
businesses and after investigating the System and the Company's franchise
network has determined that there are significant advantages to becoming a
franchisee of the Company;
WHEREAS, the Dealer desires to receive a license from the Company by
which it will have the right to utilize the System and the Proprietary Marks
pursuant to the terms hereof. By entering into this Agreement, the Dealer
recognizes the actual and potential value of adding the System and the
Proprietary Marks to the Dealer's existing business. Dealer acknowledges that it
is essential to the maintenance of the high standards which the public has come
to expect of authorized franchisees of the Company, and to the preservation of
the integrity and goodwill of the System and the Proprietary Marks, that each
franchisee adhere to certain uniform procedures and policies as further
described below; and
WHEREAS, the Company is willing, upon the terms and conditions described
in this Agreement, to license the Dealer to operate a business which will
utilize the System and the Proprietary Marks.
NOW, THEREFORE, intending to be legally bound, in consideration of the
mutual covenants and promises contained herein, the parties hereto agree as
follows:
1. GRANT OF FRANCHISE
a. Subject to the terms and conditions of this Agreement, the Company
hereby grants to the Dealer and the Dealer hereby accepts, the franchise and
license to operate one or more CarpetMAX -REGISTERED TRADEMARK- stores
(hereinafter any and all stores operating under the System will be referred
to as the "Store") using the Proprietary Marks in conformity with the System
within the geographic area described on Schedule "A" (the "Exclusive Area").
b. During the term of this Agreement and so long as the Dealer is not
in default hereof, the Company shall not license others to operate, anywhere
within the Exclusive Area, a CarpetMAX -REGISTERED TRADEMARK- franchise
<PAGE>
or a retail flooring business utilizing the Proprietary Marks. However, since
the Dealer's license hereunder is limited to using the System and Proprietary
Marks in the Exclusive Area, the Company and its affiliates may own, operate,
license, franchise or in any manner authorize the operation of CarpetMAX
- -REGISTERED TRADEMARK- businesses at any location outside the Exclusive Area,
even in areas immediately adjacent to the Exclusive Area. Additionally, the
Company and its affiliates have the right, within or outside the Exclusive
Area, to develop, produce, market and sell, under one or more brands and
trade names (other than the CarpetMAX -REGISTERED TRADEMARK- brand or trade
name) products and services of the type sold or promoted by CarpetMAX
- -REGISTERED TRADEMARK- stores and to do so through similar or dissimilar
channels of distribution, pursuant to terms and conditions the Company and
its affiliates deem appropriate and the Company and its affiliates have the
right to provide the products and services they provide to CarpetMAX
- -REGISTERED TRADEMARK- franchisees under the System to other retail floor
covering businesses within and outside the Exclusive Area on whatever terms
and conditions they deem appropriate. Furthermore, the Company and its
affiliates have the right to operate or grant franchises to operate floor
covering outlets within the Exclusive Area under brands, trade names and
marks other than the Proprietary Marks. Nothing in this Agreement shall be
deemed to restrict the Company, Maxim or any of its or their affiliates (i)
from acquiring an existing retail floor covering store or group of stores
(whether owned or licensed) and operating such stores in the manner they were
operated at the time of such acquisition, including any such stores located
in the Exclusive Area or (ii) from being acquired by any party regardless of
other lines of business owned by such other party, including retail floor
covering stores operating in the Exclusive Area.
c. Dealer acknowledges that an affiliate of Company, GCO, Inc. ("GCO"),
operates and franchises others to operate discount, outlet and warehouse type
floor covering stores under the name "GCO Carpet Outlet". Nothing herein shall
preclude GCO or any other affiliate of the Company from operating or licensing
others to operate a retail floor covering outlet within the Exclusive Area using
the "GCO Carpet Outlet" name or the GCO Carpet Outlet franchise system. In
connection with the foregoing, Dealer agrees that it is precluded from using the
Proprietary Marks or the System with a discount, outlet or warehouse type floor
covering store or to advertise or position its Store as a discount, outlet or
warehouse type floor covering business. To the extent that Dealer has an
existing retail floor covering outlet which it currently positions as a
discount, outlet or warehouse type business, Dealer understands and agrees that
such outlet shall not be franchised hereunder and shall not become part of the
CarpetMAX -REGISTERED TRADEMARK- franchise system.
d. Dealer acknowledges that an affiliate of Company, CarpetsPlus of
America, Inc. ("CarpetsPlus"), operates a national resource network specializing
in the retail flooring industry. CarpetsPlus, offers franchises to operators of
retail floor covering stores which permit franchisees to purchase products and
other services from CarpetsPlus and its variety of designated suppliers and
distributors. Dealer acknowledges that CarpetsPlus franchisees will operate full
service retail floor covering stores within the Exclusive Area and that nothing
in this Agreement precludes CarpetsPlus from selling franchises within the
Exclusive Area. The Dealer shall have no right to use any trademarks, service
marks or logotypes associated with the CarpetsPlus franchise network.
e. Except for the rights expressly granted to Dealer under this
Agreement, the license granted under this Agreement is non-exclusive, and the
Company and its affiliates, including Maxim, GCO and CarpetsPlus, reserve for
themselves all rights with respect to the System, the Proprietary Marks and
business of the Company.
f. Dealer may sell CarpetMAX -REGISTERED TRADEMARK- private-labeled
products only from a Store which is an authorized CarpetMAX -REGISTERED
TRADEMARK- franchised location within the Exclusive Area. It may, however,
install such products outside of the Exclusive Area, provided, however, that
such products are sold to and installed on behalf of the ultimate consumer of
these products and are not sold for resale or redistribution. Company shall
have the right to terminate this Agreement immediately in the event Dealer
sells CarpetMAX -REGISTERED TRADEMARK- private-labeled products to any
supplier, distributor, broker or other similar entity of floor covering
products either within or outside its Exclusive Area.
-2-
<PAGE>
g. Upon execution of this Agreement and payment of the Franchise Fee as
specified below, Dealer will receive the merchandise introductory package shown
on Schedule "B" for one Store within the Exclusive Area (the "Merchandise
Package"). Merchandise Packages for other authorized Stores operated by the
Dealer within the Exclusive Area are available from the Company in accordance
with its standard policies and published prices.
2. FRANCHISE FEE
a. In consideration for its right to use the System and Proprietary
Marks and other assistance and services Dealer will receive in connection
with the CarpetMAX -REGISTERED TRADEMARK- franchise, Dealer agrees to pay to
the Company a franchise fee of $35,000 (the "Franchise Fee"). The Dealer has
elected to pay the Franchise Fee as follows (check appropriate box):
/ / $33,250 upon execution of this Agreement in full payment of its
Franchise Fee;
OR
/ / $3,000 upon execution of this Agreement and the balance paid as follows:
(i) $2,000 on or before 90 days after this Agreement becomes effective,
(ii) $2,000 on or before 180 days after this Agreement becomes effective
and (iii) the balance of $28,000 due and payable in four consecutive
annual payments of $7,000 plus interest on the unpaid balance at the
rate of 10% per annum, which payments shall be due and payable on the
first four anniversary dates of this Agreement. Upon request, the
Company will supply the Dealer with an amortization schedule for this
installment payment option.
b. The Franchise Fee is deemed fully earned upon the execution of this
Agreement and is nonrefundable, either in whole or in part, except as may
otherwise be provided in Section 12.b.(iii) of this Agreement.
3. TERM
This Agreement shall take effect as of the date first written above (the
"Effective Date") and shall continue in full force and effect for an indefinite
period, unless and until terminated by one of the parties as provided in this
Agreement.
4. PROPRIETARY MARKS
a. Dealer acknowledges that the Company has by this Agreement licensed
Dealer to use the Proprietary Marks, and that the Company is the exclusive owner
of the Proprietary Marks and entitled to all goodwill associated with the
Dealer's use of the Proprietary Marks. Dealer agrees not to contest the validity
of the Proprietary Marks during or after the term of this Agreement. Apart from
the right of Dealer to use the Proprietary Marks pursuant to this Agreement,
Dealer shall acquire no right, title or interest of any kind or nature
whatsoever in or to the Proprietary Marks or the associated goodwill. Dealer
shall use the Proprietary Marks only in connection with the System. Dealer
agrees to use the Proprietary Marks solely in compliance with this Agreement and
the rules established from time to time by the Company, such compliance being
essential to maintain the value of the Proprietary Marks. Dealer agrees not to
manufacture, market or sell products or perform services under the Proprietary
Marks which are not floor covering products or services otherwise approved by
Company or use the Proprietary Marks in any way not explicitly authorized by
this Agreement or otherwise in writing by Company. Dealer acknowledges the
substantial goodwill value of the Proprietary Marks and Dealer will not use the
Proprietary Marks in any manner to impair the goodwill of the Proprietary Marks
nor take any action which will harm or jeopardize the Proprietary Marks, or
Company's ownership thereof, in any way.
-3-
<PAGE>
b. Dealer shall display the Proprietary Marks only in such form and
manner as is specifically approved by the Company and, upon request by Company,
affix any legends, markings and notices of trademark registration or
franchisor-franchisee relationships specified by the Company or any other notice
of Company's ownership. Dealer hereby agrees not to use any Proprietary Mark as
any part of its corporate or legal business name except any fictitious name
registration permitted hereunder. Company shall have the right to approve all
stationery, promotional items, displays and other materials using the
Proprietary Marks prepared by Dealer. Dealer agrees to follow Company's
instructions regarding proper usage of the Proprietary Marks in all respects.
c. Dealer shall immediately notify Company in writing of any apparent
infringement of, or challenge to, the Company's, or Dealer's use of any of the
Proprietary Marks, or claim by any entity of any rights in any Proprietary Mark
or similar trade name or trademark of which the Dealer becomes aware. At its own
expense, Company shall defend Dealer against such challenge, and shall take
action against uses by others that, in the opinion of counsel to the Company,
constitute infringement of the Proprietary Marks. Dealer agrees to execute any
and all documents and give any assistance and do any acts that counsel to
Company deems are necessary or advisable in order to protect the interests of
the Company, provided, that the Company shall reimburse the Dealer for the
reasonable out-of-pocket expenses incurred by it in furnishing such assistance.
With respect to any litigation or proceeding undertaken by the Company pursuant
to this Section 4, the Company will not be bound to defend the Dealer unless the
Dealer's use of the Proprietary Marks has been pursuant to and in compliance
with this Agreement or instructions provided to it by the Company. Decisions
regarding action involving the protection and defense of the Proprietary Marks,
and the settlement of any litigation involving same, shall be solely in the
discretion of Company and Dealer shall take no action in this regard without the
express written permission of Company.
d. Company shall have the right at any time, upon notice, to make
additions to, deletions from, and changes in the Proprietary Marks at its
complete discretion, and Dealer shall adopt and use any and all such additions,
deletions and changes pursuant to Company's instructions. Dealer shall use the
Proprietary Marks that are appropriate for the nature of the Dealer's business
as determined by the Company. Company shall not be liable to Dealer for any
alleged injury to goodwill, loss of future sales or consequential or special
damages in the event the Dealer is required to discontinue use of the
Proprietary Marks.
e. Dealer agrees to join with the Company in any application to enter
Dealer as a registered or permitted user or the like of the Proprietary Marks
with an appropriate governmental agency or entity. Upon termination of this
Agreement for any reason whatsoever, Company may immediately apply to cancel
Dealer's status as a registered or permitted user and Dealer shall consent in
writing for the cancellation and shall join in any cancellation petition. The
expense of any of the foregoing recording activities shall be borne by Company.
5. OBLIGATIONS OF THE COMPANY
During the term hereof, Company and its affiliates agree to provide
Dealer with the following assistance, services or payments:
a. continual and ongoing training of Dealer's employees in different
aspects of the operation of a retail floor covering outlet including, without
limitation, providing such employees with the Company's then-current training
programs regarding sales training, sales management training, new employee
training, train the trainer training, human resource training, all installation
accreditation programs established by the Company and sales success system (S3)
training. All training programs will be offered at no charge and will be
conducted at one of the Company's designated training facilities. Company agrees
to offer these programs as often as is necessary to meet the reasonable requests
of Dealer, however, the Company reserves the right to establish reasonable rules
regarding scheduling and attendance at these programs. Dealer shall be
responsible for all travel and living expenses incurred in attending these
training programs, as well as the wages or salaries of the persons receiving the
training and the costs associated with the various program
-4-
<PAGE>
materials such as books, tapes and written brochures and any shipping and
handling charges if these materials are delivered to the Dealer;
b. continual and ongoing access to and use of Maxim Marketing or its
successor, for advertising and promotional services so that the Dealer will
receive at no charge (i) all advertising and promotional programs and
materials produced or created by Maxim Marketing for the System for radio,
television or print media including ad slicks, circulars, direct mail pieces
and broad sheets, (ii) unlimited use of the CarpetMAX -REGISTERED TRADEMARK-
jingle and (iii) grand opening kits. Dealer remains obligated to pay for the
costs associated with these programs and materials (and any customizing), the
cost of purchasing media, film, paper, and plates and other hard costs and
any shipping and handling charges associated with delivering these items to
the Dealer. Point of purchase materials will be available to the Dealer at
the Company's cost plus shipping and handling charges;
c. unlimited access to the Company's satellite network. Dealer will be
required to obtain the necessary equipment to access the network, which
equipment will be available only from suppliers designated by the Company which
may include only the Company or an affiliate of the Company. When purchasing the
equipment from the Company or its affiliate, Dealer will be required to sign the
then-current form of Satellite Equipment Purchase Agreement. Dealer shall also
be responsible for (i) bearing all charges associated with equipment "hook-up"
and installation using only installers designated by the Company and (ii) all
ongoing equipment maintenance expenses. As long as Dealer complies fully and
completely with the terms of this Agreement, the Company will waive all monthly
programming charges associated with the network, otherwise Dealer agrees to pay
continually such then-current monthly programming charges.
d. ongoing assistance and advice by the Company's support staff to the
Dealer regarding store planning concepts and designs including production of
floor plans tailored to the Dealer's Store. Dealer shall be responsible for any
shipping and handling charges associated with the Company delivering plans or
materials to Dealer and excessive changes or modifications requested by the
Dealer may result in the Company charging Dealer for the charges or
modifications at its then-current hourly rate;
e. at no charge, the Dealer's Store will be listed on the Company's
World Wide Web Site. At Dealer's request, Company will provide assistance to the
Dealer in establishing its own World Wide Web Site, which assistance will be
charged at the Company's then-current hourly rate;
f. assistance to Dealer in financing its purchase of required
CarpetMAX -REGISTERED TRADEMARK- signage at rates competitive with third
party financing otherwise available to the Dealer; and
g. rebates from the Company's designated carpet suppliers equal to 2% of
the Dealer's total purchases of selected carpet products from such designated
suppliers. Dealer acknowledges that not all product purchases from designated
suppliers will generate rebates. Company will provide Dealer with a list of
designated suppliers on a regular basis. Such cash rebates, if any, will be paid
to Company or its affiliate on behalf of Dealer and distributed to Dealer on an
annual basis.
6. DEALER'S OPERATIONAL COVENANTS
Dealer acknowledges and agrees that its operation of the Store is
important to the Company in order to develop and maintain high and uniform
standards of quality, service, facilities and techniques, to the increase the
demand for the System and the products offered thereunder, and to protect the
reputation and goodwill of the Company and its franchisees. Accordingly, Dealer
specifically covenants and agrees:
a. Dealer agrees to use its best efforts to promote the products and
services offered under or through the CarpetMAX -REGISTERED TRADEMARK- System
at each Store identified on Schedule "A". Subject to compliance with Sections
6c. and d. below, this Agreement does not preclude Dealer from offering for
sale at each Store any type of products or services it desires.
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<PAGE>
b. Dealer acknowledges and agrees that if it purchases
private-labeled products from Company and it elects to give or use the
CarpetMAX -REGISTERED TRADEMARK- warranty associated with such products,
then, as between the parties to this Agreement, Dealer is the party primarily
responsible for honoring such warranty to the extent Dealer is capable of
doing so and the warranty would reasonably be assumed to require Dealer to do
so. Dealer agrees to indemnify, defend and hold harmless the Company, its
officers, directors, shareholders, and affiliated entities from any and all
liability arising out of Dealer's failure to fulfill the foregoing or to
honor its responsibilities under the CarpetMAX -REGISTERED TRADEMARK-
warranty. Company agrees to cause all manufacturers of its private-labeled
products to warrant such products to Dealer in accordance with their normal
and customary warranty practices.
c. Dealer recognizes that it is essential to the proper marketing of
all CarpetMAX -REGISTERED TRADEMARK- franchisees and the preservation and
promotion of their reputation and acceptance by the public at large, that
uniform standards of quality be maintained. Accordingly, as part of the
consideration for this Agreement, Dealer agrees that it will at all times
offer and dispense such products and services as shall meet the reasonable
specifications and standards designated from time to time in writing by the
Company. Additionally, since all CarpetMAX -REGISTERED TRADEMARK- franchisees
of the Company are required to execute a franchise agreement in a form
substantially similar to this Agreement, Dealer understands the importance of
complying with the terms of this Agreement and certain specifications and
standards mandated by the Company and, where appropriate, Dealer will operate
its Store in accordance with the System as it may change from time to time.
d. Throughout the term of this Agreement, Dealer shall purchase no
less than 90% of its total purchases of floor covering products intended for
sale through its Store from manufacturers, suppliers or distributors
designated by the Company and sanctioned by the CarpetMAX -REGISTERED
TRADEMARK- Advisory Council (the "CAC"). Company and the CAC reserve the
right to designate, from time to time, a supplier for products or materials
to be sold through the Store and to require the Dealer to use such designated
supplier. Consistent with the foregoing and unless otherwise agreed to by the
Company, throughout the term of this Agreement, Dealer agrees to offer
CarpetMAX -REGISTERED TRADEMARK- Center Stage line of floor covering and
related products at the Store. Dealer acknowledges that in consideration of
this Agreement and the services provided by the Company hereunder, the
Company or its affiliates may receive rebates or commissions from the
Company's designated suppliers or distributors based upon Dealer's purchases
or, in the event the Company has negotiated a price discount for its
franchisees with selected suppliers or distributors, the full dollar amount
of the discount eligible to be received by the franchisees may not be passed
on to Dealer and will instead be paid to the Company or its affiliates.
Dealer's failure to comply with the purchase obligations of this Section 4d.
above shall constitute a default of this Agreement thereby entitling the
Company to terminate this Agreement and the CarpetMAX -REGISTERED TRADEMARK-
franchise granted hereunder. The prices charged to Dealer for products and
services obtained through designated suppliers or distributors may contain
rebates other than those paid to the Company or its affiliates as described
above which the Company is collecting on behalf of the Dealer. Company shall
hold these funds for Dealer and, on an annual basis, shall remit to Dealer
the amount of rebates allocable to its respective purchases from designated
suppliers or distributors. All sums which the Company shall receive on
Dealer's behalf are acknowledged to be Dealer's funds and are being held by
the Company for the administrative convenience of Dealer and the Company.
Notwithstanding the foregoing, to assure payment to the Company of monies due
to it from the Dealer, Dealer hereby irrevocably grants the Company the
continuing right to use all such rebates described herein to offset any and
all monies due to Company or any affiliate by Dealer including, without
limitation, monies Company has paid to unaffiliated third parties due to
Company's guarantee of Dealer's obligation to such third parties. Company
will maintain records of Dealer's purchases, however, to help verify that
Dealer is paid the proper rebate amount due to it, Dealer shall provide
written documentation to the Company, within 60 days after the end of each
month, specifying the amount of its purchases from designated suppliers or
distributors during the preceding month. For example, purchases during
October shall be reported to Company by the end of December.
e. Company may from time to time offer guidance to Dealer regarding
its retail prices for products and services offered by CarpetMAX -REGISTERED
TRADEMARK- franchisees. Dealer shall not be obligated to accept any such
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<PAGE>
guidance, and shall have the sole right to determine the prices charged for
products and services at its Store. No such guidance shall be deemed or
construed to impose upon the Dealer any obligation to charge any fixed minimum
price for any product or service offered by Dealer.
f. Dealer will respond in a timely manner to all surveys regarding the
operation of its Store conducted by the Company or any affiliate.
g. Dealer will meet the minimum standards of business ethics which are
adopted by the local chapter of the Better Business Bureau (or a similar
organization acceptable to the Company) operating within the Exclusive Area. In
addition, Dealer will notify the Company promptly of any complaint or claim
filed against Dealer with the Better Business Bureau or such other organization,
and will act diligently to resolve the claim or complaint to the Company's
satisfaction in a timely manner, but in no event later than 30 days after the
complaint or claim is filed.
h. On an annual basis, Dealer will submit to the Company exterior and
interior color photographs of its Store sufficient for the Company to view all
areas of the Store including, without limitation, merchandising displays, the
Store's floor plan and layout, all signage and training facilities and offices.
i. Dealer agrees to send at least one management level employee to
all CarpetMAX -REGISTERED TRADEMARK- regional meetings and all CarpetMAX
- -REGISTERED TRADEMARK- conventions, annual or otherwise. Company agrees not
to charge a registration fee for these meetings or conventions, although
Dealer is responsible for its transportation and living expenses (including
reimbursement of room reservation charges incurred by Company) incurred in
attending these meetings and conventions.
j. At each Store, Dealer must enroll and participate in either the
"Wall-To-Wall" consumer credit program or the successor program thereto, or an
alternative consumer credit program approved by the Company. Dealer agrees to
use its best efforts to ensure its customers are aware of the availability of
these programs prior to or at the time of the purchase of floor covering items.
k. Dealer understands and acknowledges that to help the quality,
standards and uniformity of the CarpetMAX -REGISTERED TRADEMARK- System and
the reputation and goodwill associated with the CarpetMAX -REGISTERED
TRADEMARK- name and the Proprietary Marks, Dealer covenants and agrees to
deal fairly and honestly with all customers and to render prompt, courteous
and willing service. Dealer covenants and agrees to comply fully with all
applicable federal, state and local laws, statutes, ordinances and
regulations governing the operation of its business including, but not
limited to, those regulations promulgated by the Equal Employment Opportunity
Commission and the Occupational Safety and Health Administration. Dealer will
conduct itself and operate its Store in a manner so as to promote a good
public image in the business community. Consistent with the foregoing, Dealer
shall properly respond to customer inquiries or complaints and shall take
such other steps as may be required to provide positive customer relations.
Dealer shall use its best efforts to promote the reputation of the System and
the Proprietary Marks by fostering the positive growth and development of the
community surrounding its Store through contributions (financial or
otherwise) to local charities and conducting other public relations functions
which will reflect positively on the Dealer, the Store and the CarpetMAX
- -REGISTERED TRADEMARK- brand.
l. Dealer will promptly pay when due all taxes and other obligations
owed to third parties including, without limitation, all federal, state and
local taxes, and any and all accounts payable and other indebtedness of every
kind, incurred by Dealer in the operation of its Store including debts to the
Company and its affiliates and undisputed debts to its distributors and
suppliers.
m. Dealer shall at all times actively promote the sale of products
from the Store and will use its primary and best efforts to cultivate,
develop and expand the market for CarpetMAX -REGISTERED TRADEMARK- branded
products at the Store.
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<PAGE>
n. Dealer's sales management and sales staff employees must successfully
complete a minimum level of mandatory on-going training programs offered by the
Company at one of the Company's designated training facilities. This training
will be offered without charge. Company will advise the Dealer in writing of the
types of training offered, the schedules for training and the job description of
those persons required to attend each program. Dealer shall be responsible for
purchasing all training materials and manuals and for any travel, room and board
expenses and other expenses incurred in connection with attendance at the
training programs, as well as wages or salaries of its employees attending the
training.
o. All Dealer's floor covering installers must successfully complete,
achieve and maintain the level of "accredited floor covering installer" as
defined by the Company's then-current floor covering accreditation standards.
Dealer agrees that only accredited installers shall install products purchased
at the Store and, at all times during performance of floor covering installation
and related services, all accredited installers must wear identification issued
by the Company to designate such accreditation.
p. Each CarpetMAX -REGISTERED TRADEMARK- Store operated by Dealer
must participate in the Company's satellite network, which permits the
Company to broadcast information about sales training, store merchandising,
roll and remnant specials, area rug runs and other topics which the Company
believes to be of interest to the franchises. Unless otherwise agreed to by
the Company, Dealer will be required to purchase the necessary equipment from
the Company or its affiliates and to install the equipment using only
installers approved by the Company. Dealer will be responsible for all
hook-up charges and other installation expenses necessary to install the
equipment at a Store. As long as Dealer complies fully and completely with
the terms of this Agreement, the Company will waive the monthly programming
charges normally associated with its satellite network.
q. Dealer will require all employees to wear the standard
then-current CarpetMAX -REGISTERED TRADEMARK- attire established and
approved by the Company. Company will sell the attire to the Dealer at its
cost. All employees will present a clean and neat appearance and will
practice good personal hygiene and grooming.
r. Dealer must display prominently at least one CarpetMAX
- -REGISTERED TRADEMARK- Flooring Center stand-alone logo sign inside and
outside its Store, in a manner prescribed or approved in writing by the
Company. The signs must be purchased from a designated signage supplier or
another supplier approved in writing in advance by the Company. Additionally,
the Dealer will only display signs bearing the Proprietary Marks which comply
with guidelines established by the Company and which have been approved by
the Company in writing.
s. Dealer agrees that at least one owner or general manager of the
Dealer will attend the initial CarpetMAX -REGISTERED TRADEMARK- orientation
training program conducted by the Company for CarpetMAX -REGISTERED
TRADEMARK- dealers at such time and place as the Company shall decide and
shall be communicated to Dealer. Dealer shall be responsible for purchasing
all training materials and for any travel, room and board and other expenses
incurred by its attendees in connection with such training.
t. Dealer agrees to ensure that each Store obtains and maintains
adequate computer and related equipment necessary and appropriate for
Dealer's employees and agents at each Store to access at all times the
Company's on-line extranet communication system. In connection with its use
of the extranet communication system, Dealer agrees to pay the Company a
monthly administration and license fee for each computer user. Dealer agrees
to pay such license fees on a yearly basis in advance. Finally, in connection
with its use of the extranet communication system, Dealer shall be
responsible for ensuring each computer has access to the internet through an
acceptable internet service provider and for paying all fees associated with
such internet access.
u. Dealer may at its expense create its own web site for its Store or
Stores. If the web site will contain any Proprietary Marks or reference The
Maxim Group, Inc. or any affiliate, Dealer must submit all web site plans and
information to the Company for its consent prior to creation and use. All web
sites
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<PAGE>
created and utilized by Dealer must conform to the Company's standards.
Company shall consent to or reject such plans and materials within 20 days of
receipt. Upon written approval from Company, Dealer must supply Company with
its web site address and domain names. Dealer acknowledges that the Company
has the sole right and interest in and to all domain names and web sites
associated with the Proprietary Marks or the CarpetMAX -REGISTERED
TRADEMARK- franchise licensed hereunder.
7. ADVERTISING AND MARKETING
Dealer acknowledges and agrees that it is important for the System in
general, and the other franchisees of the System in particular, that
advertising and marketing programs used by franchisees of the System attempt
to maximize general public recognition and acceptance of CarpetMAX
- -REGISTERED TRADEMARK- branded products and the retail outlets offering
CarpetMAX -REGISTERED TRADEMARK- branded products. Accordingly, Dealer
agrees that the Company and its CAC shall oversee all advertising and
promotional programs undertaken by Dealer and other franchisees with the sole
discretion to approve or disapprove the creative concepts, materials and
media used in such programs, and the placement and allocation thereof. Dealer
agrees not to offer any advertising or promotional programs which do not
conform to the specifications, regulations and code of ethics outlined and
provided by the Company and the CAC. Furthermore, in order to show uniformity
and standardization among all franchisees of the System, Dealer shall obtain
the Company's prior written approval of all written advertising or other
marketing and promotional programs not previously approved by the Company
regarding the Store including, without limitation, "yellow pages"
advertising, newspaper ads, flyers, brochures, coupons, direct mail pieces,
public relations activities, telemarketing programs and campaigns, specialty
and novelty items and radio and television advertising. Any proposed written
advertising or description of a marketing or promotional program not
previously approved by the Company shall be submitted to the Company at least
20 days prior to publication, broadcast or use. Dealer acknowledges that
advertising and promoting the Store in accordance with the Company's
standards and specifications for advertising is an essential aspect of the
Proprietary Marks and the CarpetMAX -REGISTERED TRADEMARK- brand and Dealer
agrees to comply with all advertising standards and specifications. Dealer
shall be solely responsible for compliance with all laws applicable to
advertising in Dealer's Exclusive Area and, in particular, Dealer agrees to
take adequate measures to ascertain all legal requirements with respect to
Dealer advertising and to comply fully with all such requirements. In no
event shall Dealer be required by the Company to engage in any advertising
activities which would violate applicable law in Dealer's jurisdiction.
8. CONFIDENTIAL INFORMATION
Dealer shall hold in trust and confidence for the benefit of the
Company and its affiliates, and shall not communicate, divulge, transmit,
disclose or use for the benefit of any other person, partnership,
association, or corporation any information, knowledge, written materials,
manuals, price lists, trade secrets, techniques, systems, plans, processes or
know-how concerning the Company and its affiliates, the System or the
franchise licensed hereunder (collectively, "Confidential Information"),
which may be communicated to Dealer, or of which Dealer may be apprised, by
virtue of Dealer's operation of a CarpetMAX -REGISTERED TRADEMARK- franchise
under the terms of this Agreement. Dealer acknowledges that the Confidential
Information is not, by definition, generally known in the trade and is beyond
the present skills and experience of Dealer and that for Dealer to develop
such information on its own would be expensive, time-consuming and difficult.
Dealer further acknowledges that the Confidential Information provides a
competitive advantage and will be valuable to Dealer in the development of
its business, and that gaining access to such information is therefore a
primary reason why Dealer is entering into this Agreement. In connection with
the foregoing, Dealer will not make unauthorized copies of any portion of the
Confidential Information and will adopt and implement reasonable procedures
from time to time to prevent unauthorized use or disclosure of the
Confidential Information. Dealer shall divulge such Confidential Information
only to such of its employees as must have access to it in order to operate
the Store licensed hereunder and to comply with this Agreement and who have
agreed in writing to comply with the provisions of this Section 8, which
writing must be in a form acceptable to Company. Company reserves the right
to require Dealer to cause its officers, directors, partners, shareholders
and general manager to sign the CarpetMAX -REGISTERED TRADEMARK-
Nondisclosure Agreement containing these
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<PAGE>
restrictions. Dealer hereby acknowledges that the Company and its affiliates
have sole ownership rights in the Confidential Information and that all such
Confidential Information is of significant value to the Company and its
affiliates. Finally, the Dealer acknowledges and agrees that the use of the
Confidential Information in any other business other than its CarpetMAX
- -REGISTERED TRADEMARK- franchise would constitute an unfair method of
competition and the protection and maintenance of the Confidential
Information is essential to the Company and its affiliates and that
unauthorized use or disclosure of the Confidential Information will result in
irreparable harm to the Company and its affiliates. The obligations of
confidentiality under this provision shall be effective as of the date first
written above and shall continue in full force and effect during the term of
the Dealer Agreement and for 5 years thereafter; provided, however, that as
to any item of Confidential Information that constitutes a trade secret under
applicable law, the obligations of confidentiality contained herein shall
continue for so long as allowed under applicable law.
9. DISCLAIMER OF WARRANTY AND LIMITATIONS ON LIABILITY
COMPANY AND ITS AFFILIATES SHALL NOT BE LIABLE FOR FAILURE OR DELAY
IN FILLING THE DEALER'S ORDERS EITHER BY THE COMPANY OR BY ANY DESIGNATED
SUPPLIER OR DISTRIBUTOR. COMPANY MAKES ARRANGEMENTS FOR THE SALE OF PRODUCTS
ON AN "AS IS" BASIS AND IN THEIR PRESENT CONDITION, AND COMPANY MAKES NO
WARRANTIES, EXPRESS AND/OR IMPLIED BY LAW OR OTHERWISE, REGARDING THE
CONDITION, WORKMANSHIP, MERCHANTABILITY AND FITNESS OF THE PRODUCTS FOR ANY
PARTICULAR USE AND PURPOSE. THE SOLE AND EXCLUSIVE REMEDY IF THE DEALER IS
DISSATISFIED WITH THE PRODUCTS IS FOR THE DEALER TO RETURN THE PRODUCTS TO
THE MANUFACTURER, SUPPLIER OR DISTRIBUTOR. UNDER NO CIRCUMSTANCES SHALL THE
COMPANY AND/OR ITS OFFICERS, DIRECTORS AND SHAREHOLDERS, AND AFFILIATED
ENTITIES, BE RESPONSIBLE AND/OR LIABLE FOR ANY DAMAGES, EXPENSES, INTEREST,
DEBTS, DUES, TAXES, FINES, INJURIES, LIABILITIES, ASSESSMENTS, COSTS, EVENTS,
CLAIMS, ACTIONS, LAWSUITS, ATTORNEYS' FEES AND ENGINEERING FEES ARISING
DIRECTLY AND/OR INDIRECTLY FROM THE PRODUCTS AND/OR THE USE OF THE PRODUCTS
BY THE DEALER OR ANY THIRD PARTY. THE DEALER AGREES TO INDEMNIFY, DEFEND AND
HOLD HARMLESS THE COMPANY FROM ANY AND ALL LIABILITY ARISING OUT OF THE SALE
OF ANY PRODUCTS OR SERVICES SOLD BY DEALER.
10. RESTRICTIVE COVENANT
DEALER ACKNOWLEDGES THAT, IN ADDITION TO THE RIGHT TO USE THE
PROPRIETARY MARKS HEREUNDER, THE COMPANY IS ALSO LICENSING COMMERCIALLY
VALUABLE INFORMATION WHICH COMPRISES AND IS PART OF THE SYSTEM INCLUDING,
WITHOUT LIMITATION, MARKETING AND ADVERTISING INFORMATION AND TECHNIQUES AND
ACCESS TO FLOOR COVERING PRODUCTS AND METHODS OF OPERATING A RETAIL FLOOR
COVERING BUSINESS, AND THAT THE VALUE OF THIS INFORMATION DERIVES NOT ONLY
FROM THE TIME, EFFORT AND MONEY WHICH WENT INTO ITS CREATION, BUT FROM THE
USAGE BY ALL FRANCHISEES USING THE SYSTEM. ACCORDINGLY, DURING THE TERM OF
AGREEMENT, DEALER AGREES THAT NEITHER IT NOR ANY OF ITS OFFICERS, DIRECTORS,
SHAREHOLDERS OR PARTNERS, NOR ANY AFFILIATED ENTITIES, SHALL JOIN,
PARTICIPATE IN, BE A MEMBER OF, BE AFFILIATED WITH, BE A LICENSEE OF, OR
OTHERWISE PURCHASE PRODUCTS OR SERVICES, DIRECTLY OR INDIRECTLY, FROM ANY
FLOOR COVERING PURCHASING GROUP, FRANCHISE SYSTEM OR LICENSE PROGRAM WHICH
INVOLVES FLOOR COVERING PRODUCTS AND RELATED SERVICES INCLUDING, WITHOUT
LIMITATION, CARPET ONE, ABBEY CARPET OR ANY AND OTHER SUCH SIMILAR GROUPS.
11. RIGHT TO ACCESS, INSPECTION AND FINANCIALS
a. Within 120 days from the close of the Dealer's fiscal year end,
Dealer shall provide the Company with the Dealer's financial statements
including balance sheet and income statement which must include a statement
as to the Dealer's sales volume of floor covering products and its gross
profit margin from the sale of these products. Company may compile and
distribute these numbers, on an anonymous
-10-<PAGE>
basis, to permit CarpetMAX -REGISTERED TRADEMARK- franchisees to compare the
results of their operations with the operations of other franchisees. Dealer
hereby consents to the distribution of such financial information and results.
b. Dealer acknowledges and agrees that the Company shall have the
right to examine the Store and the Dealer's books, records and documents
including, without limitation, the products offered for sale at the Store, to
ensure the Dealer is complying with the terms of this Agreement. Company
agrees to conduct such inspections, if at all, during regular business hours,
but Company is not required to provide prior notice to Dealer.
12. INDEMNIFICATION AND INSURANCE
a. Dealer agrees to indemnify and hold Company harmless from and
against any expense, liability or damage (including attorneys' fees) Company
may incur as a result of claims, demands, costs or judgments, of any kind or
nature, by anyone whomsoever, arising out of, or otherwise connected with,
the ownership, maintenance or operation of the Store by the Dealer, except to
the extent any such expense, liability or damage (including attorneys' fees)
results from the negligence or other act or omission of Company.
b. Dealer agrees to maintain, at Dealer's expense, insurance during
the term hereof as follows:
(i) Dealer shall maintain Commercial General Liability Insurance
coverage on the Store and for the operation of the franchise, including but not
limited to, coverage against all types of public liability, including products
liability, premises liability, completed operations liability, against claims
for personal injury, bodily injury, death or property damage suffered by others
upon, in or about the Store or as a result of the use of products sold by, or
services rendered by, the Dealer, with a minimum coverage of $1,000,000 per
accident or occurrence affecting one or more persons or property damage and
$1,000,000 aggregate.
(ii) Dealer shall maintain motor vehicle liability insurance for
any claims arising out of the Store or occurring as a result of the maintenance
or operation by the Dealer, its employees or persons doing business for the
Dealer of any automobiles, trucks or other vehicles or airplanes or other
facilities with a minimum coverage of $1,000,000 for each accident or occurrence
affecting one or more persons or property damage.
(iii) Worker's compensation, unemployment compensation,
disability insurance, social security and other mandatory insurance coverages
shall be maintained in such amounts as may now or later be required by any
applicable law.
All insurance policies shall be issued by an insurance carrier rated "A" or
better by Alfred M. Best and Company, Inc. All policies described in (i) and
(ii) above shall insure Dealer and name Company as an additional insured, and
shall stipulate that Franchisor shall receive at least 30 days written notice of
cancellation or modification. Dealer's obligation to obtain and maintain the
insurance policies described above shall not be limited in any way by reason of
any insurance which may be maintained by Company, nor shall Dealer's performance
of this obligation relieve it of lia bility under the indemnity provision set
forth in subsection (a).
13. TERMINATION
a. If the Dealer is in compliance with this Agreement and the Company
materially breaches this Agreement, the Dealer shall have the right to terminate
this Agreement if the Dealer gives written notice of such breach to the Company
and the Company does not: (a) correct such material breach within 90 days after
receipt of such notice; or (b) if such material breach cannot reasonably be
cured within 90 days after receipt of such notice, undertake within 10 days
after receipt of such notice reasonable efforts to cure such
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<PAGE>
breach and continue such reasonable efforts so as to complete such cure as soon
as is practicable. To terminate this Agreement under this Section 13a., Dealer
must give a separate written notice of termination, which will be effective 10
days after the Company's receipt of such notice to the Company. Any termination
of this Agreement by the Dealer other than as provided in this Section 13a.
shall be deemed a termination by the Dealer without cause. Any termination of
this Agreement shall not relieve Dealer of any monetary or other obligation due
and owing to the Company including, without limitation, the obligation to pay
the entire amount of the Franchise Fee even if such payments would be due
subsequent to the effective date of termination.
b. Dealer acknowledges and agrees that each of Dealer's obligations
described in this Agreement is a material and essential obligation of Dealer and
that non-performance of such obligations will adversely and substantially affect
the Company, the System and the other franchisees of the System. Accordingly,
Dealer agrees that the exercise by Company of the rights and remedies set forth
herein is appropriate and reasonable.
(i) Company shall have the right, at its option, to terminate
this Agreement and all rights granted to Dealer hereunder, without affording
Dealer any opportunity to cure any default (subject to any state laws to the
contrary, if applicable) effective upon receipt of notice by Dealer, upon the
occurrence of any of the following events:
A. If Dealer misuses the System or Proprietary Marks,
or any other names, marks, systems, insignia, symbols or rights provided by
Company to Dealer, or otherwise materially impairs the goodwill associated with
the System and the Proprietary Marks or Company's rights therein and fails to
correct the misuse or impairment within 5 days notification from Company.
B. If Dealer fails to pay any amounts due Company or
any affiliate or any of the Company's designated suppliers or distributors
within 10 days.
C. If Franchisee fails to submit to Franchisor any
financial or other information required under this Agreement and fails to
correct the failure within 10 days after notification from Company.
D. If Franchisee denies Franchisor the right to inspect
the Store as permitted hereunder.
E. If Dealer attempts any assignment other than in
accordance with Section 15 hereof.
F. If Franchisee defaults under any lease or sublease
of the Store or loses the right to possession thereof for any reason whatsoever.
G. If a threat or danger to public health or safety
results from the operation of the Store.
H. If Dealer fails to obtain Company's written approval
or consent prior to taking any action when such consent or approval is expressly
required by this Agreement.
I. If Dealer abandons the Store or the Store ceases
regular operations for a period of 5 consecutive days or any shorter period that
indicates an intent by Dealer to discontinue operation of the Store, except for
a period of not more than 180 days as a result of fire, storm, flood,
condemnation or other similar event occurring out of the ordinary course of
business and beyond the control of Dealer.
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<PAGE>
J. If Dealer permits a material violation of any law,
ordinance, rule or regulation of a governmental agency in connection with the
operation of the Store, and permits the same to go uncorrected after
notification, unless there is a bona fide dispute as to the violation or
legality of such law, ordinance, rule or regulation, and Dealer promptly resorts
to courts or forums of appropriate jurisdiction to contest such violation or
illegality.
K. If Dealer fails to cooperate with the implementation
of any advertising or promotional programs or activities as required by Company
pursuant to Sections 6 and 7 or if Dealer takes any unauthorized actions with
respect to advertising and promotional activities in violation of this Agreement
and fails to correct the failure or cure the unauthorized action within 10 days
upon notification from Company.
L. If Dealer has received three notices of default from
Company within a 12-month period, regardless of whether the defaults were cured
by Dealer.
M. If Dealer or any executive officer or person owning
more than 10% of any class of voting securities of Dealer or any general partner
of Dealer is convicted of a felony, a crime involving fraud or moral turpitude
punishable by a term of imprisonment in excess of one year, or any crime or
offense reasonably likely, in the sole opinion of Company, to materially and
unfavorably affect the Proprietary Marks, the System and the associated goodwill
and reputation thereof.
N. If Dealer, or any person controlling, controlled by,
or under common control with Dealer, or any general partner of Dealer, shall
become insolvent by reason of inability to pay debts as they mature; or is
adjudicated a bankrupt, files or has filed against it a petition in bankruptcy,
reorganization or similar proceeding under federal bankruptcy laws; or if a
receiver, permanent or temporary, of the business, assets or property of Dealer
or any such person or any part thereof, is appointed by a court of competent
authority, or if Dealer or any such person requests the appointment of a
receiver or makes a general assignment for the benefit of creditors; or if a
final judgment against Dealer or any such person in the amount of $10,000 or
more remains unsatisfied of record for 30 days or longer; or if the bank
accounts, property or receivables of Dealer or any such person are attached and
such attachment proceedings are not dismissed within a 30 day period; or if
execution is levied against the business or property of Dealer or any such
person, or if suit to foreclose any lien or mortgage against the Store or the
equipment thereof is instituted and not dismissed within 30 days.
O. If Dealer commits fraud in connection with the
purchase or operation of Store or otherwise engages in conduct that, in the sole
judgment of Company, materially impairs the goodwill associated with the
Proprietary Marks or the System.
P. If Dealer makes, or has made, any material
misrepresentation to Company in connection with this Agreement or in conducting
the Store.
Q. The Dealer or any person controlling, controlled
by, or under common control with Dealer, or any general partner of Dealer, is
convicted or pleads no contest to a felony, or to another offense or crime
that may adversely affect the reputation of the Dealer, the Company or the
Store or the goodwill associated with the Proprietary Marks, or engages in
activities or conduct related to the Store or otherwise which adversely
affects the reputation of the Company, its franchisees, CarpetMAX
- -REGISTERED TRADEMARK- stores or the goodwill associated with the Proprietary
Marks.
R. If Dealer fails to comply with the prohibitions set
forth in Section 1f.
(ii) Subject to Sections 13(b)(i), 13(b)(iii), and 13(b)(iv),
the Company shall have the right to terminate this Agreement (subject to any
state laws to the contrary, if applicable), effective upon 30 days' written
notice to Dealer, if Dealer breaches any other provision of this Agreement, and
fails to cure the
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<PAGE>
default during such 30 day period. In that event, this Agreement will terminate
without further notice to Dealer, effective upon expiration of 30 day period.
Notwithstanding the foregoing, if the breach is curable, but is of a nature
which cannot be reasonable cured within such 30 day period, and Dealer has
commenced and is continuing to make good faith efforts to cure the breach during
such 30 day period, Dealer shall be given an additional reasonable period of
time to cure the default, and this Agreement shall not terminate.
(iii) If the Company believes that the Dealer is not purchasing
to fulfill its obligations under Section 6d., the Dealer, after 20 days' written
notice and demand from the Company, shall submit to the Company a written
statement setting forth all of the Dealer's purchases of products from
designated suppliers or distributors, which statement shall be certified by an
officer of the Dealer. Failure to supply this statement shall permit the
Company, at its option, to terminate immediately this Agreement. If the
statement reveals that the Dealer is not purchasing at the required levels, the
Dealer shall have 90 days after written notice and demand from the Company to
bring its purchases to the required levels and to demonstrate such compliance to
the satisfaction of the Company (which satisfaction shall not be unreasonably
withheld), failing which the Company may immediately terminate this Agreement.
(iv) Company may terminate this Agreement within 60 days of
the Effective Date in the event the Company discovers Dealer has
misrepresented its financial condition or credit history to the Company
during the evaluation process conducted by the Company prior to the execution
of this Agreement or that Dealer's business practices, financial condition or
reputation in the floor covering industry will reflect adversely upon the
Company or the System if Dealer were to remain part of the group of CarpetMAX
- -REGISTERED TRADEMARK- franchisees. In the event the Company terminates this
Agreement pursuant to the foregoing, the Dealer shall receive a full refund
of the Franchise Fee actually paid hereunder; provided, however, the Dealer
fully and completely fulfills its obligation as set forth in Section 14 of
this Agreement.
c. Immediately after the execution of this Agreement, Dealer will
receive the Company's current price list for the various products and services
available to the Dealer as a franchisee of the System. Dealer shall have 3
business days from its receipt of the price list to both review it and notify
the Company in writing of the Dealer's approval or disapproval of the terms
thereof. If Dealer notifies the Company in writing that the terms of the price
list are unacceptable, then this Agreement and the rights and obligations of the
parties hereunder shall cease and be deemed to be immediately canceled. Under
such circumstances, any Franchise Fee that may have been previously paid to the
Company by Dealer in connection with this Agreement shall be promptly remitted
to the Dealer. If Dealer expressly notifies the Company that it approves the
price list within the applicable 3 business day period or, in the event that the
Company receives no notice from Dealer during such review period, then this
Agreement shall be deemed to have been fully executed as of the date first above
written. Dealer acknowledges that all information contained in the price list is
Confidential Information of the Company and shall be kept confidential pursuant
to the terms of Section 8 hereof. The price list may not be copied or reproduced
in any manner or for any reason without the Company's prior written consent. If
Dealer elects to cancel this Agreement, it shall immediately return the price
list to the Company and comply with the requirements set forth in Section 14
hereof.
d. THE PARTIES ACKNOWLEDGE THAT IN THE EVENT THAT THE TERMS OF THIS
AGREEMENT REGARDING TERMINATION OR EXPIRATION ARE INCONSISTENT WITH APPLICABLE
STATE OR FEDERAL LAW, SUCH LAW SHALL GOVERN DEALER'S RIGHTS REGARDING
TERMINATION OR EXPIRATION OF THIS AGREEMENT.
14. RIGHTS AND DUTIES OF PARTIES UPON TERMINATION
Upon termination of this Agreement for any reason, Dealer shall
immediately cease to be authorized to operate the CarpetMAX -REGISTERED
TRADEMARK- franchise granted hereunder and Dealer shall:
(i) Pay to the Company and its affiliates within 15 days after
the effective date of termination, any and all amounts due by the Dealer to the
Company and its affiliates which are then unpaid.
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(ii) Immediately cease to identify the Store as being, or having
been, associated with the Company and cease immediately using any Proprietary
Mark or any colorable imitation of any Proprietary Mark in any manner or for any
purpose, or use for any purpose, any trade name, trademark, service mark or
other commercial symbol that suggests or indicates an affiliation with the
Company. Additionally, Dealer shall deliver to the Company or remove the
Proprietary Marks from all signs, advertising materials, invoices, forms or
other materials containing any Proprietary Marks or otherwise relating to the
Store, which removal or destruction shall occur within 30 days after termination
hereof and notify the telephone company and all telephone directory publishers
of the termination of the Dealer's right to use the Proprietary Marks. Dealer
acknowledges that, as between Dealer and Company, Company has the sole right to
and interest in all directory listings associated with any Proprietary Marks.
(iii) Immediately cease to use the Confidential Information for
any purpose and return immediately to the Company all copies of confidential
materials previously provided to the Dealer including all manuals, training
manuals, price lists and other written materials relating to the System or the
operation of a retail floor covering business as licensed hereunder.
(iv) Promptly undertake the final accounting to assist Company
in the determination of any fees and other indebtedness due to either party.
(v) Cease immediately to use any advertising materials provided
by the Company as well as any imitations or derivations of any such materials.
(vi) Promptly take such action as may be required to cancel all
fictitious or assumed names or equivalent registrations relating to its use of
any Proprietary Marks which are under the exclusive control of the Company or,
at the option of the Company, assign the same to the Company.
(vii) Cease to use any domain names or web sites associated
with the Proprietary Marks. Dealer acknowledges that the Company shall have
the right to direct InterNIC and other web search engines of the termination
or expiration of Dealer's right to use all domain names, web sites or other
search engines for the Store or Stores and to authorize InterNIC and all
other search engines to transfer to the Company or its assignee all domain
names, web sites and search engines associated with the Proprietary Marks or
the CarpetMAX -REGISTERED TRADEMARK- franchise licensed hereunder.
If Dealer fails to cease operation of the System and to effectuate the
other terms of this Agreement which arise as a result of the termination of this
Agreement, Dealer agrees that the Company shall be entitled to seek equitable
relief by way of temporary and permanent injunctions and such other and further
relief as a court may deem just and proper. Resort to such injunctive relief
shall not be construed as a waiver of any other right or remedy the Company may
have under this Agreement.
All obligations of Dealer which expressly or by their nature survive the
termination of this Agreement shall continue in full force and effect until such
obligations are fulfilled in full or by their nature expire.
15. TRANSFERABILITY OF INTEREST
a. This Agreement is personal to Dealer and, except as stated below,
Company shall not allow or permit any transfer, assignment, subfranchise or
conveyance of this Agreement or any interest hereunder. For purposes of this
Section 15, the term "transfer" includes Dealer's voluntary, involuntary, direct
or indirect transfer, assignment, sale, gift or other disposition of any
interest in this Agreement, the Dealer entity, the Store governed by this
Agreement or a substantial portion of the assets of the Store. Dealer shall not
engage in a transfer unless Dealer obtains Company's written consent, which
consent shall not be arbitrarily withheld, conditioned or delayed. Dealer
acknowledges that Company's right to approve or disapprove a proposed transfer
applies to the following: (1) if Dealer is a corporation, partnership, other
business
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<PAGE>
association, (i) to the addition or deletion of a shareholder, partner or member
or the transfer of ownership interest among existing shareholders, partners or
members, and (ii) to any proposed transfer of 25% or more of the interest
(whether stock, partnership interest or membership interest) to a third party;
and (2) if Dealer is an individual, to the transfer from such individual or
individuals to a corporation or entity controlled by them. Notwithstanding the
foregoing, transfers upon the existing shareholders, partners, members or other
existing holders of ownership interest in the Dealer, transfers to the spouse or
adult children of an existing shareholder, partner, member or other existing
holder of ownership interests in Dealer, or transfers to trust, family limited
partnerships or similar entities created primarily for estate planning purposes
for the benefit of an existing shareholder, partner, member or other existing
holder of an ownership interest in Dealer or the heirs of such party shall
require notice to Company but shall not require the consent of the Company,
provided, however, that if the effect of any of the transfers listed in this
sentence serve either individually or cumulatively with all such transfers that
preceded it, to effect a change in voting control of the Dealer or power to
appoint officers or directors of Dealer or to direct day-to-day operations of
the Dealer, such transfer shall require consent of the Company as described
herein. Subject to the satisfaction of the conditions set forth below in this
Section 15, this Agreement and all rights hereunder may be assigned or
transferred by the Dealer and, if so assigned or transferred, shall be binding
upon and inure to the benefit of the Dealer's successors and assigns.
b. No transfer of this Agreement shall be permitted unless each of the
following conditions is satisfied:
(i) The transferee shall enter into a written agreement with the
Dealer and the Company, in a form satisfactory to the Company, wherein the
transferee assumes all of the Dealer's obligations hereunder or, at the
Company's option, the proposed transferee shall sign the then-current form of
CarpetMAX -REGISTERED TRADEMARK- franchise agreement;
(ii) Dealer is current on all of its obligations (financial or
otherwise) to the Company; and all designated suppliers, distributors and
vendors;
(iii) The transferee shall be of good moral character and
reputation, shall have satisfactory business acumen, operational ability, and
management skills, and shall have sufficient financial resources (as determined
by the Company) to operate the Store(s) and the franchise license herein and
have a good credit rating and competent business qualifications reasonably
acceptable to the Company. Dealer shall provide the Company with such
information as the Company may require to make such determination concerning any
proposed transferee; and
(iv) Dealer executes a general release in a form prescribed by
the Company, releasing the Company and any affiliates, their respective
officers, directors, agents and employees from any and all claims which the
Dealer may have against them.
c. Dealer must give the Company at least 45 days' written notice prior
to any transfer of this Agreement by Dealer. The purpose of this provision is to
enable the Company, among other reasons, to comply with applicable state or
federal franchise disclosure laws. In addition, Dealer must, within 15 days of
its receipt of an offer to assume Dealer's franchise or Dealer's offer to sell
the franchise, give the Company written notice thereof. The purpose of this
provision is to enable the Company to comply with any applicable state or
federal franchise disclosure laws or rules.
d. This Agreement may be unilaterally assigned and transferred by
Company and will inure to the benefit of Company's successors and assigns.
Company will provide Dealer with written notice of any such assignment or
transfer and the assignee will be required to fully perform Company's
obligations under this Agreement.
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<PAGE>
e. Any transfer in violation of this Section 15 shall be deemed null and
void and of no force or effect.
16. GOVERNING LAW
All matters relating to arbitration shall be governed by the Federal
Arbitration Act (9 U.S.C. ss. 1 eT Seq.). Except to the extent governed by the
Federal Arbitration Act as required hereby, the United States Trademark Act of
1946, as amended, or other federal law, this Agreement, the franchise and the
relationship between the parties will be governed by and construed and enforced
in accordance with the laws of the State of Georgia, which laws shall prevail in
the event of any conflict of law; provided, however, that the application of
such law shall not abrogate or reduce any rights of Dealer provided for under
the existing laws of any other jurisdiction which by their express terms, apply
and supersede Georgia law. Dealer hereby irrevocably agrees that any legal
action or proceeding arising out of or relating to this Agreement or the
relationship established hereunder and not subject to arbitration under Section
24 hereof shall be brought in the courts of the State of Georgia sitting in Cobb
County, or of the United States of America for the Northern District of Georgia,
as the Company may elect. The parties agree that this Agreement was entered into
in the State of Georgia and that substantial performance of all obligations
hereunder was rendered in Georgia and that there is a regular stream of business
activity between Dealer and the Company from and into the State of Georgia.
Accordingly, the Dealer hereby irrevocably accepts and submits it generally and
unconditionally, for itself and with respect to its property, to the
jurisdiction of any such court in any such action or proceeding and hereby
waives, to the extent permitted by applicable law, defenses based on
jurisdiction, venue or FORUM NON CONVENIENS.
17. INDEPENDENT CONTRACTOR
a. This Agreement does not form a fiduciary relationship or constitute
the Dealer as agent, legal representative, joint venturer, partner, employee, or
servant of the Company for any purpose whatsoever; and it is understood between
the parties hereto that the Dealer shall be an independent contractor and is in
no way authorized to make any contract, agreement, warranty or representation on
behalf of the Company, or to create any obligation, express or implied, on
behalf of the Company. The Company will have no liability for any sales,
service, use, excise, income, property or other taxes levied against the Dealer
or its assets or on the Company in connection with the business conducted by
Dealer or any payments the Dealer makes to the Company pursuant to this
Agreement or any related agreement. Neither party may represent to anyone else
that their relationship is other than that which is described herein, and
neither party shall be obligated by, or have any liability under any agreements
or representations made by the other that are not expressly authorized
hereunder, nor shall the Company be obligated for any damages to any person or
property directly or indirectly arising out of the operation of the Dealer's
Store.
b. If requested by the Company, the Dealer shall prominently display
in its place of business, a certificate from the Company stating that the
CarpetMAX -REGISTERED TRADEMARK- Store is operated by Dealer under the
licenses granted herein, and not as an agent of the Company.
18. WAIVERS
Waiver by the Company of any particular default by Dealer shall not
effect or impair the Company's right with respect to enforcement of any
subsequent default of the same or of a different nature; nor shall subsequent
acceptance by the Company of a partial cure after any breach by Dealer of any
terms, covenants or conditions of this Agreement constitute a waiver by the
Company. The Company will not be deemed to have waived its right to demand exact
compliance with any of the terms of this Agreement at a later time upon notice
to Dealer. All remedies, either under this Agreement, at law, in equity, or
otherwise afforded to either party, shall be cumulative and not alternative and
may be exercised simultaneously or sequentially in any order.
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<PAGE>
19. INJUNCTIVE RELIEF
Notwithstanding anything to the contrary contained in Section 24, the
Company will have the right in a proper case to obtain temporary restraining
orders and temporary and preliminary injunctive relief from a court of competent
jurisdiction in order to enforce the provisions of this Agreement relating to
the Proprietary Marks, the obligations of Dealer upon termination of this
Agreement, the protection of the Company's Confidential Information or to
prohibit any act or omission by Dealer that constitutes a violation of any
applicable law or regulation.
20. RIGHT TO OFFSET
Notwithstanding anything to the contrary in Section 24, Dealer
acknowledges and agrees that to assure payment to the Company of monies due to
it from Dealer for, among other items, purchase of floor covering products,
Dealer hereby irrevocably grants the Company the continuing right to use any and
all rebates earned by Dealer from the Company's designated suppliers or
distributors which the Company may be collecting on behalf of Dealer to offset
monies due to the Company or any affiliated entity.
21. NOTICES
Any notice required or permitted under this Agreement shall be in
writing and shall be actually delivered or sent by certified mail, return
receipt requested, postage prepaid, by hand delivery or pickup or by commercial
courier service for overnight delivery or by any other means which shall provide
evidence of the date received. Notices to the Dealer shall be addressed to the
address listed in Schedule A of this Agreement or to the Dealer at its most
current principal business address of which the Company has been notified.
Notices to the Company shall be addressed to it at the address listed in the
introductory paragraph of this Agreement, or to its most current principal
business address, Attention: President. The addresses herein given for notices
may be changed at any time by either party by written notice given to the other
party as herein provided. All notices shall be deemed given 3 business days
after deposit in the United States Mail as set forth above, or on the next
business day after delivery to the commercial courier service for overnight
delivery, or upon receipt after actual delivery.
22. ATTORNEYS' FEES AND LATE CHARGES
In the event it is necessary for either party hereunder to commence any
legal proceeding against the other party related to this Agreement or the
franchise relationship between the parties including, but not limited to,
arbitration proceedings, the losing party in such proceeding shall pay all of
the prevailing party's costs and expenses, including reasonable attorneys' fees,
relating to such legal proceeding. The prevailing party shall be determined by
the arbitrator(s). In the event that any arbitration proceeding is commenced
pursuant to this Agreement or the franchise relationship between the parties,
the parties agree to share equally the fees and costs of the American
Arbitration Association and its arbitrators. If the Dealer does not pay the
Company the monies due and owing to the Company within 30 days of the date when
due, then such unpaid balance shall accrue interest at the rate of 1.5% per
month until fully paid.
23. SEVERABILITY AND CONSTRUCTION
If any provision of this Agreement is determined to be invalid or
unenforceable for any reason whatsoever, such provision shall be severed from
the other provisions of this Agreement, which other provisions shall remain in
full force and effect. The language of this Agreement shall be construed simply
according to its fair meaning and not strictly for or against either party.
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<PAGE>
24. ARBITRATION
Other than as set forth in Sections 14 and 19 of this Agreement and
as provided by the last sentence of this Section 24, unless otherwise
prohibited by applicable state law, any and all controversies, claims,
disputes, suits, actions, proceedings or otherwise between or involving the
Company and Dealer and their respective shareholders, owners, corporate
affiliates, officers, directors, employees, agents or guarantors, whether
arising out of or relating in any way to this Agreement or any other document
ancillary to this Agreement, the franchise relationship created hereunder,
any alleged breach of any duty or otherwise (including, without limitation,
the underlying legality of the offer and/or sale of the CarpetMAX
- -REGISTERED TRADEMARK- franchise, any action for rescission or any claim of
fraud) and on whatever theory and/or facts based, will be submitted to and
settled by arbitration in accordance with the Federal Arbitration Act under
the Commercial Arbitration Rules of the American Arbitration Association or
any successor association. All matters within the scope of the Federal
Arbitration Act (9 U.S.C. Section 1 ET SEQ.) shall be governed by it and not
any state arbitration law. In connection with such arbitration, the parties
will execute an appropriate confidentiality agreement. The Company and Dealer
agree that arbitration shall be conducted on an individual basis and not on a
class-wide basis. Arbitration under this Section 24 shall be submitted to the
office of the American Arbitration Association in (or nearest to) Atlanta,
Georgia on demand of either party. Such arbitration proceeding shall be
conducted in Atlanta, Georgia. The parties hereto agree that in any matter
submitted to arbitration, the relevant Rules of Civil Procedures that pertain
to pre-trial discovery shall be applicable. The arbitration panel shall have
the power to order discovery on the basis of what is likely to produce
material and relevant information in the proceeding, and to assess costs and
expenses of the arbitration according to the relative merits of the parties'
position in the case. The arbitration panel may issue temporary restraining
orders, preliminary injunctions, injunctions and other equitable or interim
relief to the extent reasonably necessary pending resolution of the
arbitration. The procedure for selection of the arbitrator shall be
prescribed by the American Arbitration Association or its successor,
provided, however, that if said Association does not provide such a
procedure, then the Company and Dealer shall each select one arbitrator and
the two arbitrators selected shall select a third, and in the event of death,
disability or resignation of an arbitrator, his/her successor shall be chosen
in the same manner as the arbitrator so selected. The parties agree to
proceed with the arbitration in good faith and with due diligence; provided,
however, that in no event shall any demand for arbitration be made after the
date when institution of legal or equitable proceedings based on such claim,
dispute or other matter would be barred by the applicable statute of
limitations. The arbitration panel shall enter judgment by default in the
event either party shall fail or refuse to appear or participate in any
properly noticed arbitration proceeding. Any award or determination in
arbitration shall be final and binding and conclusive upon the parties, and
judgment upon any award so rendered may be entered in any court having
jurisdiction. Company and Dealer hereby waive to the fullest extent permitted
by law, any right to or claim for any punitive or exemplary damages against
the other and agree that in the event of a dispute between them each shall be
limited to the recovery of any actual damages sustained by it. This
arbitration provision shall be deemed to be self-executing and shall remain
in full force and effect after execution or termination of this Agreement.
The provisions of this paragraph are intended to benefit and bind certain
third-party non-signatories and this arbitration provision shall be deemed to
be self-executing and shall remain in full force and effect after expiration
or termination of this Agreement. In the event that any party fails to appear
at any properly-noticed arbitration proceeding, an award may be entered
against such party by default or otherwise notwithstanding that failure to
appear. An arbitration proceeding between the parties shall not be
consolidated with any other arbitration proceeding involving the Company or
any other person. Any of the foregoing to the contrary notwithstanding, this
arbitration provision shall not be applicable to any claim or controversy
which involves solely the payment of a sum of money, such as a claim for
money due and owing. In the event a dispute or claim arises hereunder
involving both matters subject to arbitration under this Section 24 as well
as matters not subject to arbitration under Section 19, or portions of such
claim which are subject to arbitration shall be severed from the
non-arbitrable claims and shall be subject to arbitration hereunder, unless
both parties agree to consolidation in a single action in either forum.
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25. LIMITATION ON CERTAIN LIABILITY
Under no circumstances shall any general partner or any officer or
director of any general partner or any employee, agent, representative or
affiliate of the Company incur any personal liability as a result of the
Company's actions or inactions in connection with this Agreement. Dealer shall
look only to the assets of the Company in its efforts to recover any damages to
which it may be entitled under this Agreement.
26. ENTIRE AGREEMENT
This Agreement, including Schedules, represents the entire understanding
of the parties and supersedes any prior agreements, whether written or oral,
between the parties with respect to the subject matter hereof. Both parties
acknowledge and agree that there are no representations, promises, warranties,
covenants, or understandings other than those set forth herein. The Dealer
should not sign this Agreement if it is relying on any representations or
promises not incorporated into this Agreement. This Agreement is binding upon
the parties hereto and their respective executors, administrators, heirs,
assigns, and successors in interest. Except as otherwise expressly provided
herein, this Agreement may be amended only by a written document signed by both
parties hereto. This limitation on modification is not subject to oral
rescission, modification or waiver. Dealer acknowledges and agrees that no
representations have been made to its by Company regarding projected sales
volumes, market potential, revenues, costs, profits or assistance other than as
stated in this Agreement or in any franchise offering circular provided by the
Company.
27. MISCELLANEOUS PROVISIONS
a. Dealer acknowledges that Company shall have the right to delegate the
performance of any portion or all of its obligations and duties hereunder to
affiliates including subsidiaries or affiliated entities.
b. Dealer acknowledges that it had a copy of the Company's Uniform
Franchise Offering Circular in its possession for not less than 10 full business
days, and this Agreement in its possess for not less than 5 full business days,
during which time Dealer shall have had ample time and opportunity to review
such documents with its own legal counsel and other advisors of its own
choosing, if any, and to consult with them about the potential benefits and
risks of entering into this Agreement.
c. Dealer acknowledges that Company may from time to time approve
exception or changes from the uniform standards of the System which Company, in
its sole absolute discretion, believes necessary or desirable under particular
circumstances. Dealer understands that it has no right to object to or
automatically obtain such variances, and that any exception or change must be
approved in advance by Company in writing. Dealer also understand that other
existing and/or future franchisees may operate under different forms of
agreements, and consequentially the rights and obligations of such franchisees
may differ materially from Dealer's.
d. Dealer acknowledges that it has conducted an independent
investigation of the business contemplated by this Agreement and recognizes that
it involves business risks, and that making a success of a venture is largely
dependent upon dealer's own business abilities. Dealer acknowledges that no
assurance or warranty, express or implied, has been given to Dealer as to the
potential success of business contemplated by this Agreement or the profits
likely to be achieved. Finally, Dealer acknowledges and agrees that no
statement, representation or other act, event or communication, except as set
forth in this Agreement, and in any franchise offering circular provided to
Dealer is binding on the Company in connection with the subject matter of this
Agreement.
e. Dealer acknowledges that Company is an affiliate of Maxim, Maxim
Retail Stores, Inc., Maxim Retail Group, Inc., GCO, Inc. and subsidiaries and
affiliates thereof. These companies and subsidiaries and affiliates own,
operate, develop, license and franchise retail floor covering stores operating
under the names "Baker Brothers", "Carpetland USA", "CarpetSmart", "House of
Carpets", "New York
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<PAGE>
Carpet World", "Reedy", "Walters", "Carpet Factory Outlet", "Clydes", "Carpet
Exchange", "Carpet Center", "GCO Carpet Outlet", and will continue to develop
and acquire other flooring retail concepts. Further, Dealer acknowledges and
agrees that these companies and subsidiaries and Maxim and its affiliates will
have the absolute right to own, operate, develop, license and franchise the
foregoing concepts, and any other floor covering concepts or businesses at any
location in the world, including locations that may be in the Exclusive Area,
and locations that may be near or adjacent to the Exclusive Area even if the
location competes for customers with Dealer.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed, and delivered this Agreement as of the day and year
first written above.
DEALER: CARPETMAX, L.P.
By: By: THE MAXIM GROUP, INC.,
------------------------------- General Partner
Title:
------------------------------- By:
-----------------------
[CORPORATE SEAL] A.J. Nassar
Title: President
[CORPORATE SEAL]
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SCHEDULE "A"
DEALER'S EXCLUSIVE AREA
Description of Exclusive Area:
Dealer's Principal Business Address and Telephone Number:
Addresses of Store(s) Authorized to be CarpetMAX -REGISTERED TRADEMARK-
Stores:
Name and Address of Each Owner of Dealer:
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Page 1 of 1
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SCHEDULE "B"
MERCHANDISE INTRODUCTORY PACKAGE
ORDER FORM*
CARPETMAX CENTER STAGE COLLECTION
1 Set CARPETMAX Center Stage Collection. This collection is 62 products
(shown on 42 racks) from six of our aligned manufacturers. CARPETMAX has worked
with the mills to bring you the best valued and the best selling products in the
industry. See the attached list for products and price points.
CARPETMAX DISPLAY SYSTEMS
(Check items desired)
3 racks CARPETMAX 4500 2-Tier Berber System, 6000 High Performance
- ------- Display & 7000 Premier Pattern Display (Sutton)
1 rack CARPETMAX Contract Commercial Rack (Mohawk)
- -------
1 rack CARPETMAX Commercial Business Systems (Shaw Industries)
- -------
1 set CARPETMAX /Bruce Four Star Wood Program
- -------
1 set CARPETMAX Master Builder Program (14 Qualities on 12 Deck Boards)
- -------
1 set CARPETMAX/Image Fabulous Value Package (Bi-Monthly Special
- ------- Program)
1 set CARPETMAX/Ceramic Center Stage products on 2 "Step Up" racks
- -------
# of racks CMAX Basket racks (May order up to 30 racks - indicate # of
- ------- racks desired)
1 set CARPETMAX Conversion Kit (Signage & Graphics)
- -------
(After you pay invoice for these samples, send a copy to
CARPETMAX for reimbursement, attention of Terri Brost)
POINT OF PURCHASE MATERIALS
CARPETMAX Warranty Brochures (2500 personalized brochures) please call
- ------- us to place order
Advantage Folders and Installation Brochures
- -------
1 Day Orientation for up to Three People (Transportation and Lodging
- ------- Not included)
Date: Dealer #:
------------------------- ----------------------
Store Name: Contact:
------------------- -----------------------
Shipping Address: Signature:
------------- ---------------------
CARPETMAX Signature:
----------------
Phone: Fax:
----------------------- -------------------
*SUBJECT TO SEASONAL CHANGE
UPDATED 12/01/98
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<PAGE>
SCHEDULE "C"
STATE-SPECIFIC AMENDMENTS
<PAGE>
FOR RESIDENTS OF THE STATE OF HAWAII
Section 14 of the Franchise Agreement, under the heading "Rights and
Duties of Parties Upon Termination", shall be supplemented by the addition of
the following Section 14(viii):
Pursuant to Section 482E-6(3) of the Hawaii Revised Statutes, for so
long as such statute remains in effect and so provides, upon
termination or refusal to renew the franchise, the Dealer shall be
compensated for the fair market value, at the time of termination or
expiration of the franchise, of Dealer's inventory, supplies,
equipment and furnishings purchased from the Company or a supplier
designated by the Company, exclusive of personalized materials which
have no value to the Company. If the Company refuses to renew a
franchise for the purpose of converting the franchised business to one
owned by the Company, the Company, in addition to the remedies
provided in this paragraph, shall compensate the Dealer for the loss
of goodwill. The Company may deduct from such compensation reasonable
costs incurred in removing, transporting and disposing of Dealer's
inventory, supplies, equipment and furnishings pursuant to this
paragraph, and may offset from such compensation any moneys due to the
Company.
FOR RESIDENTS OF THE STATE OF ILLINOIS
Notwithstanding Section 13 of the Franchise Agreement, the conditions
under which the Franchise Agreement can be terminated and the parties' rights
upon non-renewal may be affected by Illinois law, 815 ILCS 705/19 and 705/20.
Nothing in the Franchise Agreement shall limit or prevent the
enforcement of any cause of action otherwise enforceable in Illinois or arising
under the Illinois Franchise Disclosure Act of 1987, as amended. Accordingly,
any provision in the Franchise Agreement which designates jurisdiction or venue
in a forum outside of Illinois is void with respect to any cause of action which
is otherwise enforceable in Illinois, except as this may be restricted by the
Franchise Agreement's arbitration provision.
Any condition, stipulation or provision of the Franchise Agreement
purporting to bind the Dealer to a waiver of compliance with the Illinois
Franchise Disclosure Act of 1987, as amended, is void.
Section 16 of the Franchise Agreement is hereby modified by changing
"State of Georgia" in the second sentence thereof to "State of Illinois" and
deleting the last sentence thereof in its entirety.
FOR RESIDENTS OF THE STATE OF INDIANA
Section 13 of the Franchise Agreement is hereby modified by adding a
new subsection e. as follows:
e. The conditions under which this Agreement can be terminated may be
affected by Indiana law [IC Stat. Sec. 23-2-2.5 and 23-2-2.7] which
provides Franchisee with certain termination rights.
Notwithstanding the terms of Section 15 of the Franchise Agreement,
nothing shall require the Dealer to agree to any general release provisions or
agree to any separate release agreements [IC Stat. Sec. 23-2-2.7-1(5)].
Page 1 of 6
<PAGE>
If any of the provisions in the Franchise Offering Circular or
Franchise Agreement are inconsistent with the laws of the State of Indiana,
including but not limited to Indiana Code 23-2-2.7-1(5) & (10), then these
provisions shall govern instead of the terms of the Franchise Offering Circular
or Franchise Agreement. More particularly, notwithstanding anything to the
contrary in Section 16 of the Franchise Agreement, the Franchise Agreement shall
be governed by the laws of the State of Indiana. Additionally, the second
sentence of Section 16 of the Franchise Agreement is hereby deleted in its
entirety.
Section 16 of the Franchise Agreement is hereby modified by adding the
following text as the last sentence thereof:
This provision shall not in any way abrogate or reduce any rights of
Franchisee as provided for under Indiana law including, but not
limited to, the right to submit matters to the jurisdiction of the
courts of Indiana.
With respect to Section 24 of the Franchise Agreement, the Company
agrees to select as the place for arbitration a location within the State of
Indiana if the Dealer so requests and the laws of the State of Indiana shall
apply to the arbitration proceedings. Additionally, the third and eleventh
sentences of Section 23 of the Franchise Agreement are hereby deleted in their
entirety.
Section 25 of the Franchise Agreement is hereby deleted in its
entirety.
FOR RESIDENTS OF THE STATE OF MARYLAND
Any general release required by the terms and conditions of the
Franchise Agreement as a condition of renewal, assignment or transfer shall not
apply to any liability under the Maryland Franchise Registration and Disclosure
Law.
Notwithstanding anything to the contrary in Sections 16 or 24 of the
Franchise Agreement, the Maryland Franchise Registration and Disclosure Law
prohibits the Franchisor from precluding the Franchisee from initiating
litigation against the Franchisor in Maryland. Accordingly, to the extent the
Sections 16 or 24 are inconsistent with the Maryland Franchise Registration and
Disclosure Law, such terms and conditions shall be of no force or effect.
FOR RESIDENTS OF THE STATE OF MINNESOTA
Section 13 of the Franchise Agreement is hereby modified by adding a
new subsection e. as follows:
e. The conditions under which this Agreement can be terminated or not
renewed may be affected by Minnesota law which provides Franchisee
with certain termination and non-renewal rights. Minnesota Statute
Section 80C.14, subdivisions 3, 4 and 5 require, except in certain
specified cases, that the Dealer be given 90 days notice of
termination (with 60 days to cure) and 180 days notice for non-renewal
of the Franchise Agreement.
Section 16 of the Franchise Agreement is hereby modified by adding the
following text as the last sentence thereof:
Pursuant to Minnesota Statute Section 80C.21, this provision shall not
in any way abrogate or reduce any rights of the Dealer as provided for
in Minnesota Statute Chapter 80C.
Page 2 of 6
<PAGE>
including, but not limited to, the right to submit matters to the
jurisdiction of the courts of Minnesota.
The Company agrees to indemnify Dealer from and against any losses,
liabilities and damages for which Dealer is held liable by a court of
competent jurisdiction in any proceeding arising out of Dealer's use of the
mark CarpetMAX -REGISTERED TRADEMARK- and all other trademarks, service
marks and associated marks and symbols utilized by Dealer pursuant to this
Agreement, provided such use is in accordance with and pursuant to the
provisions of this Agreement and instructions from the Company. The foregoing
indemnification is conditioned upon the following: Dealer must (i) provide
written notice to the Company of any claims subject to indemnification
hereunder within 20 days of Dealer's receipt of any written information
pertaining to such claims, (ii) tender the defense of the claims to the
Company if the Company so desires, and (iii) permit the Company to have sole
control of the defense and settlement of any such claim.
Nothing in the Franchise Agreement is intended to abrogate or reduce
any rights of the Franchisee as provided in for Minnesota Statutes, Chapter 80C.
In any arbitration involving a franchise located in Minnesota, the
arbitration site shall be either in Minnesota or a place mutually agreed upon at
the time of the arbitration, as determined by the arbitrator(s).
FOR RESIDENTS OF THE STATE OF NEW YORK
Notwithstanding any provision of the Franchise Agreement, all rights
enjoyed by the Dealer and any causes of action arising in its favor from the
provisions of Article 33 of the General Business Law of the State of New York
and the regulations issued thereunder shall remain in force, it being the intent
of this proviso that the non-waiver provisions of the General Business Law of
the State of New York Sections 687.4 and 687.5 be satisfied.
With respect to the Dealer's indemnification requirements under the
Franchise Agreement, the Dealer shall not be required to indemnify for any
claims arising out of a breach of the Franchise Agreement or other civil wrong
of the Company.
Notwithstanding any provision of the Franchise Agreement to the
contrary, the Company will not transfer and assign its rights and obligations
under the Franchise Agreement unless the transferee will be able to perform the
Company's obligations under the Franchise Agreement, in Company's good faith
judgment, so long as it remains subject to Article 33 of the General Business
Law of the State of New York.
Notwithstanding Section 16 of the Franchise Agreement, the choice of
law and venue provisions should not be construed as a waiver of any right
conferred upon the Dealer by the provisions of Article 33 of the General
Business Law of the State of New York.
FOR RESIDENTS OF THE STATE OF NORTH DAKOTA
Section 16 of the Franchise Agreement is hereby modified by deleting
the current text in its entirety and replacing it with the following: "This
Agreement shall be governed by and construed in accordance with the laws of the
State of North Dakota."
With respect to Section 24 of the Franchise Agreement, the Company
agrees to select as the place for arbitration a location within the State of
North Dakota in close proximity to the Dealer's business.
Page 3 of 6
<PAGE>
Additionally, nothing in Section 24 shall bar the right of either party to
obtain injunctive relief from any court of competent jurisdiction against
threatened conduct that will cause loss or damages under the usual equity rules,
including the applicable rules for obtaining preliminary injunctions. Finally,
the fourth to last sentence of Section 24 is hereby deleted in its entirety.
FOR RESIDENTS OF THE STATE OF SOUTH DAKOTA
Notwithstanding anything to the contrary in the Franchise Agreement,
the Company will not terminate the Franchise Agreement for a breach of the
Franchise Agreement, for failure of the Dealer to meet performance and quality
standards unless the Franchisee receives 30 days written notice and an
opportunity to cure such defaults.
Section 16 of the Franchise Agreement is amended in its entirety to
read as follows:
The law regarding franchise registration, employment, covenants not to
compete, and other matters of local concern will be governed by the
laws of the State of South Dakota; but as to contractual and all other
matters, this agreement and all provisions of this instrument will be
and remain subject to the applications, construction, enforcement and
interpretation under the governing law of Georgia. Any provision in
the Franchise Agreement restricting jurisdiction or venue to a forum
outside of South Dakota or requiring the application of the laws of
another state is void with respect to a claim otherwise enforceable
under the South Dakota Franchise Law.
Section 24 of the Franchise Agreement is amended to delete any
references to the site of arbitration being in Georgia. The parties agree that
such arbitration shall be conducted in a mutually agreed upon site in accordance
with Section 11 of the Commercial Arbitration Rules of the American Arbitration
Association. Furthermore, nothing in Section 24 shall be deemed to bar the right
of either party to obtain injunctive relief from any court of competent
jurisdiction against threatened conduct that will cause loss or damages under
the usual equity rules, including the applicable rules for obtaining preliminary
injunctions. Finally, the fourth to last sentence of Section 24 is hereby
deleted in its entirety.
Pursuant to S.D.C.L. 37-5A-86, any acknowledgment provision,
disclaimer, or integration clause or a provision having a similar effect in the
Franchise Agreement does not negate or act to remove from judicial review any
statement, misrepresentation or action that would violate the South Dakota
Franchise Law (S.D.C.L. 37-5A), or any administrative regulations promulgated
thereunder.
FOR RESIDENTS OF THE STATE OF WASHINGTON
Notwithstanding any other provision of the Franchise Agreement to the
contrary, the Company shall not terminate the Franchise Agreement prior to
expiration of its initial Term or any renewal Term except for good cause. Good
cause shall include, without limitation, the failure of the Dealer to comply
with lawful material provisions of the Franchise Agreement or any other
agreement between the Company and the Dealer, and to cure such default after
being given written notice thereof and a reasonable opportunity, which in no
event need be more than thirty days, to cure such default, or if such default
cannot reasonably be cured within thirty days, the failure of the Dealer to
initiate within thirty days substantial and continuing action to cure such
default. After 3 willful and material breaches of the same term of the Franchise
Agreement occurring within a 12 month period, for which the Dealer has been
given notice and an opportunity to cure as provided in this subsection, the
Company may terminate the Franchise Agreement upon any subsequent
Page 4 of 6
<PAGE>
willful and material breach of the same term within the 12 month period without
providing notice or opportunity to cure. The Company may terminate the Franchise
Agreement without giving prior notice or opportunity to cure a default if the
Dealer (i) is adjudicated a bankrupt or insolvent; (ii) makes an assignment for
the benefit of creditors or similar disposition of the assets of the franchised
business; (iii) voluntarily abandons the franchised business; or (iv) is
convicted of or pleads guilty or no contest to a charge of violating any law
relating to the franchised business. Upon termination for good cause, the
Company shall purchase from the Dealer at fair market value at the time of
termination, the Dealer's inventory and supplies, exclusive of (i) personalized
materials which have no value to the Company; (ii) inventory and supplies not
reasonably required in the conduct of the franchised business; and (iii), if the
Dealer is to retain control of the premises of the franchised business, any
inventory and supplies not purchased from the Company or upon the Company's
express requirement: PROVIDED, that the Company may offset against amounts owed
to the Dealer under this paragraph any amounts owed by the Dealer to the Company
or its affiliates.
In any arbitration involving a franchise purchased in Washington, the
arbitration site shall be either in the State of Washington, or in a place
mutually agreed upon at the time of the arbitration, or as determined by the
arbitrator.
If any provision of the Franchise Agreement is inconsistent with the
relationship provisions of RCW 19.100.180 or other requirements of the
Washington Franchise Investment Protection Act (the "Act"), the provisions of
the Act will prevail.
A release or waiver of rights executed the Dealer shall not include
rights under the Act except when executed pursuant to a negotiated settlement
after the Franchise Agreement is in effect and where the parties are represented
by independent counsel. Provisions which unreasonably restrict or limit the
statute of limitations period for claims under the Act, or rights or remedies
under the Act, such as a right to trial by jury, may not be enforceable.
FOR RESIDENTS OF THE STATE OF WISCONSIN
Section 13 of the Franchise Agreement is hereby modified by adding a
new subsection e. as follows:
e. The conditions under which this Agreement can be terminated or not
renewed may be affected by Wisconsin law, Chapter 135, Wisc. Stats.,
the Wisconsin Fair Dealership Law.
Section 13 of the Franchise Agreement is hereby modified by adding the
following: "The Wisconsin Fair Dealership Law supersedes any provision of this
Agreement which is inconsistent with that law."
FOR RESIDENTS OF ALL STATES LISTED IN THIS ADDENDUM
Notwithstanding Section 26 of the Franchise Agreement to the contrary,
this Addendum shall not be merged with or into, or superseded by, the Franchise
Agreement. In the event of any conflict between the Franchise Agreement and this
Addendum, this Addendum shall be controlling. Except as otherwise expressly set
forth herein, no other amendments or modifications of the Franchise Agreement
are intended or made by the parties.
Applicable State: ____________________________
Page 5 of 6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Addendum on the day and year first above written.
DEALER: CARPETMAX, L.P.
--------------------------
By: By: THE MAXIM GROUP, INC.,
------------------------------
General Partner
Title:
---------------------------
By:
---------------------------
[CORPORATE SEAL] A.J. Nassar
Title: President
(SEAL) [CORPORATE SEAL]
- ---------------------------
Page 6 of 6
<PAGE>
SCHEDULE "D"
GUARANTY BY THE MAXIM GROUP, INC.
<PAGE>
GUARANTY
THIS GUARANTY (the "Guaranty") is executed as of _________________,
199___ by THE MAXIM GROUP, INC. (the "Guarantor") in favor of
_____________________ ("Dealer").
WHEREAS, Carpetmax, L.P., a Georgia limited partnership ("Company")
that is an affiliate of Guarantor, is the franchisor under that certain
CarpetMAX Franchise Agreement, dated as of _________________, 199___, between
Company and Dealer (the "Franchise Agreement"); and
WHEREAS, in order to provide assurance to Dealer that the Company will
fulfill its obligations to Dealer under the Franchise Agreement, Guarantor is
willing to execute this Guaranty;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Guarantor, the Guarantor agrees
as follows:
1. GUARANTY. Guarantor hereby guarantees to Dealer the full and prompt
performance of Company's obligations to Dealer arising under the Franchise
Agreement. Guarantor agrees that if Company does not perform the obligations
required to be performed thereunder, then upon written notice from Dealer,
Guarantor will perform or cause to be performed such unperformed obligations as
required by the Franchise Agreement.
2. NO WAIVER BY DEALER. No delay or failure of Dealer in the exercise
of any right, power or remedy shall operate as a waiver thereof, and no single
or partial exercise by Dealer of any right, power or remedy shall preclude any
further exercise thereof or the exercise of any other right, any power or
remedy.
3. PLACE OF EXECUTION; GOVERNING LAW. Guarantor acknowledges that this
Guaranty was delivered in Georgia, and shall be governed and construed in
accordance with Georgia law (excluding the laws of conflicts).
4. MODIFICATIONS. This Guaranty may not be changed orally, and no
obligation of Guarantor can be released or waived by Dealer or any officer or
agent of Dealer, except by a writing signed by a duly authorized officer of
Dealer.
5. NOTICES. Any and all notices, elections or demands permitted or
required to be made under this Guaranty shall be in writing, signed by the party
giving such notice, election or demand, and shall be mailed by registered or
certified United States mail, postage prepaid, or otherwise delivered to the
other party at the address set forth below, or at such other address within the
continental United States of America as the addressee may hereafter designate in
writing. The effective date of such notice, election or demand shall be the date
of delivery. For the purposes of this Guaranty:
(a) The address of Dealer is:
-------------------------
-------------------------
<PAGE>
(b) The address of Guarantor is:
The Maxim Group, Inc.
210 TownPark Drive
Kennesaw, Georgia 30144
6. SUCCESSORS AND ASSIGNS. The provisions of this Guaranty shall bind
Guarantor and its successors and shall benefit Dealer and its successors and
assigns.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first written above.
THE MAXIM GROUP, INC.
By:
------------------------------
Name: A.J. Nassar
Title: President
2
<PAGE>
EXHIBIT 10.23
AMENDED AND RESTATED
CREDIT AGREEMENT
among
THE MAXIM GROUP, INC.
as Borrower,
AND
THE DOMESTIC SUBSIDIARIES OF THE BORROWER
as Guarantors,
AND
THE LENDERS IDENTIFIED HEREIN,
AND
NATIONSBANK, N.A.,
as Administrative Agent
DATED AS OF MAY 18, 1999
Arranged by:
BANC OF AMERICA SECURITIES LLC,
as Sole Lead Arranger and Sole Book Manager
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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SECTION 1 DEFINITIONS AND ACCOUNTING TERMS.......................................................................1
1.1 DEFINITIONS..........................................................................................1
1.2 COMPUTATION OF TIME PERIODS AND OTHER DEFINITIONAL PROVISIONS.......................................26
1.3 ACCOUNTING TERMS....................................................................................26
SECTION 2 CREDIT FACILITIES.....................................................................................26
2.1 REVOLVING LOANS.....................................................................................26
2.2 LETTER OF CREDIT SUBFACILITY........................................................................29
2.3 INDEMNIFICATION OF ISSUING LENDER...................................................................33
2.4 CONTINUATIONS AND CONVERSIONS.......................................................................34
2.5 MINIMUM AMOUNTS.....................................................................................35
SECTION 3 GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT..........................................35
3.1 INTEREST. .........................................................................................35
3.2 PLACE AND MANNER OF PAYMENTS........................................................................36
3.3 PREPAYMENTS.........................................................................................36
3.4 FEES. .........................................................................................37
3.5 PAYMENT IN FULL AT MATURITY.........................................................................39
3.6 COMPUTATIONS OF INTEREST AND FEES...................................................................39
3.7 PRO RATA TREATMENT..................................................................................40
3.8 SHARING OF PAYMENTS.................................................................................41
3.9 CAPITAL ADEQUACY....................................................................................41
3.10 INABILITY TO DETERMINE INTEREST RATE...............................................................42
3.11 ILLEGALITY.........................................................................................42
3.12 REQUIREMENTS OF LAW................................................................................43
3.13 TAXES. .........................................................................................44
3.14 COMPENSATION.......................................................................................46
3.15 EVIDENCE OF DEBT...................................................................................46
3.16 REPLACEMENT OF LENDERS.............................................................................47
SECTION 4 GUARANTY..............................................................................................47
4.1 GUARANTY OF PAYMENT.................................................................................47
4.2 OBLIGATIONS UNCONDITIONAL...........................................................................48
4.3 MODIFICATIONS.......................................................................................49
4.4 WAIVER OF RIGHTS....................................................................................49
4.5 REINSTATEMENT.......................................................................................49
4.6 REMEDIES............................................................................................50
4.7 LIMITATION OF GUARANTY..............................................................................50
4.8 RIGHTS OF CONTRIBUTION..............................................................................50
</TABLE>
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<TABLE>
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SECTION 5 CONDITIONS PRECEDENT..................................................................................50
5.1 CLOSING CONDITIONS..................................................................................50
5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT..............................................................54
SECTION 6 REPRESENTATIONS AND WARRANTIES........................................................................55
6.1 FINANCIAL CONDITION.................................................................................55
6.2 NO MATERIAL CHANGE..................................................................................56
6.3 ORGANIZATION AND GOOD STANDING......................................................................56
6.4 DUE AUTHORIZATION...................................................................................56
6.5 NO CONFLICTS........................................................................................56
6.6 CONSENTS............................................................................................57
6.7 ENFORCEABLE OBLIGATIONS.............................................................................57
6.8 NO DEFAULT..........................................................................................57
6.9 OWNERSHIP...........................................................................................57
6.10 INDEBTEDNESS.......................................................................................58
6.11 LITIGATION.........................................................................................58
6.12 TAXES. .........................................................................................58
6.13 COMPLIANCE WITH LAW................................................................................58
6.14 ERISA..............................................................................................58
6.15 SUBSIDIARIES.......................................................................................59
6.16 USE OF PROCEEDS....................................................................................60
6.17 GOVERNMENT REGULATION..............................................................................60
6.18 ENVIRONMENTAL MATTERS..............................................................................61
6.19 INTELLECTUAL PROPERTY..............................................................................62
6.20 SOLVENCY...........................................................................................63
6.21 INVESTMENTS........................................................................................63
6.22 LOCATION OF COLLATERAL.............................................................................63
6.23 DISCLOSURE.........................................................................................63
6.24 LICENSES, ETC......................................................................................63
6.25 COLLATERAL DOCUMENTS...............................................................................63
6.26 BURDENSOME RESTRICTIONS............................................................................63
SECTION 7 AFFIRMATIVE COVENANTS.................................................................................64
7.1 INFORMATION COVENANTS...............................................................................64
7.2 FINANCIAL COVENANTS.................................................................................68
7.3 PRESERVATION OF EXISTENCE AND FRANCHISES............................................................71
7.4 BOOKS AND RECORDS...................................................................................71
7.5 COMPLIANCE WITH LAW.................................................................................71
7.6 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.............................................................71
7.7 INSURANCE...........................................................................................72
7.8 MAINTENANCE OF PROPERTY.............................................................................73
7.9 PERFORMANCE OF OBLIGATIONS..........................................................................73
7.10 COLLATERAL.........................................................................................73
7.11 USE OF PROCEEDS....................................................................................73
7.12 AUDITS/INSPECTIONS.................................................................................73
7.13 ADDITIONAL CREDIT PARTIES..........................................................................74
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7.14 YEAR 2000 COMPLIANCE...............................................................................74
7.15 POST-CLOSING REQUIREMENTS..........................................................................75
SECTION 8 NEGATIVE COVENANTS....................................................................................77
8.1 INDEBTEDNESS........................................................................................77
8.2 LIENS. .........................................................................................78
8.3 NATURE OF BUSINESS..................................................................................78
8.4 CONSOLIDATION AND MERGER............................................................................78
8.5 SALE OR LEASE OF ASSETS.............................................................................79
8.6 SALE LEASEBACKS.....................................................................................79
8.7 ADVANCES, INVESTMENTS AND LOANS.....................................................................79
8.8 RESTRICTED PAYMENTS.................................................................................80
8.9 TRANSACTIONS WITH AFFILIATES........................................................................80
8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS..............................................................80
8.11 NO LIMITATIONS.....................................................................................80
8.12 NO OTHER NEGATIVE PLEDGES..........................................................................81
8.13 LIMITATION ON FOREIGN OPERATIONS...................................................................81
8.14 CAPITAL EXPENDITURES...............................................................................81
8.15 PREPAYMENTS OF INDEBTEDNESS........................................................................81
8.16 SUBORDINATED DEBT..................................................................................81
8.17 LIMITATION ON STORE OPENINGS.......................................................................82
8.18 LIMITATION ON FEES AND EXPENSES....................................................................82
SECTION 9 EVENTS OF DEFAULT.....................................................................................83
9.1 EVENTS OF DEFAULT...................................................................................83
9.2 ACCELERATION; REMEDIES..............................................................................86
9.3 ALLOCATION OF PAYMENTS AFTER EVENT OF DEFAULT.......................................................87
SECTION 10 AGENCY PROVISIONS....................................................................................88
10.1 APPOINTMENT........................................................................................88
10.2 DELEGATION OF DUTIES...............................................................................88
10.3 EXCULPATORY PROVISIONS.............................................................................89
10.4 RELIANCE ON COMMUNICATIONS.........................................................................89
10.5 NOTICE OF DEFAULT..................................................................................90
10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.............................................90
10.7 INDEMNIFICATION....................................................................................91
10.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY....................................................91
10.9 SUCCESSOR ADMINISTRATIVE AGENT.....................................................................91
SECTION 11 MISCELLANEOUS........................................................................................92
11.1 NOTICES............................................................................................92
11.2 RIGHT OF SET-OFF...................................................................................92
11.3 BENEFIT OF AGREEMENT...............................................................................92
11.4 NO WAIVER; REMEDIES CUMULATIVE.....................................................................95
11.5 PAYMENT OF EXPENSES; INDEMNIFICATION...............................................................96
11.6 AMENDMENTS, WAIVERS AND CONSENTS...................................................................96
</TABLE>
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11.7 COUNTERPARTS/TELECOPY..............................................................................98
11.8 HEADINGS...........................................................................................98
11.9 DEFAULTING LENDER..................................................................................98
11.10 SURVIVAL OF INDEMNIFICATION AND REPRESENTATIONS AND WARRANTIES....................................98
11.11 GOVERNING LAW; JURISDICTION.......................................................................98
11.12 WAIVER OF JURY TRIAL..............................................................................99
11.13 TIME..............................................................................................99
11.14 SEVERABILITY......................................................................................99
11.15 FURTHER ASSURANCES................................................................................99
11.16 CONFIDENTIALITY...................................................................................99
11.17 ENTIRETY.........................................................................................100
11.18 BINDING EFFECT; CONTINUING AGREEMENT.............................................................100
</TABLE>
SCHEDULES
Schedule 1.1(a) Commitment Percentages
Schedule 1.1(b) Indenture Default
Schedule 1.1(c) Permitted Liens
Schedule 2.2(c) Existing Letters of Credit
Schedule 6.10 Indebtedness
Schedule 6.15 Subsidiaries
Schedule 6.19 Intellectual Property
Schedule 6.22(a) Real Property Locations
Schedule 6.22(b) Personal Property Locations
Schedule 6.22(c) Chief Executive Offices
Schedule 7.7 Insurance
Schedule 11.1 Notices
EXHIBITS
Exhibit 2.1(b) Form of Notice of Borrowing
Exhibit 2.1(f) Form of Revolving Note
Exhibit 2.4 Form of Notice of Continuation/Conversion
Exhibit 7.1(c) Form of Officer's Certificate
Exhibit 7.1(d) Form of Borrowing Base Certificate
Exhibit 7.13 Form of Joinder Agreement
Exhibit 11.3(b) Form of Assignment Agreement
iv
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "CREDIT AGREEMENT"),
is entered into as of May 18, 1999 among THE MAXIM GROUP, INC., a Delaware
corporation (the "BORROWER"), each of the Domestic Subsidiaries of the Borrower
(individually a "GUARANTOR" and collectively the "GUARANTORS"), the Lenders (as
defined herein) and NATIONSBANK, N.A., as Administrative Agent for the Lenders
(in such capacity, the "ADMINISTRATIVE AGENT")
RECITALS
WHEREAS, the Borrower and the Guarantors entered into that certain
Credit Agreement dated as of November 25, 1998 (as amended or modified from time
to time, the "PRIOR CREDIT AGREEMENT"); and
WHEREAS, the Borrower and the Guarantors have requested that the
Lenders provide an amended and restated credit facility comprised of a
$75,000,000 revolving credit facility; and
WHEREAS, the Lenders have agreed to make the requested amended and
restated credit facility available to the Borrower on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS.
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms herein shall
include in the singular number the plural and in the plural the singular:
"ACCELERATION EVENT" means the acceleration of the
Subordinated Debt prior to its stated maturity.
"ACCELERATION EVENT FEE" has the meaning set forth in Section
3.4(g).
"ADDITIONAL CREDIT PARTY" means each Person that becomes a
Guarantor after the Closing Date, as provided in Section 7.13.
<PAGE>
"ADJUSTED BASE RATE" means the Base Rate plus the Applicable
Percentage.
"ADJUSTED EURODOLLAR RATE" means the Eurodollar Rate plus the
Applicable Percentage.
"ADJUSTED SENIOR DEBT RATIO" means, with respect to the Credit
Parties on a consolidated basis for the twelve month period ending on
the last day of any fiscal quarter of the Borrower, the ratio of (a)
Total Senior Debt plus Adjusted Rent Expense to (b) EBITDAR.
"ADJUSTED RENT EXPENSE" means the product of Rent Expense
multiplied by eight (8).
"ADMINISTRATIVE AGENT" shall have the meaning assigned to such
term in the heading hereof (or any successor thereto) or any successor
agent appointed pursuant to Section 10.9.
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to
all directors and officers of such Person), controlled by or under
direct or indirect common control with such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power (a) to vote 10% or more of the securities having
ordinary voting power for the election of directors of such corporation
or (b) to direct or cause direction of the management and policies of
such corporation, whether through the ownership of voting securities,
by contract or otherwise.
"AGENCY SERVICES ADDRESS" means NationsBank, N.A.,
NC1-001-15-04, 101 North Tryon Street, Charlotte, North Carolina 28255,
Attn: Agency Services, or such other address as may be identified by
written notice from the Administrative Agent to the Borrower.
"APPLICABLE PERCENTAGE" means the appropriate applicable
percentages corresponding to the Fixed Charge Coverage Ratio in effect
as of the most recent Calculation Date as shown below:
2
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<TABLE>
<CAPTION>
Applicable Applicable
Fixed Charge Applicable Applicable Percentage for Percentage for Applicable
Pricing Coverage Percentage for Percentage for Standby Letter Trade Letter of Percentage for
Level Ratio Eurodollar Loans Base Rate Loans of Credit Fees Credit Fees Commitment Fees
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
equal to or
greater than
I 2.00 to 1.0 1.00% 0.0% 1.00% 0.625% 0.250%
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
equal to or
greater than
II 1.75 to 1.0 1.25% 0.0% 1.25% 0.625% 0.250%
but
less than
2.00 to 1.0
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
equal to or
greater than
III 1.50 to 1.0 1.50% 0.0% 1.50% 0.625% 0.300%
but
less than
1.75 to 1.0
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
equal to or
greater than
IV 1.30 to 1.0 1.75% 0.25% 1.75% 0.625% 0.375%
but
less than
1.50 to 1.0
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
less than
V 1.30 to 1.0 2.00% 0.50% 2.00% 0.625% 0.500%
- ------------- ---------------- ----------------- ---------------- ----------------- ----------------- ------------------
</TABLE>
The Applicable Percentage for Loans, the Standby Letter of
Credit Fees, the Trade Letter of Credit Fees and the Commitment Fees
shall, in each case, be determined and adjusted quarterly on the date
(each a "CALCULATION DATE") five Business Days after the date by which
the Borrower is required to provide the officer's certificate in
accordance with the provisions of Section 7.1(c); PROVIDED THAT the
initial Applicable Percentage for Loans, the Standby Letter of Credit
Fees, the Trade Letter of Credit Fees and the Commitment Fees shall be
based on Pricing Level V (as shown above) and shall remain at Pricing
Level V until the first Calculation Date subsequent to the fiscal
quarter of the Borrower ending July 31, 1999, and, thereafter, the
Applicable Percentage shall be determined by the Fixed Charge Coverage
Ratio calculated as of the most recent Calculation Date; and PROVIDED
FURTHER THAT if the Borrower fails to provide the officer's certificate
required by Section 7.1(c) on or before the most recent Calculation
Date, the Applicable Percentage for Loans, the Standby Letter of Credit
Fees, the Trade Letter of Credit Fees and the Commitment Fees from such
Calculation Date shall be based on Pricing Level V until such time that
an appropriate officer's certificate is provided whereupon the
Applicable Percentage shall be determined by the then current Fixed
Charge Coverage Ratio. Each Applicable Percentage shall be effective
from one Calculation Date until the next Calculation Date. Any
adjustment in the Applicable Percentage shall be applicable to all
existing Loans and Letters of Credit as well as any new Loans made or
Letters of Credit issued.
The Borrower shall promptly deliver to the Administrative
Agent, at the address set forth on SCHEDULE 11.1 and at the Agency
Services Address, at the time the officer's certificate is required to
be delivered by Section 7.1(c), information regarding any change in the
Fixed Charge Coverage Ratio that would change the existing Applicable
Percentage pursuant to the preceding paragraph.
Upon the occurrence of a Repurchase Event, the Applicable
Percentages for Loans and the Standby Letter of Credit Fees at each
Pricing Level will be permanently increased
3
<PAGE>
by 0.50%. Upon the occurrence of an Acceleration Event, the Applicable
Percentages for Loans and the Standby Letter of Credit Fees at each
Pricing Level will be permanently increased by 1.00%.
"ASSET DISPOSITION" means the disposition of any or all of the
assets of a Credit Party or any of its Subsidiaries whether by sale,
lease, transfer or otherwise, other than (a) transfers of assets
permitted by Section 8.5 and (b) losses of assets or destroyed assets
permitted by clauses (a) and (b) of Section 7.7.
"ASSIGNMENT OF CASH COLLATERAL ACCOUNT" means that certain
Assignment of Cash Collateral Account, dated as of the Closing Date,
executed by the Credit Parties in favor of the Administrative Agent, as
amended, modified, extended, renewed or replaced from time to time.
"BANKRUPTCY CODE" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"BASE RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%)
equal to the greater of (a) the Federal Funds Rate in effect on such
day PLUS 1/2 of 1% or (b) the Prime Rate in effect on such day. If for
any reason the Administrative Agent shall have determined (which
determination shall be conclusive absent manifest error) that it is
unable after due inquiry to ascertain the Federal Funds Rate for any
reason, including the inability or failure of the Administrative Agent
to obtain sufficient quotations in accordance with the terms hereof,
the Base Rate shall be determined without regard to clause (a) of the
first sentence of this definition until the circumstances giving rise
to such inability no longer exist. Any change in the Base Rate due to a
change in the Prime Rate or the Federal Funds Rate shall be effective
on the effective date of such change in the Prime Rate or the Federal
Funds Rate, respectively.
"BASE RATE LOAN" means any Loan bearing interest at a rate
determined by reference to the Base Rate.
"BASL" means Banc of America Securities LLC f/k/a NationsBanc
Montgomery Securities LLC.
"BORROWER" means The Maxim Group, Inc., a Delaware
corporation, together with any successors and permitted assigns.
"BORROWING BASE ASSETS" means, as of any date of
determination, the sum of (a) 80% of Eligible Receivable plus (b) 40%
of Eligible Warehouse Inventory plus (c) 25% of Eligible Inventory plus
(d) (i) prior to satisfaction of the requirements set forth in Section
7.15(e), 50% of the net book value of the Executive Buildings (such
value not to exceed $5 million) and (ii) upon satisfaction of the
requirements set forth in Section 7.15(e), 75% of the orderly
liquidation value of the Executive Buildings (such value not to exceed
$7 million).
4
<PAGE>
"BORROWING BASE CERTIFICATE" means a certificate,
substantially in the form of Exhibit 7.1(d), describing the Borrowing
Base Assets as of a particular date.
"BUSINESS DAY" means any day other than a Saturday, a Sunday,
a legal holiday or a day on which banking institutions are authorized
or required by law or other governmental action to close in Charlotte,
North Carolina; provided that in the case of Eurodollar Loans, such day
is also a day on which dealings between banks are carried on in U.S.
dollar deposits in the London interbank market.
"CALCULATION DATE" has the meaning set forth in the definition
of Applicable Percentage.
"CAPITAL EXPENDITURES" means all expenditures of the Credit
Parties and their Subsidiaries which, in accordance with GAAP, would be
classified as capital expenditures, including, without limitation,
Capital Leases.
"CAPITAL LEASE" means, as applied to any Person, any lease of
any property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person and the amount of
such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"CAPITAL LEASE PAYMENTS" means, for any period, with respect
to the Credit Parties on a consolidated basis, all payments made by the
Credit Parties under Capital Leases, as determined in accordance with
GAAP.
"CAPITALIZATION" means, as of any date of determination, with
respect to the Credit Parties on a consolidated basis, the sum of (a)
Funded Debt of the Credit Parties and (b) Net Worth.
"CASH COLLATERAL ACCOUNT" means the deposit account(s)
referenced in the Assignment of Cash Collateral Account.
"CASH EQUIVALENTS" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and
credit of the United States of America is pledged in support thereof)
having maturities of not more than twelve months from the date of
acquisition, (b) U.S. dollar denominated time and demand deposits and
certificates of deposit of (i) any Lender, (ii) any domestic commercial
bank having capital and surplus in excess of $500,000,000 or (iii) any
bank whose short-term commercial paper rating from S&P is at least A-1
or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "APPROVED BANK"), in each
case with maturities of not more than 270 days from the date of
acquisition, (c) commercial paper and variable or fixed rate notes
issued by any Approved Bank (or by the parent company thereof) or any
variable rate notes issued by, or
5
<PAGE>
guaranteed by, any domestic corporation rated A-1 (or the equivalent
thereof) or better by S&P or P-1 (or the equivalent thereof) or better
by Moody's and maturing within six months of the date of acquisition,
(d) repurchase agreements with a bank or trust company (including any
of the Lenders) or recognized securities dealer having capital and
surplus in excess of $500,000,000 for direct obligations issued by or
fully guaranteed by the United States of America in which the Borrower
shall have a perfected first priority security interest (subject to no
other Liens) and having, on the date of purchase thereof, a fair market
value of at least 100% of the amount of the repurchase obligations and
(e) Investments, classified in accordance with GAAP as current assets,
in money market investment programs registered under the Investment
Company Act of 1940, as amended, which are administered by reputable
financial institutions having capital of at least $500,000,000 and the
portfolios of which are limited to Investments of the character
described in the foregoing subdivisions (a) through (d).
"CHANGE OF CONTROL" means either of the following: (a) any
"person" or "group" (within the meaning of Section 13(d) or 14(d) of
the Exchange Act), has become, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of
all shares that any such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), by
way of merger, consolidation or otherwise, of 25% or more of the Voting
Stock of the Borrower on a fully-diluted basis, after giving effect to
the conversion and exercise of all outstanding warrants, options and
other securities of the Borrower (whether or not such securities are
then currently convertible or exercisable); or (b) during any period of
two consecutive calendar years, individuals who at the beginning of
such period constituted the board of directors of the Borrower cease
for any reason to constitute a majority of the directors of the
Borrower then in office unless such new directors were elected by the
directors of the Borrower who constituted the board of directors of the
Borrower at the beginning of such period.
"CLOSING DATE" means the date hereof.
"CODE" means the Internal Revenue Code of 1986 and the rules
and regulations promulgated thereunder, as amended, modified, succeeded
or replaced from time to time.
"COLLATERAL" means all assets of the Credit Parties in which,
pursuant to the Collateral Documents, a Lien has been granted in favor
of the Administrative Agent, for the benefit of the Lenders.
"COLLATERAL DOCUMENTS" means the Security Agreements, the
Pledge Agreements, the Assignment of Cash Collateral Account, any deed
to secure debt and security agreement executed by the Borrower in favor
of the Administrative Agent pursuant to Section 7.15(e) and such other
documents executed and delivered in connection with the attachment and
perfection of the Administrative Agent's security interests in the
assets of the Credit Parties, including without limitation, the UCC
financing statements.
6
<PAGE>
"COMMITMENT FEES" means the fees payable to the Lenders
pursuant to Section 3.4(a).
"COMMITMENTS" means (i) with respect to each Lender, the
Revolving Loan Commitment and (ii) with respect to the Issuing Lender,
the LOC Commitment.
"CREDIT DOCUMENTS" means this Credit Agreement, the Notes, any
Joinder Agreement, the Collateral Documents, the LOC Documents, the
Syndication Side Letter and all other related agreements and documents
issued or delivered hereunder or thereunder or pursuant hereto or
thereto.
"CREDIT PARTIES" means the Borrower and the Guarantors and
"CREDIT PARTY" means any one of them.
"CREDIT PARTY OBLIGATIONS" means, without duplication, (a) all
of the obligations of the Credit Parties to the Lenders (including the
Issuing Lender) and the Administrative Agent, whenever arising, under
this Credit Agreement, the Notes, the Collateral Documents or any of
the other Credit Documents to which any Credit Party is a party and (b)
all liabilities and obligations owing from such Credit Party to any
Lender, or any Affiliate of a Lender, arising under Hedging Agreements.
"DEBT ISSUANCE" means the issuance of any Indebtedness for
borrowed money by a Credit Party or any of its Subsidiaries, other than
Indebtedness permitted by Section 8.1.
"DEFAULT" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"DEFAULTING LENDER" means, at any time, any Lender that, (a)
has failed to make a Loan or purchase a Participation Interest required
pursuant to the terms of this Credit Agreement (but only for so long as
such Loan is not made or such Participation Interest is not purchased),
(b) has failed to pay to the Administrative Agent or any Lender an
amount owed by such Lender pursuant to the terms of this Credit
Agreement (but only for so long as such amount has not been repaid) or
(c) has been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or to a receiver, trustee or similar official.
"DOLLARS" and "$" means dollars in lawful currency of the
United States of America.
"DOMESTIC SUBSIDIARY" means each direct and indirect
Subsidiary of the Borrower that is domiciled, incorporated or organized
under the laws of any state of the United States or the District of
Columbia whether existing as of the date hereof or hereafter created or
acquired. As of the Closing Date, the Domestic Subsidiaries are as set
forth on SCHEDULE 6.15.
"EBITDA" means, for any period, with respect to the Credit
Parties on a consolidated basis, without duplication, the sum of (a)
Net Income for such period
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<PAGE>
(excluding the effect of any extraordinary or other non-recurring
gains (including any gain from the sale of property) or non-cash
losses plus (b) an amount which, in the determination of Net
Income for such period has been deducted for (i) Interest Expense for
such period, (ii) total Federal, state, foreign or other income or
franchise taxes for such period and (iii) all depreciation and
amortization for such period, all as determined in accordance with
GAAP.
"EBITDAR" means, for any period, with respect to the Credit
Parties on a consolidated basis, without duplication, the sum of (a)
Net Income for such period (excluding the effect of any
extraordinary or other non-recurring gains (including any gain from the
sale of property) or non-cash losses plus (b) an amount which, in the
determination of Net Income for such period has been deducted for (i)
Interest Expense for such period, (ii) total Federal, state, foreign
or other income or franchise taxes for such period, (iii) all
depreciation and amortization for such period, and (iv) Rent Expense
for such period, all as determined in accordance with GAAP.
"EFFECTIVE DATE" means the date on which the conditions set
forth in Section 5.1 shall have been fulfilled (or waived in the sole
discretion of the Lenders) and on which the initial Loans shall have
been made and/or the initial Letters of Credit shall have been issued.
"ELIGIBLE ASSIGNEE" means (a) any Lender; (b) an Affiliate of
a Lender; and (c) any other Person approved by the Administrative Agent
and the Borrower (such approval not to be unreasonably withheld or
delayed); PROVIDED THAT (i) the Borrower's consent is not required
during the existence and continuation of an Event of Default, (ii)
approval by the Borrower shall be deemed given if no objection is
received by the assigning Lender and the Administrative Agent from the
Borrower within two Business Days after notice of such proposed
assignment has been received by the Borrower; and (iii) neither the
Borrower nor an Affiliate of the Borrower shall qualify as an Eligible
Assignee.
"ELIGIBLE INVENTORY" means, as of any date of determination
and without duplication, the lower of (a) the aggregate book value
(based on a FIFO or a moving average cost valuation, consistently
applied) or (b) fair market value of all raw materials and finished
goods inventory, other than Eligible Warehouse Inventory, owned by any
Credit Party and in which NationsBank, in its capacity as agent for the
benefit of the Lenders and the TROL Lenders, has a first priority
security interest, in either case, less appropriate reserves determined
in accordance with GAAP, but excluding in any event (i) inventory
subject to any Lien other than liens in favor of NationsBank, in its
capacity as agent for the benefit of the Lenders and the TROL Lenders,
(ii) inventory which is not in good condition or fails to meet
standards for sale or use imposed by governmental agencies, departments
or divisions having regulatory authority over such goods, (iii)
inventory which is discontinued or not useable or saleable at prices
approximating their cost in the ordinary course of the applicable
Credit Party's business (including without duplication the amount of
any reserves for obsolescence, unsalability or decline in value), (iv)
inventory located outside of the
8
<PAGE>
United States, (v) inventory located at a location not owned or leased
by the applicable Credit Party unless the Administrative Agent has
received a waiver and estoppel agreement, reasonably satisfactory to
the Administrative Agent, from the owner/operator of such location,
and, if deemed appropriate by the Administrative Agent, a UCC financing
statement has been filed with respect to such location, (vi) inventory
located at a location leased by the applicable Credit Party at which
such Credit Party maintains in excess of $400,000 of inventory and with
respect to which the Administrative Agent shall not have received a
landlord's waiver and estoppel agreement in a form reasonably
satisfactory to the Administrative Agent and (vii) inventory which is
leased or on consignment.
"ELIGIBLE RECEIVABLES" means, at any time, the aggregate book
value of all accounts receivable, receivables, and obligations for
payment created or arising from the sale of inventory or the rendering
of services in the ordinary course of business (collectively, the
"RECEIVABLES") owned by or owing to the Credit Parties, net of
allowances and reserves for doubtful or uncollectible accounts and
sales adjustments consistent with the Borrower's internal policies and
in any event in accordance with GAAP but excluding in any event (i)
Receivables subject to any Lien, other than Liens securing Credit Party
Obligations and Liens in favor of NationsBank, in its capacity as agent
for the benefit of the TROL Lenders, (ii) Receivables which are more
than 90 days past due (net of reserves for bad debts in connection with
any such Receivables) and (iii) Receivables owing by an account debtor
located outside of the United States (unless payment for the goods
shipped is secured by an irrevocable letter of credit in a form and
from an institution acceptable to the Administrative Agent). It is
specifically understood and agreed that the accounts receivable and
receivables purchased or established by GE Capital under the GE Capital
Program and accounts receivable and receivables purchased or
established by Monogram under the Monogram Program are not owned or
owing to the Credit Parties, and therefore will not be included in the
definition of Eligible Receivables.
"ELIGIBLE WAREHOUSE INVENTORY" means, as of any date of
determination and without duplication, the lower of (a) the aggregate
book value (based on a FIFO or a moving average cost valuation,
consistently applied) or (b) fair market value of all raw materials and
finished goods inventory owned by any Credit Party, located at a
location designated as a warehouse location on SCHEDULE 6.22(a) and in
which NationsBank, in its capacity as agent for the benefit of the
Lenders and the TROL Lenders, has a first priority security interest,
in either case, less appropriate reserves determined in accordance with
GAAP, but excluding in any event (i) inventory subject to any Lien
other than liens in favor of NationsBank, in its capacity as agent for
the benefit of the Lenders and the TROL Lenders, (ii) inventory which
is not in good condition or fails to meet standards for sale or use
imposed by governmental agencies, departments or divisions having
regulatory authority over such goods, (iii) inventory which is
discontinued or not useable or saleable at prices approximating their
cost in the ordinary course of the applicable Credit Party's business
(including without duplication the amount of any reserves for
obsolescence, unsalability or decline in value), (iv) inventory located
outside of the United States, (v) inventory located at a location not
owned or leased by the applicable Credit Party unless the
Administrative Agent has received a waiver and estoppel agreement,
reasonably satisfactory to the Administrative
9
<PAGE>
Agent, from the owner/operator of such location, and, if deemed
appropriate by the Administrative Agent, a UCC financing statement has
been filed with respect to such location, (vi) inventory located at a
location leased by the applicable Credit Party at which such Credit
Party maintains in excess of $400,000 of inventory and with respect to
which the Administrative Agent shall not have received a landlord's
waiver and estoppel agreement in a form reasonably satisfactory to the
Administrative Agent and (vii) inventory which is leased or on
consignment.
"ENVIRONMENTAL CLAIM" means any investigation, written notice,
violation, written demand, written allegation, action, suit,
injunction, judgment, order, consent decree, penalty, fine, lien,
proceeding, or written claim whether administrative, judicial, or
private in nature arising (a) pursuant to, or in connection with, an
actual or alleged violation of, any Environmental Law, (b) in
connection with any Hazardous Material, (c) from any assessment,
abatement, removal, remedial, corrective, or other response action in
connection with an Environmental Law or other order of a Governmental
Authority or (d) from any actual or alleged damage, injury, threat, or
harm to health, safety, natural resources, or the environment.
"ENVIRONMENTAL LAWS" means any current or future legal
requirement of any Governmental Authority pertaining to (a) the
protection of health, safety, and the indoor or outdoor environment,
(b) the conservation, management, or use of natural resources and
wildlife, (c) the protection or use of surface water and groundwater or
(d) the management, manufacture, possession, presence, use, generation,
transportation, treatment, storage, disposal, release, threatened
release, abatement, removal, remediation or handling of, or exposure
to, any hazardous or toxic substance or material or (e) pollution
(including any release to land surface water and groundwater) and
includes, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 USC 9601 ET SEQ., Solid
Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984,
42 USC 6901 ET SEQ., Federal Water Pollution Control Act, as amended by
the Clean Water Act of 1977, 33 USC 1251 ET SEQ., Clean Air Act of
1966, as amended, 42 USC 7401 ET SEQ., Toxic Substances Control Act of
1976, 15 USC 2601 ET SEQ., Hazardous Materials Transportation Act, 49
USC App. 1801 ET SEQ., Occupational Safety and Health Act of 1970, as
amended, 29 USC 651 ET SEQ., Oil Pollution Act of 1990, 33 USC 2701 ET
SEQ., Emergency Planning and Community Right-to-Know Act of 1986, 42
USC 11001 ET SEQ., National Environmental Policy Act of 1969, 42 USC
4321 ET SEQ., Safe Drinking Water Act of 1974, as amended, 42 USC
300(f) ET SEQ., any analogous implementing or successor law, and any
amendment, rule, regulation, order, or directive issued thereunder.
"EQUITY ISSUANCE" means any issuance by a Credit Party to any
Person of (a) shares of its capital stock or other equity interests,
(b) any shares of its capital stock or other equity interests pursuant
to the exercise of options or warrants or (c) any shares of its capital
stock or other equity interests pursuant to the conversion of any debt
securities to equity.
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<PAGE>
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"ERISA AFFILIATE" means an entity, whether or not
incorporated, which is under common control with any Credit Party or
any of its Subsidiaries within the meaning of Section 4001(a)(14) of
ERISA, or is a member of a group which includes any Credit Party or any
of its Subsidiaries and which is treated as a single employer under
Sections 414(b), (c), (m), or (o) of the Code.
"EURODOLLAR LOAN" means a Loan bearing interest based at a
rate determined by reference to the Eurodollar Rate.
"EURODOLLAR RATE" means, for the Interest Period for each
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
determined pursuant to the following formula:
Eurodollar Rate = London Interbank Offered Rate
---------------------------------
1 - Eurodollar Reserve Percentage
"EURODOLLAR RESERVE PERCENTAGE" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by
reference to which the interest rate of Eurodollar Loans is
determined), whether or not a Lender has any Eurocurrency liabilities
subject to such reserve requirement at that time. Eurodollar Loans
shall be deemed to constitute Eurocurrency liabilities and as such
shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from
time to time to a Lender. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"EVENT OF DEFAULT" means any of the events or circumstances
specified in Section 9.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as
amended, modified, succeeded or replaced from time to time.
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"EXECUTIVE BUILDINGS" means (a) the Borrower's current
executive office building located at 210 TownPark Drive, Cobb County,
Kennesaw, Georgia and (b) the Borrower's former executive office
building located in Cobb County, Georgia.
"EXECUTIVE OFFICER" means any chief executive officer, chief
operating officer, executive vice president of finance, chief financial
officer, president, vice president or treasurer of the Borrower.
"EXISTING LETTERS OF CREDIT" means the letters of credit
described on SCHEDULE 2.2(c).
"EXTENSION OF CREDIT" means, as to any Lender, the making of a
Loan by such Lender (or a participation therein by a Lender) or the
issuance of, or participation in, a Letter of Credit by such Lender.
"FEDERAL FUNDS RATE" means for any day the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day; provided
that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding
Business Day and (b) if no such rate is so published on such next
preceding Business Day, the Federal Funds Rate for such day shall be
the average rate quoted to the Administrative Agent on such day on such
transactions as determined by the Administrative Agent.
"FEE LETTER" means that certain letter agreement among the
Borrower, BASL and the Administrative Agent dated as of May 18, 1999.
"FIRST TIER FOREIGN SUBSIDIARY" means each Foreign Subsidiary
which is owned directly by a Credit Party.
"FIXED CHARGE COVERAGE RATIO" means, with respect to the
Credit Parties on a consolidated basis for the twelve month period
ending on the last day of any fiscal quarter of the Credit Parties, the
ratio of (a) EBITDAR to (b) Fixed Charges.
"FIXED CHARGES" means, for any period, the sum of (a) Rent
Expense plus (b) Interest Expense plus (c) Scheduled Funded Debt
Payments plus (d) Capital Lease Payments.
"FOREIGN SUBSIDIARY" means any Subsidiary of the Borrower or
any other Credit Party that is not a Domestic Subsidiary.
"FUNDED DEBT" means, with respect to any Person without
duplication, the sum of (a) all Indebtedness of such Person for
borrowed money, (b) all purchase money
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Indebtedness of such Person, (c) the principal portion of all
obligations of such Person under Capital Leases, (d) all obligations,
contingent or otherwise, relative to the face amount of all letters of
credit (other than letters of credit supporting inventory purchases in
the ordinary course of business), whether or not drawn, and banker's
acceptances issued for the account of such Person (it being understood
that, to the extent an undrawn letter of credit supports another
obligation consisting of Indebtedness, in calculating aggregated
Indebtedness only such other obligation shall be included), (e) all
Guaranty Obligations of such Person with respect to Funded Debt of
another Person, (f) all Funded Debt of another entity secured by a Lien
on any property of such Person whether or not such Funded Debt has been
assumed by such Person, (g) all Funded Debt of any partnership or
unincorporated joint venture to the extent such Person is legally
obligated or has a reasonable expectation of being liable with respect
thereto, net of any assets of such partnership or joint venture and (h)
the principal portion of all obligations of such Person under Synthetic
Leases (including without limitation the principal portion of
obligations due under the Participation Agreement and the Operative
Agreements (as defined in the Participation Agreement)).
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to Section 1.3.
"GE CAPITAL" means General Electric Capital Corporation, a New
York corporation.
"GE CAPITAL DEALER AGREEMENT" means any Shaw Business
Revolving Credit Card Program Business Revolving Charge Dealer
Agreement by and among Maxim Retail, C&S Textiles, Inc., the Borrower
and GE Capital and any other credit card program revolving charge
dealer agreement entered into by and among Maxim Retail, C&S Textiles,
Borrower and GE Capital.
"GE CAPITAL PROGRAM" means any program established by GE
Capital under which GE Capital extends credit to certain customers of
Maxim Retail and C&S Textiles, Inc. for the purchase of goods, services
and other products from Maxim Retail and C&S Textiles, Inc.
"GOVERNMENTAL AUTHORITY" means any Federal, state, local,
provincial or foreign court or governmental agency, authority,
instrumentality or regulatory body.
"GUARANTOR" means each of the Domestic Subsidiaries of the
Borrower (other than Maxim Industries) and each Additional Credit Party
which has executed a Joinder Agreement or otherwise become a Guarantor
hereunder, together with their successors and assigns.
"GUARANTY OBLIGATIONS" means, with respect to any Person,
without duplication, any obligations (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing any Indebtedness of any other Person in any
manner, whether direct or indirect, and including without limitation
any obligation, whether or not contingent, (a) to purchase any such
Indebtedness or other obligation or any
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property constituting security therefor, (b) to advance or provide
funds or other support for the payment or purchase of such Indebtedness
or obligation or to maintain working capital, solvency or other balance
sheet condition of such other Person (including, without limitation,
maintenance agreements, comfort letters, take or pay arrangements, put
agreements or similar agreements or arrangements) for the benefit of
the holder of Indebtedness of such other Person, (c) to lease or
purchase property, securities or services primarily for the purpose of
assuring the owner of such Indebtedness or (d) to otherwise assure or
hold harmless the owner of such Indebtedness or obligation against loss
in respect thereof. The amount of any Guaranty Obligation hereunder
shall (subject to any limitations set forth therein) be deemed to be an
amount equal to the outstanding principal amount (or maximum principal
amount, if larger) of the Indebtedness in respect of which such
Guaranty Obligation is made.
"HAZARDOUS MATERIALS" means any substance, material or waste
defined in or regulated under any Environmental Laws.
"HEDGING AGREEMENTS" means any interest rate protection
agreements, foreign currency exchange agreements, or other interest or
exchange rate hedging agreements, in each case, entered into or
purchased by a Credit Party by or from any Lender or any Affiliate of
any Lender.
"INDEBTEDNESS" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations
of such Person evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made (c)
all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person to
the extent of the value of such property (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (d) all obligations,
other than intercompany items, of such Person issued or assumed as the
deferred purchase price of property or services purchased by such
Person which would appear as liabilities on a balance sheet of such
Person, (e) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on, or payable out of the
proceeds of production from, property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, (f)
all Guaranty Obligations of such Person, (g) the principal portion of
all obligations of such Person under (i) Capital Leases and (ii)
Synthetic Leases, (h) all net obligations of such Person in respect of
hedging agreements, foreign currency exchange obligations, and
commodity futures agreements, (i) the maximum amount of all performance
and standby letters of credit issued or bankers' acceptances facilities
created for the account of such Person and, without duplication, all
drafts drawn thereunder (to the extent unreimbursed), (j) all preferred
stock issued by such Person and required by the terms thereof to be
redeemed, or for which mandatory sinking fund payments are due by a
fixed date, (k) the aggregate amount of uncollected accounts receivable
of such Person subject at such time to a sale of receivables (or
similar transaction) regardless of whether such transaction is effected
without recourse to such Person or in a manner that would not be
reflected on the
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balance sheet of such Person in accordance with GAAP, and (l) all
obligations of such Person to repurchase any securities which
repurchase obligation is related to the issuance thereof, including,
without limitation, obligations commonly known as residual equity
appreciation potential shares. The Indebtedness of any Person shall
include the Indebtedness of any partnership or unincorporated joint
venture in which such Person is legally obligated. The Indebtedness of
any Person shall not include any obligations of such Person under
Operating Leases which are not Capital Leases or Synthetic Leases.
"INDENTURE" means that certain Indenture dated as of October
16, 1997 among the Borrower, as issuer, the Borrower and certain
Subsidiaries of the Borrower, as guarantors and State Street Bank and
Trust Company, as trustee, as the same may be modified, supplemented or
amended from time to time.
"INDENTURE DEFAULT" means the existing default by the Credit
Parties in the performance or observance of Section 1009 of the
Indenture described in SCHEDULE 1.1(b), which default has been
disclosed to the Lenders prior to the Closing Date.
"INTEREST EXPENSE" means, for any period, with respect to the
Credit Parties on a consolidated basis, all interest expense, including
the interest component under Capital Leases, as determined in
accordance with GAAP.
"INTEREST PAYMENT DATE" means (a) as to Base Rate Loans, the
last day of each calendar month and the Maturity Date and (b) as to
Eurodollar Loans, the last day of each applicable Interest Period and
the Maturity Date, and in addition where the applicable Interest Period
for a Eurodollar Loan is greater than three months, then also the date
three months from the beginning of the Interest Period and each three
months thereafter.
"INTEREST PERIOD" means, as to Eurodollar Loans, a period of
one, two, three or six months' duration, as the Borrower may elect,
commencing, in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (a) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day),
(b) no Interest Period shall extend beyond the Maturity Date and (c)
where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last
Business Day of such calendar month.
"INVESTMENT" means (a) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or
otherwise) of assets, shares of capital stock, bonds, notes,
debentures, partnership, joint ventures or other ownership interests or
other securities of any Person or (b) any deposit with, or advance,
loan or other extension of credit to, any Person (other than deposits
made in connection with the purchase of equipment or other assets in
the ordinary course of business) or (c) any other capital contribution
to or investment in any Person, including, without limitation, any
Guaranty Obligation (including
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any support for a Letter of Credit issued on behalf of such Person)
incurred for the benefit of such Person.
"ISP98" has the meaning set forth in Section 2.2(g).
"ISSUING LENDER" means NationsBank, N.A. or any successor
Administrative Agent.
"ISSUING LENDER FEES" has the meaning set forth in Section
3.4(d).
"JOINDER AGREEMENT" means a Joinder Agreement substantially in
the form of EXHIBIT 7.13.
"LENDER" means any of the Persons identified as a "Lender" on
the signature pages hereto, and any Eligible Assignee which may become
a Lender by way of assignment in accordance with the terms hereof,
together with their successors and permitted assigns.
"LETTER OF CREDIT" means any standby or trade Letter of Credit
issued for the account of a Credit Party by the Issuing Lender pursuant
to Section 2.2 hereof or any Existing Letter of Credit, as such letter
of credit may be amended, modified, extended, renewed or replaced.
"LIEN" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind, including,
without limitation, any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, and any lease in
the nature thereof.
"LOAN" or "LOANS" means the Revolving Loans (or a portion of
any Revolving Loan), individually or collectively, as appropriate.
"LOC COMMITTED AMOUNT" means FIVE MILLION DOLLARS
($5,000,000).
"LOC COMMITMENT" means the commitment of the Issuing Lender to
issue Letters of Credit for the account of a Credit Party in an
aggregate face amount any time outstanding (together with the amounts
of any unreimbursed drawings thereon) of up to the LOC Committed
Amount.
"LOC DOCUMENTS" means, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (a) the rights and obligations of the parties concerned
or at risk or (b) any collateral security for such obligations.
"LOC OBLIGATIONS" means, at any time, the sum of (a) the
maximum amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit
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(including the Existing Letters of Credit) then outstanding, assuming
compliance with all requirements for drawings referred to in such
Letters of Credit PLUS (b) the aggregate amount of all drawings under
Letters of Credit honored by the Issuing Lender but not theretofore
reimbursed.
"LOC PARTICIPANTS" means the Lenders.
"LONDON INTERBANK OFFERED RATE" means, with respect to any
Eurodollar Loan for the Interest Period applicable thereto, the rate of
interest per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately
11:00 A.M. (London time) two Business Days prior to the first day of
such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Telerate Page
3750, the applicable rate shall be the arithmetic mean of all such
rates. If, for any reason, such rate is not available, the term "LONDON
INTERBANK OFFERED RATE" shall mean, with respect to any Eurodollar Loan
for the Interest Period applicable thereto, the rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Reuters Screen LIBO Page as the London interbank offered
rate for deposits in Dollars at approximately 11:00 A.M. (London time)
two Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period; provided, however, if more
than one rate is specified on Reuters Screen LIBO Page, the applicable
rate shall be the arithmetic mean of all such rates.
"MANDATORY BORROWING" has the meaning set forth in Section
2.2(e).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the operations, financial condition, business or prospects of the
Credit Parties and their Subsidiaries taken as a whole, (b) the ability
of a Credit Party to perform its obligations under this Credit
Agreement or any of the other Credit Documents, or (c) the validity or
enforceability of this Credit Agreement, any of the other Credit
Documents, or the rights and remedies of the Lenders hereunder or
thereunder taken as a whole.
"MATURITY DATE" means May 18, 2002.
"MAXIM RETAIL" means Maxim Retail Stores, Inc., a Georgia
corporation.
"MAXIM INDUSTRIES" means Maxim Industries, Inc., a Delaware
corporation.
"MONOGRAM" means Monogram Credit Card Bank of Georgia.
"MONOGRAM PROGRAM" means any program established by Monogram
under which Monogram may extend credit to certain customers of Maxim
Retail and C&S Textiles, Inc. for the purchase of goods, services and
other products from Maxim Retail and C&S Textiles, Inc.
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"MOODY'S" means Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the business
of rating securities.
"MULTIEMPLOYER PLAN" means a Plan covered by Title IV of ERISA
which is a multiemployer plan as defined in Section 3(37) or 4001(a)(3)
of ERISA.
"MULTIPLE EMPLOYER PLAN" means a Plan covered by Title IV of
ERISA, other than a Multiemployer Plan, which any Credit Party or any
of its Subsidiaries or any ERISA Affiliate and at least one employer
other than a Credit Party or any of its Subsidiaries or any ERISA
Affiliate are contributing sponsors.
"NATIONSBANK" means NationsBank, N.A. or any successor
thereto.
"NET CASH PROCEEDS" means the aggregate cash proceeds received
from an Asset Disposition, an Equity Issuance or a Debt Issuance net of
(a) reasonable transaction costs payable to third parties, and (b)
taxes paid or a good faith estimate of the taxes payable with respect
to such proceeds.
"NET INCOME" means, for any period, the net income after taxes
for such period of the Credit Parties on a consolidated basis, as
determined in accordance with GAAP.
"NET WORTH" means, as of any date, shareholders' equity or net
worth of the Credit Parties on a consolidated basis, as determined in
accordance with GAAP.
"NEW SUBSIDIARIES" means Colorado Carpet & Rugs, Inc., a
Colorado corporation, Manasota Carpet, Inc., a Florida corporation and
Wadsworth & Owens Decorating Center, Inc., a Florida corporation.
"NON-EXCLUDED TAXES" has the meaning set forth in Section
3.13.
"NOTE" or "NOTES" means the Revolving Notes, individually or
collectively, as appropriate.
"NOTICE OF BORROWING" means a request by the Borrower for a
Revolving Loan, in the form of EXHIBIT 2.1(b).
"NOTICE OF CONTINUATION/CONVERSION" means a request by the
Borrower to continue an existing Eurodollar Loan to a new Interest
Period or to convert a Eurodollar Loan to a Base Rate Loan or a Base
Rate Loan to a Eurodollar Loan, in the form of EXHIBIT 2.4.
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed)
which is not a Capital Lease other than any such lease in which that
Person is the lessor.
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"PARTICIPATION AGREEMENT" means that certain Participation
Agreement dated as of November 25, 1998 among the Borrower, as
construction agent and lessee, the guarantors party thereto, First
Security Bank, National Association, as co-owner trustee, Val T. Orton,
as co-owner trustee, the lenders identified therein, as holders, the
lenders identified therein, as lenders and NationsBank, as agent, as
amended or modified from time to time.
"PARTICIPATION INTEREST" means the Extension of Credit by a
Lender by way of a purchase of a participation in Letters of Credit or
LOC Obligations as provided in Section 2.2 or in any Loans as provided
in Section 2.3 or Section 3.8.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereto.
"PERMITTED ACQUISITION" means the acquisition by a Credit
Party of all or a majority of the capital stock of another Person or
all or substantially all of the business or a line of business of
another Person, provided that each of the following conditions are
satisfied: (a) prior to such acquisition, the Borrower shall deliver to
the Administrative Agent and Lenders evidence reasonably satisfactory
to the Administrative Agent and Required Lenders demonstrating that
after giving effect to such acquisition, including without limitation,
any Indebtedness incurred or assumed by such Credit Party as a result
of such acquisition, on a pro forma basis, as if such acquisition had
occurred on the first day of the twelve month period ending on the last
day of the Borrower's most recently completed fiscal quarter, the
Credit Parties would have been in compliance with all the financial
covenants set forth in Section 7.2, (b) simultaneously with any such
acquisition, the Borrower shall have taken all action required under
applicable law, or reasonably requested by the Administrative Agent, to
grant to the Administrative Agent, for the benefit of the Lenders, a
valid and perfected first-priority security interest in all the assets
acquired pursuant to such acquisition, (c) the acquisition is
consummated pursuant to a negotiated acquisition agreement and involves
the purchase of a company, business or property in the same line of
business as the Borrower or any Subsidiary of the Borrower, (d) the
total cash and non-cash consideration (including, without limitation,
Indebtedness assumed in connection with any single acquisition) paid in
the aggregate for all such acquisitions in any fiscal year of the
Borrower does not exceed $10,000,000, (e) after giving effect to the
acquisition, the representations and warranties set forth in Section 6
hereof shall be true and correct in all material respects on and as of
the date of such acquisition with the same effect as though made on and
as of such date, (f) no Default or Event of Default exists and is
continuing or would result from such acquisition and (g) with respect
each such acquisition other than an acquisition consummated prior to
the Closing Date or for which the Borrower has executed a letter of
intent prior to the Closing Date, no Event of Default (as defined in
the Indenture) (including, without limitation, the Indenture Default)
exists and is continuing or would result from such acquisition.
"PERMITTED INVESTMENTS" means Investments which are (a) cash
or Cash Equivalents, (b) accounts receivable created, acquired or made
in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms, (c) inventory, raw
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materials, furniture, fixtures, equipment and general intangibles
acquired in the ordinary course of business, (d) subject to the terms
of Section 8.14 and Section 8.17, leasehold improvements acquired in
the ordinary course of business, (e) Investments by a Credit Party in
any Credit Party, (f) loans to directors, officers or employees of any
Credit Party in the ordinary course of business for reasonable business
expenses, not to exceed, in the aggregate, $1,250,000 at any one time,
(g) Permitted Acquisitions, (h) the purchase, redemption, acquisition
or retirement by the Borrower of any shares of its capital stock of any
class or any warrants or options to purchase any such shares (each a
"STOCK REPURCHASE") in an amount not to exceed, in the aggregate, the
sum of (i) $15,000,000 plus (ii) 50% of Net Income earned subsequent to
January 31, 1999; provided that (A) no Default or Event of Default, or
Event of Default (as defined in the Indenture) (including, without
limitation, the Indenture Default) shall exist immediately prior to or
after giving effect to such Stock Repurchase, (B) unless otherwise
permitted pursuant to the terms of Section 8.16, the sum of the
aggregate amount of all Stock Repurchases plus the aggregate amount of
all Subordinated Debt Prepayments (including, without limitation, the
purchase of 4,000,000 Series B Securities for the aggregate purchase
price of $4,128,000 on March 9, 1999 and March 16, 1999) shall not
exceed $15,000,000, and (C) no such Stock Repurchase shall be permitted
pursuant to this definition until the Borrower has demonstrated to the
Lenders that it is in compliance with Section 7.2(e) for the period
ending July 31, 1999 or any period subsequent thereto, (i) loans to
franchisees so long as (after giving effect to such proposed loan) (i)
the amount of any single such loan by the Borrower or any Subsidiary
does not exceed $4,000,000 and (ii) the aggregate amount of such loans
to franchisees by the Borrower and its Subsidiaries does not exceed
$12,000,000 in the aggregate during the term of this Credit Agreement,
(j) the repurchases of Subordinated Debt permitted by Section 8.16, and
(k) other Investments (in addition to those set forth above) not to
exceed, in the aggregate, $500,000 at any one time.
"PERMITTED LIENS" means (a) Liens securing Credit Party
Obligations, (b) Liens securing Indebtedness permitted by Section
8.1(i), (c) Liens for taxes not yet due or Liens for taxes being
contested in good faith by appropriate proceedings for which adequate
reserves determined in accordance with GAAP have been established (and
as to which the property subject to any such Lien is not yet subject to
foreclosure, sale, collection, levy or loss on account thereof), (d)
Liens in respect of property imposed by law arising in the ordinary
course of business such as materialmen's, mechanics', warehousemen's,
carrier's, landlords' and other nonconsensual statutory Liens which are
not yet due and payable or which are being contested in good faith by
appropriate proceedings for which adequate reserves determined in
accordance with GAAP have been established (and as to which the
property subject to any such Lien is not yet subject to foreclosure,
sale or loss on account thereof), (e) pledges or deposits made in the
ordinary course of business to secure payment of worker's compensation
insurance, unemployment insurance, pensions or social security
programs, (f) Liens arising from good faith deposits in connection with
or to secure performance of tenders, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business (other than
obligations in respect of the payment of borrowed money), (g) Liens
arising from good faith deposits in connection with or to secure
performance of statutory obligations and
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surety and appeal bonds, (h) easements, rights-of-way, restrictions
(including zoning restrictions), matters of plat, minor defects or
irregularities in title and other similar charges or encumbrances not,
in any material respect, impairing the use of the encumbered property
for its intended purposes, (i) judgment Liens that would not constitute
an Event of Default, (j) Liens in connection with Indebtedness
permitted by Section 8.1(e), (k) Liens arising by virtue of any
statutory or common law provision relating to banker's liens, rights of
setoff or similar rights as to deposit accounts or other funds
maintained with a creditor depository institution and (l) Liens
existing on the date hereof and identified on SCHEDULE 1.1(c); PROVIDED
THAT no such Lien shall extend to any property other than the property
subject thereto on the Closing Date.
"PERSON" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or
other enterprise (whether or not incorporated), or any Governmental
Authority.
"PLAN" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which any
Credit Party or any of its Subsidiaries or any ERISA Affiliate is (or,
if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" within the meaning of Section 3(5)
of ERISA.
"PLEDGE AGREEMENTS" means any pledge agreement executed and
delivered by a Credit Party in favor of NationsBank, in its capacity as
agent, for the benefit of the Lenders and the TROL Lenders, to secure
its obligations under the Credit Documents, the Participation Agreement
and Operative Agreements (as defined in the Participation Agreement) as
amended, modified, extended, renewed or replaced from time to time.
"PRIME RATE" means the per annum rate of interest established
from time to time by the Administrative Agent at its principal office
in Charlotte, North Carolina (or such other principal office of the
Administrative Agent as communicated in writing to the Borrower and the
Lenders) as its Prime Rate. Any change in the interest rate resulting
from a change in the Prime Rate shall become effective as of 12:01 a.m.
of the Business Day on which each change in the Prime Rate is announced
by the Administrative Agent. The Prime Rate is a reference rate used by
the Administrative Agent in determining interest rates on certain loans
and is not intended to be the lowest rate of interest charged on any
extension of credit to any debtor.
"PRIOR CREDIT AGREEMENT" means that certain Credit Agreement,
dated as of November 25, 1998, by and among the Borrower and certain of
its subsidiaries, as borrowers, the lenders referred to therein,
NationsBank, N.A., as administrative agent, SunTrust Bank, Atlanta, as
documentation agent and Fleet National Bank, as co-agent, as amended or
modified from time to time.
"REAL PROPERTIES" means the real properties that the Credit
Parties may own or lease (as lessee or sublessee) from third parties
from time to time.
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"REGULATION D, U, OR X" means Regulation D, U or X,
respectively, of the Board of Governors of the Federal Reserve System
as from time to time in effect and any successor to all or a portion
thereof.
"RENT EXPENSE" means, for any period, with respect to the
Credit Parties on a consolidated basis, all rent payable under an
Operating Lease (whether a lease of real property, personal property or
mixed), as determined in accordance with GAAP.
"REPORTABLE EVENT" means a "reportable event" as defined in
Section 4043 of ERISA with respect to which the notice requirements to
the PBGC have not been waived.
"REPURCHASE EVENT" means the aggregate repurchase of
Securities by the Credit Parties in an aggregate principal amount of
more than $15 million (including, without limitation, the purchase of
4,000,000 Series B Securities for the aggregate purchase price of
$4,128,000 on March 9, 1999 and March 16, 1999).
"REPURCHASE EVENT FEE" has the meaning set forth in Section
3.4(f).
"REQUIRED LENDERS" means Lenders whose aggregate Credit
Exposure (as hereinafter defined) constitutes more than 50% of the
Credit Exposure of all Lenders at such time; PROVIDED, HOWEVER, that if
any Lender shall be a Defaulting Lender at such time then there shall
be excluded from the determination of Required Lenders the aggregate
principal amount of Credit Exposure of such Lender at such time. For
purposes of the preceding sentence, the term "Credit Exposure" as
applied to each Lender shall mean (a) at any time prior to the
termination of the Commitments, the sum of the Revolving Loan
Commitment Percentage of such Lender multiplied by the Revolving
Committed Amount and (b) at any time after the termination of the
Commitments, the sum of (i) the principal balance of the outstanding
Loans of such Lender plus (ii) such Lender's Participation Interests in
the face amount of the outstanding Letters of Credit.
"REQUIREMENT OF LAW" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or final, non-appealable determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to or
binding upon such Person or to which any of its material property is
subject.
"REVOLVING COMMITTED AMOUNT" means SEVENTY-FIVE MILLION
DOLLARS ($75,000,000) or such lesser amount as the Revolving Committed
Amount may be reduced pursuant to Section 2.1(d) or 3.3(c).
"REVOLVING LOAN COMMITMENT" means, with respect to each
Lender, the commitment of such Lender to make its portion of the
Revolving Loans in a principal amount equal to such Lender's Revolving
Loan Commitment Percentage of the Revolving Committed Amount.
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"REVOLVING LOAN COMMITMENT PERCENTAGE" means, for each Lender,
the percentage identified as its Revolving Loan Commitment Percentage
on SCHEDULE 1.1(a), as such percentage may be modified in connection
with any assignment made in accordance with the provisions of Section
11.3.
"REVOLVING LOAN UNUSED COMMITMENT" means, for any period, the
amount by which (a) the then applicable aggregate Revolving Committed
Amount exceeds (b) the daily average sum for such period of the
outstanding aggregate principal amount of all Revolving Loans plus the
aggregate amount of LOC Obligations outstanding.
"REVOLVING LOANS" means the Revolving Loans made to the
Borrower pursuant to Section 2.1.
"REVOLVING NOTE" or "REVOLVING NOTES" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Revolving Loans provided pursuant to Section 2.1, individually or
collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to time
and as evidenced in the form of EXHIBIT 2.1(f).
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. or any successor or assignee of the
business of such division in the business of rating securities.
"SCHEDULED FUNDED DEBT PAYMENTS" means, as of the date of
determination, for the Credit Parties on a consolidated basis, the sum
of all scheduled payments of principal on Funded Debt for any period
ending on the date of determination (including the principal component
of payments due on leases that are required to be capitalized in
accordance with GAAP during such period ending on the date of
determination); it being understood that Scheduled Funded Debt Payments
shall not include voluntary prepayments or the mandatory prepayments
required pursuant to Section 3.3.
"SECURITIES" means the collective reference to the Series A
Securities and the Series B Securities and "SECURITY" means any one of
them.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SECURITY AGREEMENTS" means any security agreement executed
and delivered by a Credit Party in favor of NationsBank, in its
capacity as agent for the benefit of the Lenders and the TROL Lenders
to secure its obligations under the Credit Documents, the Participation
Agreement and the Operative Agreements (as defined in the Participation
Agreement) as such may be amended, modified, extended, renewed,
restated or replaced from time to time.
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"SERIES A SECURITIES" means the 9 1/4% Senior Subordinated
Notes due 2007, Series A, issued pursuant to the terms of the
Indenture.
"SERIES B SECURITIES" means the 9 1/4% Senior Subordinated
Notes due 2007, Series B, issued pursuant to the terms of the
Indenture.
"SHAW PROMISSORY NOTE" means that certain Subordinated
Promissory Note dated August 9, 1998 issued by the Borrower in favor of
Shaw Industries, Inc. in the amount of $11,927,000.
"SINGLE EMPLOYER PLAN" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"SOLVENT" means, with respect to any Person as of a particular
date, that on such date (a) such Person is able to pay its debts and
other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (b) such Person does not
intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and
liabilities mature in their ordinary course, (c) such Person is not
engaged in a business or a transaction, and is not about to engage in a
business or a transaction, for which such Person's assets would
constitute unreasonably small capital after giving due consideration to
the prevailing practice in the industry in which such Person is engaged
or is to engage, (d) the fair value of the assets of such Person is
greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person and (e) the present
fair saleable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured. In computing
the amount of contingent liabilities at any time, it is intended that
such liabilities will be computed at the amount which, in light of all
the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
"STOCK REPURCHASE" has the meaning set forth in the definition
of Permitted Investments.
"SUBORDINATED DEBT" means the Indebtedness evidenced by the
Indenture or by the guarantees thereof in an aggregate amount not to
exceed $100,000,000.
"SUBORDINATED DEBT PREPAYMENT" has the meaning set forth in
Section 8.16.
"SUBSIDIARY" means, as to any Person, (a) any corporation more
than 50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time, any class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by
such Person directly or indirectly through Subsidiaries, and (b) any
partnership, association, joint venture or other entity in
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which such person directly or indirectly through Subsidiaries has more
than a 50% equity interest at any time.
"SYNDICATION SIDE LETTER" has the meaning set forth in Section
5.1.
"SYNTHETIC LEASE" means any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered borrowed money
indebtedness for tax purposes, but is classified as an Operating Lease.
"SYNTHETIC LEASE OBLIGATIONS" means any and all obligations of
the Borrower, non-existing or hereafter arising under the Participation
Agreement and/or any other Operative Agreement (as defined in the
Participation Agreement).
"TERMINATION EVENT" means (a) with respect to any Single
Employer Plan, the occurrence of a Reportable Event or the substantial
cessation of operations (within the meaning of Section 4062(e) of
ERISA); (b) the withdrawal of any Credit Party or any of its
Subsidiaries or any ERISA Affiliate from a Multiple Employer Plan
during a plan year in which it was a substantial employer (as such term
is defined in Section 4001(a)(2) of ERISA), or the termination of a
Multiple Employer Plan; (c) the distribution of a notice of intent to
terminate or the actual termination of a Plan pursuant to Section
4041(a)(2) or 4041A of ERISA; (d) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under Section
4042 of ERISA; (e) any event or condition which might reasonably
constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any Plan; or (f) the
complete or partial withdrawal of any Credit Party or any of its
Subsidiaries or any ERISA Affiliate from a Multiemployer Plan.
"TOTAL ASSETS" means all items which in accordance with GAAP
would be classified as assets of the Borrower and its Subsidiaries on a
consolidated basis.
"TOTAL DEBT TO CAPITALIZATION RATIO" means, as of any date of
determination, the ratio of (a) Funded Debt to (b) Capitalization.
"TOTAL SENIOR DEBT" means, as of any date of determination,
all Funded Debt of the Credit Parties other than Subordinated Debt.
"TRADE LETTER OF CREDIT FEES" has the meaning set forth in
Section 3.4(c).
"TROL LENDERS" means the lenders, holders and other Financing
Parties (as defined in the Participation Agreement) from time to time
party to the Participation Agreement.
"UCP" has the meaning set forth in Section 2.2(g).
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"VOTING STOCK" of a corporation means all classes of the
capital stock of such corporation then outstanding and normally
entitled to vote in the election of directors.
"YEAR 2000 COMPLIANT" has the meaning set forth in Section
6.27.
"YEAR 2000 PROBLEM" means any risk that any computer hardware,
software or other equipment used by a Credit Party or any of its
Subsidiaries will not function as effectively and reliably on and after
January 1, 2000 as it does prior to January 1, 2000, to the extent such
risk would cause or be reasonably expected to cause a Material Adverse
Effect.
1.2 COMPUTATION OF TIME PERIODS AND OTHER DEFINITIONAL PROVISIONS.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding." References in this Agreement to "Articles", "Sections",
"Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits
of or to this Agreement unless otherwise specifically provided.
1.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 (or,
prior to the delivery of the first financial statements pursuant to Section 7.1,
consistent with the financial statements described in Section 5.1(d); provided,
however, if (a) the Borrower shall object to determining such compliance on such
basis at the time of delivery of such financial statements due to any change in
GAAP or the rules promulgated with respect thereto or (b) the Administrative
Agent or the Required Lenders shall so object in writing within 30 days after
delivery of such financial statements, then such calculations shall be made on a
basis consistent with GAAP as in effect as of the date of the most recent
financial statements delivered by the Borrower to the Lenders to which no such
objection shall have been made.
SECTION 2
CREDIT FACILITIES
2.1 REVOLVING LOANS.
(a) REVOLVING LOAN COMMITMENT. Subject to the terms and
conditions set forth herein, each Lender severally agrees to make
revolving loans (each a "REVOLVING LOAN" and collectively the
"REVOLVING LOANS") to the Borrower, in Dollars, at any time and from
time
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to time, during the period from and including the Effective Date to but
not including the Maturity Date (or such earlier date if the Revolving
Committed Amount has been terminated as provided herein); PROVIDED,
HOWEVER, that (i) the sum of the aggregate amount of Revolving Loans
outstanding plus the aggregate amount of LOC Obligations outstanding
plus the aggregate amount of Synthetic Lease Obligations outstanding
shall not exceed (A) the lesser of (x) the Revolving Committed Amount
and (y) the Borrowing Base Assets and (B) until such time as the
Indenture Default is cured or an Acceleration Event occurs,
$15,000,000; PROVIDED FURTHER, HOWEVER, that if an Acceleration Event
occurs, the sum of the aggregate amount of Revolving Loans outstanding
plus the aggregate amount of LOC Obligations outstanding plus the
aggregate amount of Synthetic Lease Obligations outstanding may only
exceed $15,000,000 if such excess amount is used to retire the
Securities and (ii) with respect to each individual Lender, the
Lender's pro rata share of outstanding Revolving Loans plus such
Lender's pro rata share of outstanding LOC Obligations plus such
Lender's pro rata share of the aggregate amount of the outstanding
Synthetic Lease Obligations shall not exceed such Lender's Revolving
Loan Commitment Percentage of the Revolving Committed Amount. Subject
to the terms of this Credit Agreement (including Section 3.3), the
Borrower may borrow, repay and reborrow Revolving Loans.
(b) METHOD OF BORROWING FOR REVOLVING LOANS. By no later than
11:00 a.m. (i) on the date of the requested borrowing of Revolving
Loans that will be Base Rate Loans or (ii) three Business Days prior to
the date of the requested borrowing of Revolving Loans that will be
Eurodollar Loans, the Borrower shall telephone the Administrative Agent
with the information described below as well as submit a written Notice
of Borrowing in the form of EXHIBIT 2.1(b) to the Administrative Agent
setting forth (A) the amount requested, (B) whether such Revolving
Loans shall accrue interest at the Adjusted Base Rate or the Adjusted
Eurodollar Rate, (C) with respect to Revolving Loans that will be
Eurodollar Loans, the Interest Period applicable thereto and (D)
certification that the Borrower has complied in all respects with
Section 5.2. All Revolving Loans made on the Effective Date shall be
Base Rate Loans. Thereafter, all or any portion of such Revolving Loans
may be converted into Eurodollar Loans in accordance with the terms of
Section 2.4.
(c) FUNDING OF REVOLVING LOANS. Upon receipt of a Notice of
Borrowing, the Administrative Agent shall promptly inform the Lenders
as to the terms thereof. Each Lender shall make its Revolving Loan
Commitment Percentage of the requested Revolving Loans available to the
Administrative Agent by 1:00 p.m. on the date specified in the Notice
of Borrowing by deposit, in Dollars, of immediately available funds at
the offices of the Administrative Agent at its principal office in
Charlotte, North Carolina or at such other address as the
Administrative Agent may designate in writing. The amount of the
requested Revolving Loans will then be made available to the Borrower
by the Administrative Agent by crediting the account of the Borrower on
the books of such office of the Administrative Agent, to the extent the
amount of such Revolving Loans are made available to the Administrative
Agent.
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No Lender shall be responsible for the failure or delay by any
other Lender in its obligation to make Revolving Loans hereunder;
provided, however, that the failure of any Lender to fulfill its
obligations hereunder shall not relieve any other Lender of its
obligations hereunder. Unless the Administrative Agent shall have been
notified by any Lender prior to the date of any such Revolving Loan
that such Lender does not intend to make available to the
Administrative Agent its portion of the Revolving Loans to be made on
such date, the Administrative Agent may assume that such Lender has
made such amount available to the Administrative Agent on the date of
such Revolving Loans, and the Administrative Agent in reliance upon
such assumption, may (in its sole discretion but without any obligation
to do so) make available to the Borrower a corresponding amount. If
such corresponding amount is not in fact made available to the
Administrative Agent, the Administrative Agent shall be able to recover
such corresponding amount from such Lender. If such Lender does not pay
such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent will promptly notify the
Borrower, and the Borrower shall immediately pay such corresponding
amount to the Administrative Agent. The Administrative Agent shall also
be entitled to recover from the Lender or the Borrower, as the case may
be, interest on such corresponding amount in respect of each day from
the date such corresponding amount was made available by the
Administrative Agent to the Borrower to the date such corresponding
amount is recovered by the Administrative Agent at a per annum rate
equal to (i) from the Borrower at the applicable rate for such
Revolving Loan pursuant to the Notice of Borrowing and (ii) from a
Lender at the Federal Funds Rate.
(d) REDUCTIONS OF REVOLVING COMMITTED AMOUNT. Upon at
least three Business Days' notice, the Borrower shall have the right to
permanently reduce, without premium or penalty, all or part of the
aggregate unused amount of the Revolving Committed Amount at any time
or from time to time; provided that (i) each partial reduction shall be
in an aggregate amount at least equal to $1,000,000 and in integral
multiples of $500,000 above such amount and (ii) no reduction shall be
made which would reduce the Revolving Committed Amount to an amount
less than the aggregate amount of outstanding Revolving Loans plus the
aggregate amount of outstanding LOC Obligations plus the aggregate
amount of outstanding Synthetic Lease Obligations. Any reduction in (or
termination of) the Revolving Committed Amount shall be permanent and
may not be reinstated. The Administrative Agent shall immediately
notify the Lenders of any reduction in the Revolving Committed Amount.
(e) INTEREST. Subject to the provisions of Section 3.1,
(i) BASE RATE LOANS. During such periods as Revolving
Loans shall be comprised in whole or in part of Base Rate
Loans, such Base Rate Loans shall bear interest at a per annum
rate equal to the Adjusted Base Rate.
(ii) EURODOLLAR LOANS. During such periods as
Revolving Loans shall be comprised in whole or in part of
Eurodollar Loans, such Eurodollar Loans shall bear interest at
a per annum rate equal to the Adjusted Eurodollar Rate.
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(f) REVOLVING NOTES. The Revolving Loans made by each Lender
shall be evidenced by a duly executed promissory note of the Borrower
to such Lender in an original principal amount equal to such Lender's
Revolving Loan Commitment Percentage of the Revolving Committed Amount
and in substantially the form of EXHIBIT 2.1(f).
2.2 LETTER OF CREDIT SUBFACILITY.
(a) ISSUANCE. Subject to the terms and conditions hereof and
of the LOC Documents, if any, and any other terms and conditions which
the Issuing Lender may reasonably require and in reliance upon the
representations and warranties set forth herein, the Issuing Lender
shall from time to time upon request issue (from the Effective Date to
the Maturity Date and in a form reasonably acceptable to the Issuing
Lender), in Dollars, and the LOC Participants shall participate in,
Letters of Credit for the account of a Credit Party; PROVIDED, HOWEVER,
that (i) the aggregate amount of LOC Obligations shall not at any time
exceed the LOC Committed Amount, (ii) the sum of the aggregate amount
of LOC Obligations outstanding plus the Revolving Loans outstanding
plus the Synthetic Lease Obligations outstanding shall not exceed the
lesser of (A) the Revolving Committed Amount and (B) the Borrowing Base
Assets and (iii) with respect to each individual LOC Participant, the
LOC Participant's pro rata share of outstanding Revolving Loans plus
its pro rata share of outstanding LOC Obligations plus its pro rata
share of Synthetic Lease Obligations shall not exceed such LOC
Participant's Revolving Loan Commitment Percentage of the Revolving
Committed Amount. The Issuing Lender may require the issuance and
expiry date of each Letter of Credit to be a Business Day. Each Letter
of Credit shall be a standby letter of credit issued to support the
obligations (including pension or insurance obligations), contingent or
otherwise, of a Credit Party or a commercial trade letter of credit in
respect of the purchase of goods and services by a Credit Party in the
ordinary course of business. Except as otherwise expressly agreed upon
by all the LOC Participants, no Letter of Credit shall have an original
expiry date more than one year from the date of issuance, or as
extended, shall have an expiry date extending beyond the Maturity Date.
Each Letter of Credit shall comply with the related LOC Documents.
(b) NOTICE AND REPORTS. The request for the issuance of a
Letter of Credit shall be submitted to the Issuing Lender at least
three Business Days prior to the requested date of issuance. The
Issuing Lender will, at least quarterly and more frequently upon
request, provide to the Administrative Agent for dissemination to the
Lenders a detailed report specifying the Letters of Credit which are
then issued and outstanding and any activity with respect thereto which
may have occurred since the date of the prior report, and including
therein, among other things, the account party, the beneficiary, the
face amount, and the expiry date as well as any payments or expirations
which may have occurred. The Issuing Lender will further provide to the
Administrative Agent, promptly upon request, copies of the Letters of
Credit and the other LOC Documents. Notwithstanding anything to the
contrary set forth in this Credit Agreement, with respect to any Letter
of Credit issued for the account of a Credit Party other than the
Borrower, the Borrower shall be the actual account party for all
purposes of this Credit Agreement for such Letter of Credit and the
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Borrower shall have the reimbursement obligations hereunder with
respect to such Letter of Credit.
(c) PARTICIPATIONS.
(i) Each LOC Participant acknowledges and confirms
that it has a Participation Interest in the liability of the
Issuing Lender under each Existing Letter of Credit in an
amount equal to its Revolving Loan Commitment Percentage of
such Existing Letters of Credit. The Borrower's reimbursement
obligations in respect of each Existing Letter of Credit, and
each LOC Participant's obligations in connection therewith,
shall be governed by the terms of this Credit Agreement.
(ii) Each LOC Participant, upon issuance of a Letter
of Credit, shall be deemed to have purchased without recourse
a risk participation from the Issuing Lender in such Letter of
Credit and each LOC Document related thereto and the rights
and obligations arising thereunder and any collateral relating
thereto, in each case in an amount equal to its Revolving Loan
Commitment Percentage of the obligations under such Letter of
Credit, and shall absolutely, unconditionally and irrevocably
assume, as primary obligor and not as surety, and be obligated
to pay to the Issuing Lender therefor and discharge when due,
its Revolving Loan Commitment Percentage of the obligations
arising under such Letter of Credit. Without limiting the
scope and nature of each LOC Participant's participation in
any Letter of Credit, to the extent that the Issuing Lender
has not been reimbursed as required hereunder or under any
such Letter of Credit, each such LOC Participant shall pay to
the Issuing Lender its Revolving Loan Commitment Percentage of
such unreimbursed drawing in same day funds on the day of
notification by the Issuing Lender of an unreimbursed drawing
pursuant to the provisions of subsection (d) or (e) hereof.
The obligation of each LOC Participant to so reimburse the
Issuing Lender shall be absolute and unconditional and shall
not be affected by the occurrence of a Default, an Event of
Default or any other occurrence or event. Any such
reimbursement shall not relieve or otherwise impair the
obligation of the Borrower or any other Credit Party to
reimburse the Issuing Lender under any Letter of Credit,
together with interest as hereinafter provided.
(d) REIMBURSEMENT. In the event of any drawing under any
Letter of Credit, the Issuing Lender will promptly notify the Borrower.
Unless the Borrower shall immediately notify the Issuing Lender of its
intent to otherwise reimburse the Issuing Lender, the Borrower shall be
deemed to have requested that the Lenders make a Revolving Loan in the
amount of the drawing as provided in subsection (e) below on the
related Letter of Credit, the proceeds of which will be used to satisfy
the related reimbursement obligations. The Borrower shall reimburse the
Issuing Lender on the day of drawing under any Letter of Credit with
the proceeds of such Revolving Loan obtained hereunder or otherwise in
same day funds as provided herein or in the LOC Documents. If the
Borrower shall fail to reimburse the Issuing Lender as provided
hereinabove, the unreimbursed amount of such drawing shall bear
interest at a per annum rate equal to the Base Rate plus the Applicable
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Percentage for the Base Rate Loans that are Revolving Loans plus two
percent (2%). The Borrower's reimbursement obligations hereunder shall
be absolute and unconditional under all circumstances irrespective of
(but without waiver of) any rights of set-off, counterclaim or defense
to payment the applicable account party or the Borrower may claim or
have against an Issuing Lender, the Administrative Agent, the Lenders,
the beneficiary of the Letter of Credit drawn upon or any other Person,
including without limitation, any defense based on any failure of the
applicable account party, the Borrower or any other Credit Party to
receive consideration or the legality, validity, regularity or
unenforceability of the Letter of Credit. The Issuing Lender will
promptly notify the LOC Participants of the amount of any unreimbursed
drawing and each LOC Participant shall promptly pay to the Issuing
Lender, in Dollars and in immediately available funds, the amount of
such LOC Participant's Revolving Loan Commitment Percentage of such
unreimbursed drawing. Such payment shall be made on the day such notice
is received by such Lender from the Issuing Lender if such notice is
received at or before 12:00 Noon, otherwise such payment shall be made
at or before 12:00 Noon on the Business Day next succeeding the day
such notice is received. If such LOC Participant does not pay such
amount to the Issuing Lender in full upon such request, such LOC
Participant shall, on demand, pay to the Issuing Lender interest on the
unpaid amount during the period from the date the LOC Participant
received the notice regarding the unreimbursed drawing until such LOC
Participant pays such amount to the Issuing Lender in full at a rate
per annum equal to, if paid within two Business Days of the date of
drawing, the Federal Funds Rate and thereafter at a rate equal to the
Base Rate. Each LOC Participant's obligation to make such payment to
the Issuing Lender, and the right of the Issuing Lender to receive the
same, shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of this
Credit Agreement or the Commitments hereunder, the existence of a
Default or Event of Default or the acceleration of the obligations
hereunder and shall be made without any offset, abatement, withholding
or reduction whatsoever. Simultaneously with the making of each such
payment by a LOC Participant to the Issuing Lender, such LOC
Participant shall, automatically and without any further action on the
part of the Issuing Lender or such LOC Participant, acquire a
participation in an amount equal to such payment (excluding the portion
of such payment constituting interest owing to the Issuing Lender) in
the related unreimbursed drawing portion of the LOC Obligation and in
the interest thereon and in the related LOC Documents, and shall have a
claim against the Borrower and the other Credit Parties with respect
thereto.
(e) REPAYMENT WITH REVOLVING LOANS. On any day on which the
Borrower shall have requested, or been deemed to have requested, a
Revolving Loan borrowing to reimburse a drawing under a Letter of
Credit (as set forth in clause (d) above), the Administrative Agent
shall give notice to the applicable Lenders that a Revolving Loan has
been requested or deemed requested in connection with a drawing under a
Letter of Credit, in which case a Revolving Loan borrowing comprised
solely of Base Rate Loans (each such borrowing, a "MANDATORY
BORROWING") shall be immediately made from all applicable Lenders
(without giving effect to any termination of the Commitments pursuant
to Section 9.2) PRO RATA based on each Lender's respective Revolving
Loan Commitment Percentage and the proceeds thereof shall be paid
directly to the Issuing Lender for application to the
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respective LOC Obligations. Each such Lender hereby irrevocably agrees
to make such Revolving Loans immediately upon any such request or
deemed request on account of each such Mandatory Borrowing in the
amount and in the manner specified in the preceding sentence and on the
same such date NOTWITHSTANDING (i) the amount of Mandatory Borrowing
may not comply with the minimum amount for borrowings of Revolving
Loans otherwise required hereunder, (ii) whether any conditions
specified in Section 5.2 are then satisfied, (iii) whether a Default or
Event of Default then exists, (iv) failure of any such request or
deemed request for Revolving Loans to be made by the time otherwise
required hereunder, (v) the date of such Mandatory Borrowing, or (vi)
any reduction in the Revolving Committed Amount or any termination of
the Commitments. In the event that any Mandatory Borrowing cannot for
any reason be made on the date otherwise required above (including,
without limitation, as a result of the commencement of a proceeding
under the Bankruptcy Code with respect to the Borrower or any other
Credit Party), then each such Lender hereby agrees that it shall
forthwith fund (as of the date the Mandatory Borrowing would otherwise
have occurred, but adjusted for any payments received from the Borrower
on or after such date and prior to such purchase) its Participation
Interest in the outstanding LOC Obligations; PROVIDED, FURTHER, that in
the event any Lender shall fail to fund its Participation Interest on
the day the Mandatory Borrowing would otherwise have occurred, then the
amount of such Lender's unfunded Participation Interest therein shall
bear interest payable to the Issuing Lender upon demand, at the rate
equal to, if paid within two Business Days of such date, the Federal
Funds Rate, and thereafter at a rate equal to the Base Rate.
(f) MODIFICATION AND EXTENSION. The issuance of any
supplement, modification, amendment, renewal, or extensions to any
Letter of Credit shall, for purposes hereof, be treated in all respects
the same as the issuance of a new Letter of Credit hereunder.
(g) UNIFORM CUSTOMS AND PRACTICES. The Issuing Lender may have
the Letters of Credit be subject to The Uniform Customs and Practice
for Documentary Credits (the "UCP") or the International Standby
Practices 1998 (the "ISP98"), in either case as published as of the
date of issue by the International Chamber of Commerce , in which case
the UCP or ISP98, as applicable, may be incorporated therein and deemed
in all respects to be a part thereof.
(h) RESPONSIBILITY OF ISSUING LENDER. It is expressly
understood and agreed as between the Lenders that the obligations of
the Issuing Lender hereunder to the LOC Participants are only those
expressly set forth in this Credit Agreement and that the Issuing
Lender shall be entitled to assume that the conditions precedent set
forth in Section 5.2 have been satisfied unless it shall have acquired
actual knowledge that any such condition precedent has not been
satisfied; provided, however, that nothing set forth in this Section
2.2 shall be deemed to prejudice the right of any LOC Participant to
recover from the Issuing Lender any amounts made available by such LOC
Participant to the Issuing Lender pursuant to this Section 2.2 in the
event that it is determined by a court of competent jurisdiction that
the payment with respect to a Letter of Credit constituted gross
negligence or willful misconduct on the part of the Issuing Lender.
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(i) CONFLICT WITH LOC DOCUMENTS. In the event of any conflict
between this Credit Agreement and any LOC Document, this Credit
Agreement shall govern.
2.3 INDEMNIFICATION OF ISSUING LENDER.
(a) In addition to its other obligations under this
Credit Agreement, the Borrower hereby agrees to protect,
indemnify, pay and save the Issuing Lender harmless from and
against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable
attorneys' fees) that the Issuing Lender may incur or be
subject to as a consequence, direct or indirect, of (A) the
issuance of any Letter of Credit or (B) the failure of the
Issuing Lender to honor a drawing under a Letter of Credit as
a result of any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto Governmental
Authority (all such acts or omissions, herein called
"GOVERNMENT ACTS").
(b) As between the Borrower and the Issuing Lender,
the Borrower shall assume all risks of the acts, omissions or
misuse of any Letter of Credit by the beneficiary thereof. The
Issuing Lender shall not be responsible for: (A) the form,
validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if
it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (C) failure of the beneficiary of
a Letter of Credit to comply fully with conditions required in
order to draw upon a Letter of Credit; (D) errors, omissions,
interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (E) errors in interpretation
of technical terms; (F) any loss or delay in the transmission
or otherwise of any document required in order to make a
drawing under a Letter of Credit or of the proceeds thereof;
and (G) any consequences arising from causes beyond the
control of the Issuing Lender, including, without limitation,
any Government Acts. None of the above shall affect, impair,
or prevent the vesting of the Issuing Lender's rights or
powers hereunder.
(c) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth,
any action taken or omitted by the Issuing Lender, under or in
connection with any Letter of Credit or the related
certificates, if taken or omitted in good faith, shall not put
the Issuing Lender under any resulting liability to the
Borrower or any other Credit Party. It is the intention of the
parties that this Credit Agreement shall be construed and
applied to protect and indemnify the Issuing Lender against
any and all risks involved in the issuance of the Letters of
Credit, all of which risks are hereby assumed by the Borrower,
including, without
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limitation, any and all risks of the acts or omissions,
whether rightful or wrongful, of any present or future
Government Acts. The Issuing Lender shall not, in any way, be
liable for any failure by the Issuing Lender or anyone else to
pay any drawing under any Letter of Credit as a result of any
Government Acts or any other cause beyond the control of the
Issuing Lender.
(d) Nothing in this Section 2.3 is intended to limit
the reimbursement obligation of the Borrower contained in
Section 2.2. The obligations of the Borrower under this
Section 2.3 shall survive the termination of this Credit
Agreement. No act or omission of any current or prior
beneficiary of a Letter of Credit shall in any way affect or
impair the rights of the Issuing Lender to enforce any right,
power or benefit under this Credit Agreement.
(e) Notwithstanding anything to the contrary
contained in this Section 2.3, the Borrower shall have no
obligation to indemnify the Issuing Lender in respect of any
liability incurred by the Issuing Lender arising solely out of
the gross negligence or willful misconduct of the Issuing
Lender, as determined by a court of competent jurisdiction.
(f) To the extent the Borrower does not fulfill any
or all of its obligations under this Section 2.3, each LOC
Participant agrees to reimburse the Issuing Lender for any
losses incurred thereby ratably in accordance with each such
LOC Participant's LOC Commitment Percentage.
2.4 CONTINUATIONS AND CONVERSIONS.
The Borrower shall have the option, on any Business Day, to continue
existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate
Loans into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans;
provided, however, that (i) each such continuation or conversion must be
requested by the Borrower pursuant to a written Notice of
Continuation/Conversion, in the form of EXHIBIT 2.4, in compliance with the
terms set forth below, (ii) except as provided in Section 3.11, Eurodollar Loans
may only be continued or converted into Base Rate Loans on the last day of the
Interest Period applicable thereto, (iii) Eurodollar Loans may not be continued
nor may Base Rate Loans be converted into Eurodollar Loans during the existence
and continuation of a Default or an Event of Default and (iv) any request to
continue a Eurodollar Loan that fails to comply with the terms hereof or any
failure to request a continuation of a Eurodollar Loan at the end of an Interest
Period shall constitute a conversion to a Base Rate Loan on the last day of the
applicable Interest Period. Each continuation or conversion must be requested by
the Borrower no later than 11:00 a.m. (A) on the date for a requested conversion
of a Eurodollar Loan to a Base Rate Loan or (B) three Business Days prior to the
date for a requested continuation of a Eurodollar Loan or conversion of a Base
Rate Loan to a Eurodollar Loan, in each case pursuant to a written Notice of
Continuation/Conversion submitted to the Administrative Agent which shall set
forth (x) whether the Borrower wishes to continue or convert such Loans and (y)
if the request is to continue a Eurodollar Loan or convert a Base Rate Loan to a
Eurodollar Loan, the Interest Period applicable thereto.
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2.5 MINIMUM AMOUNTS.
Each request for a borrowing, conversion or continuation shall be
subject to the requirements that (a) each Eurodollar Loan shall be in a minimum
amount of $1,000,000 and in integral multiples of $100,000 in excess thereof,
(b) each Base Rate Loan shall be in a minimum amount of the lesser of $500,000
(and integral multiples of $100,000 in excess thereof) or the remaining amount
available under the Revolving Committed Amount and (c) no more than six (6)
Eurodollar Loans shall be outstanding hereunder at any one time. For the
purposes of this Section, all Eurodollar Loans with the same Interest Periods
that begin and end on the same date shall be considered as one Eurodollar Loan,
but Eurodollar Loans with different Interest Periods, even if they begin on the
same date, shall be considered as separate Eurodollar Loans.
2.6 MODIFICATION OF BORROWING BASE.
Upon receipt of the results from the asset field examination required
pursuant to Section 7.15(b), the Required Lenders shall have the right, in their
sole reasonable discretion, to modify the percentages set forth in the
definition of Borrowing Base Assets and/or to amend or modify the definitions of
Eligible Inventory and Eligible Receivables in a manner consistent with the
results from such asset field examination.
SECTION 3
GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT
3.1 INTEREST.
(a) DEFAULT RATE OF INTEREST. Upon the occurrence, and during
the continuance, of an Event of Default, the principal of and, to the
extent permitted by law, interest on the Loans and any other amounts
owing hereunder or under the other Credit Documents (including without
limitation fees and expenses) shall bear interest, payable on demand,
at a per annum rate equal to 2% plus the rate which would otherwise be
applicable (or if no rate is applicable, then the rate for Revolving
Loans that are Base Rate Loans plus two percent (2%) per annum).
(b) INTEREST PAYMENTS. Interest on Loans shall be due and
payable in arrears on each Interest Payment Date. If an Interest
Payment Date falls on a date which is not a Business Day, such Interest
Payment Date shall be deemed to be the next succeeding Business Day,
except that in the case of Eurodollar Loans where the next succeeding
Business Day falls in the next succeeding calendar month, then on the
next preceding day.
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3.2 PLACE AND MANNER OF PAYMENTS.
All payments of principal, interest, fees, expenses and other amounts
to be made by a Credit Party under this Credit Agreement shall be made without
setoff, deduction or counterclaim and received not later than 2:00 p.m. on the
date when due, in Dollars and in immediately available funds, by the
Administrative Agent at its offices in Charlotte, North Carolina. Payments
received after such time shall be deemed to have been received on the next
Business Day. The Borrower shall, at the time it makes any payment under this
Credit Agreement, specify to the Administrative Agent, the Loans, Letters of
Credit, fees or other amounts payable by the Borrower hereunder to which such
payment is to be applied (and in the event that it fails to specify, or if such
application would be inconsistent with the terms hereof, the Administrative
Agent shall, subject to Section 3.7, distribute such payment to the Lenders in
such manner as the Administrative Agent may deem appropriate). The
Administrative Agent will distribute such payments to the applicable Lenders on
the same Business Day if any such payment is received prior to 2:00 p.m.;
otherwise the Administrative Agent will distribute such payment to the
applicable Lenders on the next succeeding Business Day. Whenever any payment
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day (subject
to accrual of interest and fees for the period of such extension), except that
in the case of Eurodollar Loans, if the extension would cause the payment to be
made in the next following calendar month, then such payment shall instead be
made on the next preceding Business Day.
3.3 PREPAYMENTS.
(a) VOLUNTARY PREPAYMENTS. The Borrower shall have the right
to prepay Loans in whole or in part from time to time without premium
or penalty; provided, however, that (i) Eurodollar Loans may only be
prepaid on three Business Days' prior written notice to the
Administrative Agent and (ii) each such partial prepayment of Loans
shall be in the minimum principal amount of $1,000,000 and integral
multiples of $500,000 in excess thereof. All prepayments under this
Section shall be subject to Section 3.14 and be accompanied by interest
on the principal amount prepaid through the date of prepayment.
(b) MANDATORY PREPAYMENTS.
(i) REVOLVING COMMITTED AMOUNT. If at any time the
sum of the aggregate amount of Revolving Loans outstanding
plus LOC Obligations outstanding plus the Synthetic Lease
Obligations outstanding exceeds the lesser of (A) the
Revolving Committed Amount and (B) the Borrowing Base Assets,
the Borrower shall immediately make a principal payment to the
Administrative Agent in the manner and in an amount such that
the sum of the aggregate amount of Revolving Loans outstanding
plus LOC Obligations outstanding plus the Synthetic Lease
Obligations outstanding is less than or equal to the lesser of
(A) Revolving Committed Amount and (B) the Borrowing Base
Assets (to be applied as set forth in Section 3.3(c) below).
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(ii) ASSET SALES. Immediately upon receipt by a
Credit Party or any of its Subsidiaries of proceeds from
any Asset Disposition, the Borrower shall forward an amount
equal to 100% of the Net Cash Proceeds of such Asset
Disposition to the Lenders as a prepayment of the Loans (to be
applied as set forth in Section 3.3(c) below).
(iii) ISSUANCES OF EQUITY. Immediately upon receipt
by a Credit Party or any of its Subsidiaries of proceeds from
any Equity Issuance, the Borrower shall forward 100% of the
Net Cash Proceeds of such Equity Issuance to the Lenders as a
prepayment of the Loans (to be applied as set forth in Section
3.3(c) below).
(iv) ISSUANCE OF DEBT. Immediately upon receipt by a
Credit Party or any of its Subsidiaries of proceeds from any
Debt Issuance, the Borrower shall forward 100% of the Net Cash
Proceeds of such Debt Issuance to the Lenders as a prepayment
of the Loans (to be applied as set forth in Section 3.3(c)
below).
(c) APPLICATION OF PREPAYMENTS. All amounts required to be
paid pursuant to Section 3.3(b)(i) shall be applied FIRST to Revolving
Loans and SECOND to a cash collateral account in respect of LOC
Obligations. All amounts required to be paid pursuant to Sections
3.3(b)(ii), (iii) and (iv) above shall be applied FIRST to the
Revolving Loans (with a corresponding permanent reduction in the
Revolving Committed Amount) and SECOND, to a cash collateral account in
respect of LOC Obligations. Within the parameters of the applications
set forth above, prepayments shall be applied first to Base Rate Loans
and then to Eurodollar Loans in direct order of Interest Period
maturities. All prepayments hereunder shall be subject to Section 3.14
and shall be accompanied by interest on the principal amount prepaid
through the date of prepayment.
3.4 FEES.
(a) COMMITMENT FEES. In consideration of the Revolving
Committed Amount being made available by the Lenders hereunder, the
Borrower agrees to pay to the Administrative Agent, for the pro rata
benefit of each Lender (based on each Lender's Revolving Loan
Commitment Percentage of the Revolving Committed Amount), a per annum
fee equal to the Applicable Percentage for Commitment Fees multiplied
by the Revolving Loan Unused Commitment (the "COMMITMENT FEES"). The
Commitment Fees shall commence to accrue on the Effective Date and
shall be due and payable in arrears on the last day of each fiscal
quarter of the Borrower (as well as on the Maturity Date and on any
date that the Revolving Committed Amount is reduced) for the
immediately preceding fiscal quarter (or portion thereof), beginning
with the first of such dates to occur after the Closing Date.
(b) STANDBY LETTER OF CREDIT FEE. In consideration of the
issuance of standby Letters of Credit hereunder, the Borrower agrees to
pay to the Issuing Lender for the pro rata benefit of each Lender
(based on each Lender's Revolving Loan Commitment Percentage of the
Revolving Committed Amount), a per annum fee (the "STANDBY LETTER OF
CREDIT FEES")
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equal to the Applicable Percentage for the Standby Letter of Credit
Fees on the average daily maximum amount available to be drawn under
each such Letter of Credit from the date of issuance to the date of
expiration. The Standby Letter of Credit Fees will be payable in
arrears on the last day of each fiscal quarter of the Borrower (as well
as on the Maturity Date) for the immediately preceding fiscal quarter
(or portion thereof), beginning with the first of such dates to occur
after the Closing Date.
(c) TRADE LETTER OF CREDIT FEE. In consideration of the
issuance of trade Letters of Credit hereunder, the Borrower agrees to
pay to the Issuing Lender for the pro rata benefit of each Lender
(based on each Lender's Revolving Loan Commitment Percentage of the
Revolving Committed Amount) a per annum fee (the "TRADE LETTER OF
CREDIT FEES") equal to the Applicable Percentage for the Trade Letter
of Credit Fees on the average daily maximum amount available to be
drawn under each such Letter of Credit from the date of issuance to the
date of expiration. The Trade Letter of Credit Fees will be payable in
arrears on the last day of each fiscal quarter of the Borrower (as well
as on the Maturity Date) for the immediately preceding fiscal quarter
(or portion thereof), beginning with the first of such dates to occur
after the Closing Date.
(d) ISSUING LENDER FEES. In addition to the Standby Letter of
Credit Fees payable pursuant to clause (b) above and the Trade Letter
of Credit Fees payable pursuant to clause (c) above, the Borrower shall
pay to the Issuing Lender for its own account, without sharing by the
other Lenders, (i) the customary charges from time to time to the
Issuing Lender for its services in connection with the issuance,
amendment, payment, transfer, administration, cancellation and
conversion of, and drawings under, Letters of Credit, and (ii) a letter
of credit fronting fee of 0.125% of the face amount of each Letter of
Credit (collectively, the "ISSUING LENDER FEES").
(e) ADMINISTRATIVE FEES. The Borrower agrees to pay to the
Administrative Agent, for its own account, an annual fee in accordance
with the terms of the Fee Letter.
(f) REPURCHASE EVENT FEE. Upon the occurrence of a Repurchase
Event, the Borrower agrees to pay to the Administrative Agent for the
pro rata benefit of each Lender (based on each Lender's Revolving Loan
Commitment Percentage of the Revolving Committed Amount) a fee equal to
0.75% of the Revolving Committed Amount (the "REPURCHASE EVENT FEE");
provided, however, if (i) the Repurchase Event occurs after July 31,
1999 and (ii) EBITDAR of the Borrower and its Subsidiaries for the
twelve month period ending as of the last day of the most recent fiscal
quarter of the Borrower prior to such Repurchase Event is at least
$67.5 million, then the Repurchase Event Fee shall be equal to 0.375%
of the Revolving Committed Amount.
(g) ACCELERATION EVENT FEE. Upon the occurrence of an
Acceleration Event, the Borrower agrees to pay to the Administrative
Agent for the pro rata benefit of each Lender (based on each Lender's
Revolving Loan Commitment Percentage of the Revolving Committed Amount)
a fee equal to 0.75% of the Revolving Committed Amount (the
"ACCELERATION EVENT FEE"); provided, however, if (i) the Acceleration
Event occurs after
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July 31, 1999 and (ii) EBITDAR of the Borrower and its Subsidiaries for
the twelve month period ending as of the last day of the most recent
fiscal quarter of the Borrower prior to such Acceleration Event is at
least $67.5 million, then the Acceleration Event Fee shall only be
equal to 0.375% of the Revolving Committed Amount.
3.5 PAYMENT IN FULL AT MATURITY.
On the Maturity Date, the entire outstanding principal balance of all
Loans and all LOC Obligations, together with accrued but unpaid interest and all
other sums owing with respect thereto, shall be due and payable in full, unless
accelerated sooner pursuant to Section 9.2.
3.6 COMPUTATIONS OF INTEREST AND FEES.
(a) Except for Base Rate Loans, in which case interest shall
be computed on the basis of a 365 or 366 day year as the case may be,
all computations of interest and fees hereunder shall be made on the
basis of the actual number of days elapsed over a year of 360 days.
Interest shall accrue from and include the date of borrowing (or
continuation or conversion) but exclude the date of payment.
(b) It is the intent of the Lenders and the Credit Parties to
conform to and contract in strict compliance with applicable usury law
from time to time in effect. All agreements between the Lenders and the
Credit Parties are hereby limited by the provisions of this paragraph
which shall override and control all such agreements, whether now
existing or hereafter arising and whether written or oral. In no way,
nor in any event or contingency (including but not limited to
prepayment or acceleration of the maturity of any obligation), shall
the interest taken, reserved, contracted for, charged, or received
under this Credit Agreement, under the Notes or otherwise, exceed the
maximum nonusurious amount permissible under applicable law. If, from
any possible construction of any of the Credit Documents or any other
document, interest would otherwise be payable in excess of the maximum
nonusurious amount, any such construction shall be subject to the
provisions of this paragraph and such documents shall be automatically
reduced to the maximum nonusurious amount permitted under applicable
law, without the necessity of execution of any amendment or new
document. If any Lender shall ever receive anything of value which is
characterized as interest on the Loans under applicable law and which
would, apart from this provision, be in excess of the maximum lawful
amount, an amount equal to the amount which would have been excessive
interest shall, without penalty, be applied to the reduction of the
principal amount owing on the Loans and not to the payment of interest,
or refunded to the Borrower or the other payor thereof if and to the
extent such amount which would have been excessive exceeds such unpaid
principal amount of the Loans. The right to demand payment of the Loans
or any other indebtedness evidenced by any of the Credit Documents does
not include the right to accelerate the payment of any interest which
has not otherwise accrued on the date of such demand, and the Lenders
do not intend to charge or receive any unearned interest in the event
of such demand. All interest paid or agreed to be paid to the Lenders
with respect to the Loans shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread throughout the full
stated term (including
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any renewal or extension) of the Loans so that the amount of interest
on account of such indebtedness does not exceed the maximum nonusurious
amount permitted by applicable law.
3.7 PRO RATA TREATMENT.
Except to the extent otherwise provided herein:
(a) LOANS. Each Revolving Loan borrowing (including, without
limitation, each Mandatory Borrowing), each payment or prepayment of
principal of any Loan, each payment of fees (other than the Issuing
Lender Fees retained by the Issuing Lender for its own account and the
fees retained by the Administrative Agent for its own account), each
reduction of the Revolving Committed Amount, and each conversion or
continuation of any Loan, shall (except as otherwise provided in
Section 3.11) be allocated pro rata among the relevant Lenders in
accordance with the respective Revolving Loan Commitment Percentages of
such Lenders (or, if the Commitments of such Lenders have expired or
been terminated, in accordance with the respective principal amounts of
the outstanding Loans and Participation Interests of such Lenders);
PROVIDED that, if any Lender shall have failed to pay its applicable
pro rata share of any Revolving Loan, then any amount to which such
Lender would otherwise be entitled pursuant to this subsection (a)
shall instead be payable to the Administrative Agent until the share of
such Loan not funded by such Lender has been repaid; PROVIDED FURTHER,
that in the event any amount paid to any Lender pursuant to this
subsection (a) is rescinded or must otherwise be returned by the
Administrative Agent, each Lender shall, upon the request of the
Administrative Agent, repay to the Administrative Agent the amount so
paid to such Lender, with interest for the period commencing on the
date such payment is returned by the Administrative Agent until the
date the Administrative Agent receives such repayment at a rate per
annum equal to, during the period to but excluding the date two
Business Days after such request, the Federal Funds Rate, and
thereafter, the Base Rate PLUS two percent (2%) per annum; and
(b) LETTERS OF CREDIT. Each payment of unreimbursed drawings
in respect of LOC Obligations shall be allocated to each LOC
Participant pro rata in accordance with its Revolving Loan Commitment
Percentage; PROVIDED that, if any LOC Participant shall have failed to
pay its applicable pro rata share of any drawing under any Letter of
Credit, then any amount to which such LOC Participant would otherwise
be entitled pursuant to this subsection (b) shall instead be payable to
the Issuing Lender until the share of such unreimbursed drawing not
funded by such Lender has been repaid; PROVIDED FURTHER, that in the
event any amount paid to any LOC Participant pursuant to this
subsection (b) is rescinded or must otherwise be returned by the
Issuing Lender, each LOC Participant shall, upon the request of the
Issuing Lender, repay to the Administrative Agent for the account of
the Issuing Lender the amount so paid to such LOC Participant, with
interest for the period commencing on the date such payment is returned
by the Issuing Lender until the date the Issuing Lender receives such
repayment at a rate per annum equal to, during the period to but
excluding the date two Business Days after such request, the Federal
Funds Rate, and thereafter, the Base Rate PLUS two percent (2%) per
annum.
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3.8 SHARING OF PAYMENTS.
The Lenders agree among themselves that, except to the extent otherwise
provided herein, in the event that any Lender shall obtain payment in respect of
any Loan, unreimbursed drawing with respect to any LOC Obligations or any other
obligation owing to such Lender under this Credit Agreement through the exercise
of a right of setoff, banker's lien or counterclaim, or pursuant to a secured
claim under Section 506 of the Bankruptcy Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, in excess of its pro rata share of such payment as provided for
in this Credit Agreement, such Lender shall promptly pay in cash or purchase
from the other Lenders a participation in such Loans, LOC Obligations, and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all Lenders share such payment in
accordance with their respective ratable shares as provided for in this Credit
Agreement. The Lenders further agree among themselves that if payment to a
Lender obtained by such Lender through the exercise of a right of setoff,
banker's lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be restored, each Lender which shall have shared the benefit of
such payment shall, by payment in cash or a repurchase of a participation
theretofore sold, return its share of that benefit (together with its share of
any accrued interest payable with respect thereto) to each Lender whose payment
shall have been rescinded or otherwise restored. The Borrower agrees that any
Lender so purchasing such a participation may, to the fullest extent permitted
by law, exercise all rights of payment, including setoff, banker's lien or
counterclaim, with respect to such participation as fully as if such Lender were
a holder of such Loan, LOC Obligation or other obligation in the amount of such
participation. Except as otherwise expressly provided in this Credit Agreement,
if any Lender or the Administrative Agent shall fail to remit to the
Administrative Agent or any other Lender an amount payable by such Lender or
such Administrative Agent to the Administrative Agent or such other Lender
pursuant to this Credit Agreement on the date when such amount is due, such
payments shall be made together with interest thereon for each date from the
date such amount is due until the date such amount is paid to the Administrative
Agent or such other Lender at a rate per annum equal to the Federal Funds Rate.
If under any applicable bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in lieu of a setoff to which this Section 3.8 applies,
such Lender shall, to the extent practicable, exercise its rights in respect of
such secured claim in a manner consistent with the rights of the Lenders under
this Section 3.8 to share in the benefits of any recovery on such secured claim.
3.9 CAPITAL ADEQUACY.
If, after the date hereof, any Lender has determined that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender, or its parent corporation, with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's (or parent
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corporation's) capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender, or its parent
corporation, could have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration such Lender's (or parent corporation's)
policies with respect to capital adequacy), then, upon notice from such Lender
to the Borrower, the Borrower shall be obligated to pay to such Lender such
additional amount or amounts as will compensate such Lender on an after-tax
basis (after taking into account applicable deductions and credits in respect of
the amount indemnified) for such reduction. Each determination by any such
Lender of amounts owing under this Section shall, absent manifest error, be
conclusive and binding on the parties hereto. This covenant shall survive the
termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder.
3.10 INABILITY TO DETERMINE INTEREST RATE.
If prior to the first day of any Interest Period, the Administrative
Agent shall have determined in good faith (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, the Administrative
Agent shall give telecopy or telephonic notice thereof to the Borrower and the
Lenders as soon as practicable thereafter, and will also give prompt written
notice to the Borrower when such conditions no longer exist. If such notice is
given (a) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as Base Rate Loans, (b) any Loans that were to
have been converted on the first day of such Interest Period to or continued as
Eurodollar Loans shall be converted to or continued as Base Rate Loans and (c)
any outstanding Eurodollar Loans shall be converted, on the first day of such
Interest Period, to Base Rate Loans. Until such notice is withdrawn by the
Administrative Agent, no further Eurodollar Loans shall be made or continued as
such, nor shall the Borrower have the right to convert Base Rate Loans to
Eurodollar Loans.
3.11 ILLEGALITY.
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrower
and the Administrative Agent (which notice shall be withdrawn whenever such
circumstances no longer exist), (b) the commitment of such Lender hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate
Loan to Eurodollar Loans shall forthwith be canceled and, until such time as it
shall no longer be unlawful for such Lender to make or maintain Eurodollar
Loans, such Lender shall then have a commitment only to make a Base Rate Loan
when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days or the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.14.
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3.12 REQUIREMENTS OF LAW.
If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof applicable to any Lender, or compliance by
any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the Closing Date (or, if later, the date on which such Lender
becomes a Lender):
(a) shall subject such Lender to any tax of any kind
whatsoever with respect to any Letter of Credit, any Eurodollar Loans
made by it or its obligation to make Eurodollar Loans, or change the
basis of taxation of payments to such Lender in respect thereof (except
for Non-Excluded Taxes covered by Section 3.13 (including Non-Excluded
Taxes imposed solely by reason of any failure of such Lender to comply
with its obligations under Section 3.13(b)) and changes in taxes
measured by or imposed upon the overall net income, or franchise tax
(imposed in lieu of such net income tax), of such Lender or its
applicable lending office, branch, or any affiliate thereof);
(b) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(c) shall impose on such Lender any other condition (excluding
any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, upon notice to the Borrower from such Lender,
through the Administrative Agent, in accordance herewith, the Borrower shall be
obligated to promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender on an after-tax basis (after taking into
account applicable deductions and credits in respect of the amount indemnified)
for such increased cost or reduced amount receivable, PROVIDED that, in any such
case, the Borrower may elect to convert the Eurodollar Loans made by such Lender
hereunder to Base Rate Loans by giving the Administrative Agent at least one
Business Day's notice of such election, in which case the Borrower shall
promptly pay to such Lender, upon demand, without duplication, such amounts, if
any, as may be required pursuant to Section 3.14. If any Lender becomes entitled
to claim any additional amounts pursuant to this Section 3.12, it shall provide
prompt notice thereof to the Borrower, through the Administrative Agent,
certifying (x) that one of the events described in this Section 3.12 has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to the
additional amount demanded by such Lender and a reasonably detailed explanation
of the calculation thereof. Such a certificate as to any additional amounts
payable pursuant to this Section 3.12 submitted by such Lender, through the
Administrative Agent, to the Borrower shall be conclusive and binding on the
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parties hereto in the absence of manifest error. This covenant shall survive the
termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder.
3.13 TAXES.
(a) Except as provided below in this Section 3.13, all
payments made by the Borrower under this Credit Agreement and any Notes
shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any court, or governmental body, agency or other official,
excluding taxes measured by or imposed upon the net income of any
Lender or its applicable lending office, or any branch or affiliate
thereof, and all franchise taxes, branch taxes, taxes on doing business
or taxes on the capital or net worth of any Lender or its applicable
lending office, or any branch or affiliate thereof, in each case
imposed in lieu of net income taxes: (i) by the jurisdiction under the
laws of which such Lender, applicable lending office, branch or
affiliate is organized or is located, or in which its principal
executive office is located, or any nation within which such
jurisdiction is located or any political subdivision thereof; or (ii)
by reason of any connection between the jurisdiction imposing such tax
and such Lender, applicable lending office, branch or affiliate other
than a connection arising solely from such Lender having executed,
delivered or performed its obligations, or received payment under or
enforced, this Credit Agreement or any Notes. If any such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("NON-EXCLUDED TAXES") are required to be withheld from
any amounts payable to the Administrative Agent or any Lender hereunder
or under any Notes, (A) the amounts so payable to the Administrative
Agent or such Lender shall be increased to the extent necessary to
yield to the Administrative Agent or such Lender (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Credit
Agreement and any Notes, PROVIDED, HOWEVER, that the Borrower shall be
entitled to deduct and withhold any Non-Excluded Taxes and shall not be
required to increase any such amounts payable to any Lender that is not
organized under the laws of the United States of America or a state
thereof if such Lender fails to comply with the requirements of
paragraph (b) of this Section 3.13 whenever any Non-Excluded Taxes are
payable by the Borrower, and (B) as promptly as possible after
requested the Borrower shall send to the Administrative Agent for its
own account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes when due to the appropriate taxing authority or fails to remit to
the Administrative Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Administrative
Agent and any Lender for any incremental Non-Excluded Taxes, interest
or penalties that may become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this
subsection shall survive the termination of this Credit Agreement and
the payment of the Loans and all other amounts payable hereunder.
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(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) (A) on or before the date of any payment by the
Borrower under this Credit Agreement or Notes to such Lender,
deliver to the Borrower and the Administrative Agent (x) two
duly completed copies of United States Internal Revenue
Service Form 1001 or 4224, or successor applicable form, as
the case may be, certifying that it is entitled to receive
payments under this Credit Agreement and any Notes without
deduction or withholding of any United States federal income
taxes and (y) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be, certifying that
it is entitled to an exemption from United States backup
withholding tax;
(B) deliver to the Borrower and the
Administrative Agent two further copies of any such form or
certification on or before the date that any such form or
certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent
form previously delivered by it to the Borrower; and
(C) obtain such extensions of time for
filing and complete such forms or certifications as may
reasonably be requested by the Borrower or the Administrative
Agent; or
(ii) in the case of any such Lender that is not a
"bank" within the meaning of Section 881(c)(3)(A) of the
Internal Revenue Code, (A) represent to the Borrower (for the
benefit of the Borrower and the Administrative Agent) that it
is not a bank within the meaning of Section 881(c)(3)(A) of
the Internal Revenue Code, (B) agree to furnish to the
Borrower, on or before the date of any payment by the
Borrower, with a copy to the Administrative Agent, two
accurate and complete original signed copies of Internal
Revenue Service Form W-8, or successor applicable form
certifying to such Lender's legal entitlement at the date of
such certificate to an exemption from U.S. withholding tax
under the provisions of Section 881(c) of the Internal Revenue
Code with respect to payments to be made under this Credit
Agreement and any Notes (and to deliver to the Borrower and
the Administrative Agent two further copies of such form on or
before the date it expires or becomes obsolete and after the
occurrence of any event requiring a change in the most
recently provided form and, if necessary, obtain any
extensions of time reasonably requested by the Borrower or the
Administrative Agent for filing and completing such forms),
and (C) agree, to the extent legally entitled to do so, upon
reasonable request by the Borrower, to provide to the Borrower
(for the benefit of the Borrower and the Administrative Agent)
such other forms as may be reasonably required in order to
establish the legal entitlement of such Lender to an exemption
from withholding with respect to payments under this Credit
Agreement and any Notes.
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Notwithstanding the above, if any change in treaty, law or regulation
has occurred after the date such Person becomes a Lender hereunder
which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with respect
to it and such Lender so advises the Borrower and the Administrative
Agent, then such Lender shall be exempt from such requirements. Each
Person that shall become a Lender or a participant of a Lender pursuant
to Section 11.3 shall, upon the effectiveness of the related transfer,
be required to provide all of the forms, certifications and statements
required pursuant to this subsection (b); PROVIDED that in the case of
a participant of a Lender, the obligations of such participant of a
Lender pursuant to this subsection (b) shall be determined as if the
participant of a Lender were a Lender except that such participant of a
Lender shall furnish all such required forms, certifications and
statements to the Lender from which the related participation shall
have been purchased.
3.14 COMPENSATION.
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurodollar Loan after
the Borrower has given a notice thereof in accordance with the provisions of
this Credit Agreement and (c) the making of a prepayment of Eurodollar Loans on
a day which is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to (i) the amount of interest which
would have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure to
borrow, convert or continue to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or continue, the Interest
Period that would have commenced on the date of such failure) in each case at
the applicable rate of interest for such Eurodollar Loans provided for herein
(excluding, however, the Applicable Percentage included therein, if any) minus
(ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank Eurodollar
market. The agreements in this Section shall survive the termination of this
Credit Agreement and the payment of the Loans and all other amounts payable
hereunder.
3.15 EVIDENCE OF DEBT.
(a) Each Lender shall maintain an account or accounts evidencing each
Loan made by such Lender to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Credit Agreement. Each Lender will make reasonable efforts to
maintain the accuracy of its account or accounts and to promptly update its
account or accounts from time to time, as necessary.
(b) The Administrative Agent shall maintain the Register pursuant to
Section 11.3(c), and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and Interest
Period of each such Loan hereunder, (ii) the amount of
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any principal or interest due and payable or to become due and payable to each
Lender hereunder, and (iii) the amount of any sum received by the Administrative
Agent hereunder from or for the account of the Borrower and each Lender's share
thereof, if any. The Administrative Agent will make reasonable efforts to
maintain the accuracy of the subaccounts referred to in the preceding sentence
and to promptly update such subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.16 (and, if consistent
with the entries of the Administrative Agent, subsection (a)) shall be prima
facie evidence of the existence and amounts of the obligations of the Borrower
therein recorded; PROVIDED, HOWEVER, that the failure of any Lender or the
Administrative Agent to maintain such account, such Register, or such
subaccount, as applicable, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay the Loans made by such Lender in
accordance with the terms hereof.
3.16 REPLACEMENT OF LENDERS.
In the event any Lender delivers to the Borrower any notice in
accordance with Section 3.9, 3.11 or 3.12, then the Borrower shall have the
right, if no Default or Event of Default then exists, to replace such Lender
(the "REPLACED LENDER") with one or more additional banks or financial
institutions (collectively, the "REPLACEMENT LENDER"), PROVIDED, that (a) the
Replacement Lender is acceptable to the Administrative Agent, (b) at the time of
any replacement pursuant to this Section 3.16, the Replacement Lender shall
enter into one or more Assignment and Acceptance agreements pursuant to, and in
accordance with the terms of, Section 11.3(b) (and with all processing and
recordation fees payable pursuant to said Section 11.3(b) to be paid by the
Replacement Lender or, at its option, the Borrower) pursuant to which the
Replacement Lender shall acquire all of the rights and obligations of the
Replaced Lender hereunder and, in connection therewith, shall pay to the
Replaced Lender in respect thereof an amount equal to the sum of (i) the
principal of, and all accrued interest on, all outstanding Loans of the Replaced
Lender, and (ii) all accrued, but theretofore unpaid, fees owing to the Replaced
Lender pursuant to Section 3.4, (c) all other obligations of the Borrower owing
to the Replaced Lender (including all other obligations, if any, owing pursuant
to Sections 3.9, 3.11 and 3.12) shall be paid in full to such Replaced Lender
concurrently with such replacement and (d) the Administrative Agent and the
Lenders shall not be obligated to assist the Borrower in identifying any
Replacement Lender.
SECTION 4
GUARANTY
4.1 GUARANTY OF PAYMENT.
Subject to Section 4.7 below, each of the Guarantors hereby, jointly
and severally, unconditionally guarantees to each Lender, each Affiliate of
Lender that enters into a Hedging Agreement and the Administrative Agent the
prompt payment of the Credit Party Obligations in
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full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration or otherwise). This Guaranty is a guaranty of payment and not of
collection and is a continuing guaranty and shall apply to all Credit Party
Obligations whenever arising.
4.2 OBLIGATIONS UNCONDITIONAL.
The obligations of the Guarantors hereunder are absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Credit Documents or the Hedging Agreements, or any
other agreement or instrument referred to therein, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor. Each Guarantor agrees that this Guaranty may be enforced by
the Lenders without the necessity at any time of resorting to or exhausting any
other security or collateral and without the necessity at any time of having
recourse to the Notes or any other of the Credit Documents or any collateral, if
any, hereafter securing the Credit Party Obligations or otherwise and each
Guarantor hereby waives the right to require the Lenders to proceed against the
Borrower or any other Person (including a co-guarantor) or to require the
Lenders to pursue any other remedy or enforce any other right. Each Guarantor
further agrees that it shall have no right of subrogation, indemnity,
reimbursement or contribution against the Borrower or any other Guarantor of the
Credit Party Obligations for amounts paid under this Guaranty until such time as
the Lenders (and any Affiliates of Lenders entering into Hedging Agreements)
have been paid in full, all Commitments under the Credit Agreement have been
terminated and no Person or Governmental Authority shall have any right to
request any return or reimbursement of funds from the Lenders in connection with
monies received under the Credit Documents. Each Guarantor further agrees that
nothing contained herein shall prevent the Lenders from suing on the Notes or
any of the other Credit Documents or any of the Hedging Agreements or
foreclosing its security interest in or Lien on any collateral, if any, securing
the Credit Party Obligations or from exercising any other rights available to it
under this Credit Agreement, the Notes, any other of the Credit Documents, or
any other instrument of security, if any, and the exercise of any of the
aforesaid rights and the completion of any foreclosure proceedings shall not
constitute a discharge of any of any Guarantor's obligations hereunder; it being
the purpose and intent of each Guarantor that its obligations hereunder shall be
absolute, independent and unconditional under any and all circumstances. Neither
any Guarantor's obligations under this Guaranty nor any remedy for the
enforcement thereof shall be impaired, modified, changed or released in any
manner whatsoever by an impairment, modification, change, release or limitation
of the liability of the Borrower or by reason of the bankruptcy or insolvency of
the Borrower. Each Guarantor waives any and all notice of the creation, renewal,
extension or accrual of any of the Credit Party Obligations and notice of or
proof of reliance of by the Administrative Agent or any Lender upon this
Guarantee or acceptance of this Guarantee. The Credit Party Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee. All dealings between the Borrower and any of the Guarantors, on the
one hand, and the Administrative Agent and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon this Guarantee. The Guarantors further agree to all rights of
set-off as set forth in Section 11.2.
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4.3 MODIFICATIONS.
Each Guarantor agrees that (a) all or any part of the Collateral now or
hereafter held for the Credit Party Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) the Lenders shall not have any
obligation to protect, perfect, secure or insure any such security interests,
liens or encumbrances now or hereafter held, if any, for the Credit Party
Obligations or the properties subject thereto; (c) the time or place of payment
of the Credit Party Obligations may be changed or extended, in whole or in part,
to a time certain or otherwise, and may be renewed or accelerated, in whole or
in part; (d) the Borrower and any other party liable for payment under the
Credit Documents may be granted indulgences generally; (e) any of the provisions
of the Notes or any of the other Credit Documents may be modified, amended or
waived; (f) any party (including any co-guarantor) liable for the payment
thereof may be granted indulgences or be released; and (g) any deposit balance
for the credit of the Borrower or any other party liable for the payment of the
Credit Party Obligations or liable upon any security therefor may be released,
in whole or in part, at, before or after the stated, extended or accelerated
maturity of the Credit Party Obligations, all without notice to or further
assent by such Guarantor, which shall remain bound thereon, notwithstanding any
such exchange, compromise, surrender, extension, renewal, acceleration,
modification, indulgence or release.
4.4 WAIVER OF RIGHTS.
Each Guarantor expressly waives to the fullest extent permitted by
applicable law: (a) notice of acceptance of this Guaranty by the Lenders and of
all extensions of credit to the Borrower by the Lenders; (b) presentment and
demand for payment or performance of any of the Credit Party Obligations; (c)
protest and notice of dishonor or of default (except as specifically required in
the Credit Agreement) with respect to the Credit Party Obligations or with
respect to any security therefor; (d) notice of the Lenders obtaining, amending,
substituting for, releasing, waiving or modifying any security interest, lien or
encumbrance, if any, hereafter securing the Credit Party Obligations, or the
Lenders' subordinating, compromising, discharging or releasing such security
interests, liens or encumbrances, if any; (e) all other notices to which such
Guarantor might otherwise be entitled; and (f) demand for payment under this
Guaranty.
4.5 REINSTATEMENT.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Administrative Agent and each Lender on demand for all reasonable costs and
expenses (including, without limitation, reasonable fees of counsel) incurred by
the Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
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4.6 REMEDIES.
The Guarantors agree that, as between the Guarantors, on the one hand,
and the Administrative Agent and the Lenders, on the other hand, the Credit
Party Obligations may be declared to be forthwith due and payable as provided in
Section 9 (and shall be deemed to have become automatically due and payable in
the circumstances provided in Section 9) notwithstanding any stay, injunction or
other prohibition preventing such declaration (or preventing such Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or such Credit Party
Obligations being deemed to have become automatically due and payable), such
Credit Party Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors. The Guarantors
acknowledge and agree that their obligations hereunder are secured in accordance
with the terms of the Security Agreements and the other Collateral Documents and
that the Lenders may exercise their remedies thereunder in accordance with the
terms thereof.
4.7 LIMITATION OF GUARANTY.
Notwithstanding any provision to the contrary contained herein or in
any of the other Credit Documents, to the extent the obligations of any
Guarantor shall be adjudicated to be invalid or unenforceable for any reason
(including, without limitation, because of any applicable state or federal law
relating to fraudulent conveyances or transfers) then the obligations of such
Guarantor hereunder shall be limited to the maximum amount that is permissible
under applicable law (whether federal or state and including, without
limitation, the Bankruptcy Code).
4.8 RIGHTS OF CONTRIBUTION.
The Credit Parties agree among themselves that, in connection with
payments made hereunder, each Credit Party shall have contribution rights
against the other Credit Parties as permitted under applicable law. Such
contribution rights shall be subordinate and subject in right of payment to the
obligations of the Credit Parties under the Credit Documents and no Credit Party
shall exercise such rights of contribution until all Credit Party Obligations
have been paid in full and the Commitments terminated.
SECTION 5
CONDITIONS PRECEDENT
5.1 CLOSING CONDITIONS.
The obligation of the Lenders to enter into this Credit Agreement and
make the initial Extension of Credit is subject to satisfaction (or waiver by
each of the Lenders) of the following conditions:
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(a) EXECUTED CREDIT DOCUMENTS. Receipt by the Administrative
Agent of duly executed copies of: (i) this Credit Agreement; (ii) the
Notes; (iii) the Collateral Documents; and (iv) all other Credit
Documents, each in form and substance reasonably acceptable to the
Administrative Agent.
(b) CORPORATE DOCUMENTS. With respect to each Credit Party
that is a corporation, receipt by the Administrative Agent of the
following:
(i) CHARTER DOCUMENTS. Copies of the articles or
certificates of incorporation or other charter documents of
each Credit Party certified by a secretary or assistant
secretary of such Credit Party to be true and correct as of
the Effective Date.
(ii) BYLAWS. A copy of the bylaws of each Credit
Party certified by a secretary or assistant secretary of such
Credit Party to be true and correct as of the Effective Date.
(iii) RESOLUTIONS. Copies of resolutions of the Board
of Directors of each Credit Party approving and adopting the
Credit Documents to which it is a party, the transactions
contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary of
such Credit Party to be true and correct and in force and
effect as of the Effective Date.
(iv) INCUMBENCY. An incumbency certificate of each
Credit Party certified by a secretary or assistant secretary
to be true and correct as of the Effective Date.
(c) PARTNERSHIP DOCUMENTS. With respect to each Credit Party
that is a partnership, receipt by the Administrative Agent of the
following:
(i) AUTHORIZATION. Authorization of the general
partner(s) of such Credit Party, as of the Closing Date,
approving and adopting the Credit Documents to be executed by
such Credit Party and authorizing the execution and delivery
thereof., certified by a secretary or assistant secretary of
such general partner to be true and correct as of the Closing
Date.
(ii) PARTNERSHIP AGREEMENTS. The partnership
agreement of such Credit Party, together with all amendments
thereto, certified by a secretary or assistant secretary of
such general partner to be true and correct as of the Closing
Date.
(iii) INCUMBENCY. An incumbency certificate of the
general partner(s) of such Credit Party, certified by a
secretary or assistant secretary of such general partner to be
true and correct as of the Closing Date.
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(d) OPINION OF COUNSEL. Receipt by the Administrative Agent of
an opinion or opinions (which shall cover, among other things,
authority, legality, validity, binding effect, and enforceability of
the Credit Documents and the attachment, perfection, and validity of
liens), reasonably satisfactory to the Administrative Agent, addressed
to the Administrative Agent and the Lenders and dated as of the
Effective Date, from legal counsel to the Credit Parties.
(e) FINANCIAL STATEMENTS. Receipt by the Lenders of such
financial information regarding the Credit Parties as they may request,
including, but not limited to, (i) the consolidated financial
statements of the Credit Parties for the fiscal year 1998, including
balance sheets, income statements and cash flow statements audited by
independent public accountants of recognized national standing and
prepared in accordance with GAAP and (ii) interim unaudited quarterly
financial statements for the Credit Parties.
(f) OPENING BORROWING BASE CERTIFICATE. Receipt by the
Administrative Agent of a Borrowing Base Certificate, in the form of
EXHIBIT 7.1(D), dated as of the Closing Date.
(g) PERSONAL PROPERTY COLLATERAL. The Administrative Agent
shall have received, in form and substance reasonably satisfactory to
the Administrative Agent:
(i) all stock certificates evidencing the stock
pledged to the Administrative Agent pursuant to the Pledge
Agreements, together with duly executed in blank undated stock
powers attached thereto; and
(ii) all instruments and chattel paper in the
possession of a Credit Party, as required by the Security
Agreements, together with allonges or assignments as may be
necessary to perfect the Administrative Agent's security
interest in such Collateral.
(h) MATERIAL ADVERSE EFFECT. No material adverse change shall
have occurred since January 31, 1998 in the condition (financial or
otherwise), business, management or prospects of the Borrower and its
Subsidiaries taken as a whole; it being understood and agreed that the
adjustments for the (i) recognition of income with respect to vendor
merchandising support payments and (ii) the accrual of employee benefit
bonuses for the Borrower's fiscal year 1999, as such adjustments have
been described to the Lenders by the Borrower and presented in any
draft of the Borrower's 1999 annual financial statements provided to
the Lenders, shall not constitute a material adverse change.
(i) LITIGATION. There shall not exist any pending or, to the
knowledge of any Credit Party, threatened action, suit, investigation
or proceeding against a Credit Party or any of their Subsidiaries that
would have or would reasonably be expected to have a Material Adverse
Effect.
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(j) OFFICER'S CERTIFICATES. The Administrative Agent shall
have received a certificate or certificates executed by an Executive
Officer of the Borrower as of the Effective Date stating that (i)
except for the Indenture Default under the Indenture, the Borrower and
each of its Subsidiaries are in compliance with all existing financial
obligations, (ii) no action, suit, investigation or proceeding is
pending or, to the knowledge of any Credit Party, threatened in any
court or before any arbitrator or governmental instrumentality that
purports to effect the Borrower, any of the its Subsidiaries or any
transaction contemplated by the Credit Documents, if such action, suit,
investigation or proceeding would have or might reasonably be expected
to have a Material Adverse Effect, (iii) the financial statements and
information delivered to the Administrative Agent on or before the
Effective Date were prepared in good faith and in accordance with GAAP
and (iv) immediately after giving effect to this Credit Agreement, the
other Credit Documents and all the transactions contemplated therein to
occur on such date, (A) the Borrower and each of its Subsidiaries is
Solvent, (B) no Default or Event of Default exists, (C) all
representations and warranties contained herein and in the other Credit
Documents are true and correct in all material respects, and (D) the
Credit Parties are in compliance with each of the financial covenants
set forth in Section 7.2.
(k) CONSENTS. Receipt of all governmental, shareholder and
third party consents (including the consent, if necessary, of any
existing lenders, lessors and/or bondholders of the Borrower to the
extent that such indebtedness is to remain in place after the
transactions contemplated hereby) and approvals necessary or, in the
opinion of the Administrative Agent, desirable in connection with the
transactions contemplated hereby and expiration of all applicable
waiting periods without any action being taken by any authority that
could restrain, prevent or impose any material adverse conditions on
the transactions contemplated hereby or that could seek or threaten any
of the foregoing, and no law or regulation shall be applicable which in
the judgment of the Administrative Agent could have such effect.
(l) PRIOR CREDIT AGREEMENT. Receipt by the Administrative
Agent of (i) evidence that all obligations outstanding under the Prior
Credit Agreement have been paid in full or are now evidenced by the
Credit Documents and (ii) an Assignment Agreement between NationsBank
and each Lender party to the Prior Credit Agreement, pursuant to which
each such Lender will assign its Commitment and its rights and
obligations under the Prior Credit Agreement to NationsBank.
(m) WAIVER AGREEMENT. Receipt by the Administrative Agent of a
waiver agreement between the Credit Parties and the Lenders, pursuant
to which the Lenders agree to waive certain Events of Default under the
Prior Credit Agreement; it is understood and agreed that the Assignment
Agreements referenced in Section 5.1(l) shall be effective prior to
giving effect to such waiver letter.
(n) TROL AMENDMENT. Receipt by the Administrative Agent of an
executed copy of any Amendment to the Participation or any Operative
Agreement (as defined in the
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Participation Agreement) executed in conjunction with the closing of
this Credit Agreement.
(o) SYNDICATION SIDE LETTER. Receipt by the Administrative
Agent of the Syndication Side Letter, dated as of the date hereof,
among the Borrower, the Administrative Agent and BASL (the "SYNDICATION
SIDE LETTER").
(p) AVAILABILITY. The Administrative Agent shall be satisfied
that (i) the amount of committed financing available to the Borrower
shall be sufficient to meet the ongoing financing needs of the Borrower
and its Subsidiaries and (ii) after giving effect to the initial Loans
made on the Effective Date and the Letters of Credit issued on or prior
to the Effective Date, there shall be at least $5,000,000 of
availability existing under the Revolving Committed Amount.
(q) CASH COLLATERAL ACCOUNT. Receipt by the Administrative
Agent of evidence of the deposit by the Credit Parties of $35 million
in the Cash Collateral Account.
(r) FEES AND EXPENSES. Payment by the Credit Parties of the
fees and expenses owed by them to the Administrative Agent, as set
forth in the Fee Letter.
(s) PRIORITY OF LIENS. The Administrative Agent shall have
received satisfactory evidence that none of the Collateral is subject
to any Liens other than Permitted Liens.
(t) YEAR 2000. Receipt by the Administrative Agent of evidence
that (a) the Borrower and its Subsidiaries are taking all necessary and
appropriate steps to ascertain the extent of, and to quantify and
successfully address, business and financial risks facing the Borrower
and such Subsidiary as a result of what is commonly referred to as the
`Year 2000 problem' (i.e., the inability of certain computer
applications to recognize correctly and perform date-sensitive
functions involving certain dates prior to and after December 31,
1999), including risks resulting from the failure of key vendors and
customers of the Borrower or any Subsidiary to successfully address the
Year 2000 problem, and (b) the Borrower and each Subsidiary's material
computer applications and those of its key vendors and customers will,
on a timely basis, adequately address the Year 2000 problem in all
material respects.
(u) OTHER. Receipt and satisfactory review by the
Administrative Agent of such other documents, instruments, agreements
or information as reasonably and timely requested by the Administrative
Agent or any Lender, including, but not limited to, information
regarding litigation, tax, accounting, labor, insurance, pension
liabilities (actual or contingent), real estate leases, material
contracts, debt agreements, property ownership and contingent
liabilities of the Borrower and its Subsidiaries.
5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
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In addition to the conditions precedent stated elsewhere herein, the
Lenders shall not be obligated to make Loans nor shall an Issuing Lender be
required to issue or extend a Letter of Credit unless:
(a) NOTICE. The Borrower shall have delivered (i) in the case
of any new Revolving Loan, a Notice of Borrowing, duly executed and
completed, by the time specified in Section 2.1 and (ii) in the case of
any Letter of Credit, the Issuing Lender shall have received an
appropriate request for issuance in accordance with the provisions of
Section 2.2;
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Credit Parties in any Credit Document are true
and correct in all material respects at and as if made as of such date
except to the extent they expressly relate to an earlier date;
(c) NO DEFAULT. No Default or Event of Default shall exist or
be continuing either prior to or after giving effect thereto; and
(d) AVAILABILITY. Immediately after giving effect to the
making of a Loan (and the application of the proceeds thereof) or to
the issuance of a Letter of Credit, as the case may be, the sum of the
Revolving Loans outstanding plus LOC Obligations outstanding plus the
aggregate amount of Synthetic Lease Obligations outstanding shall not
exceed the lesser of (i) the Revolving Committed Amount and (ii) the
Borrowing Base Assets.
(e) SECTION 1008 OF INDENTURE. Immediately after giving effect
to the making of a Loan (and the application of the proceeds thereof)
or to the issuance of a Letter of Credit, as the case may be, the
Borrower and its Subsidiaries shall be in compliance with the terms of
Section 1008 of the Indenture.
The delivery of each Notice of Borrowing and each request for a Letter of Credit
shall constitute a representation and warranty by the Borrower of the
correctness of the matters specified in subsections (b), (c), (d) and (e) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Administrative Agent and
each Lender that:
6.1 FINANCIAL CONDITION.
(a) The financial statements delivered to the Lenders prior to
the Effective Date and pursuant to Section 7.1(a) and (b): (i) have
been prepared in accordance with GAAP and (ii) present fairly the
consolidated and consolidating (as applicable) financial condition,
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results of operations and cash flows of the Credit Parties and their
Subsidiaries as of such date and for such periods.
(b) Since January 31, 1998, (i) there has been no sale,
transfer or other disposition by any Credit Party or any of their
Subsidiaries of any material part of the business or property of the
Credit Parties, taken as a whole, and (ii) there has been no purchase
or other acquisition by any Credit Party or any of their Subsidiaries
of any business or property (including any capital stock of any other
Person) material in relation to the consolidated financial condition of
the Credit Parties, taken as a whole, in each case, which, is not (A)
reflected in the most recent financial statements delivered to the
Lenders pursuant to Section 7.1 or in the notes thereto or (B)
otherwise permitted by the terms of this Credit Agreement and
communicated to the Administrative Agent.
6.2 NO MATERIAL CHANGE.
Since the Effective Date, there has been no development or event
relating to or affecting a Credit Party or any of their Subsidiaries which has
had or would be reasonably expected to have a Material Adverse Effect. To the
knowledge of any Credit Party, since January 31, 1998, there has been no
development or event relating to or affecting a Credit Party or any of its
Subsidiaries which has had or would be reasonably expected to have a Material
Adverse Effect; it being understood and agreed that the adjustments for the (i)
recognition of income with respect to vendor merchandising support payments and
(ii) the accrual of employee benefit bonuses for the Borrower's fiscal year
1999, as such adjustments have been described to the Lenders by the Borrower and
presented in any draft of the Borrower's 1999 annual financial statements
provided to the Lenders, shall not constitute a Material Adverse Effect.
6.3 ORGANIZATION AND GOOD STANDING.
Each Credit Party (a) is duly organized, validly existing and in good
standing under the laws of the State (or other jurisdiction) of its
incorporation or formation, (b) is duly qualified and in good standing and
authorized to do business in every jurisdiction unless the failure to be so
qualified, in good standing or authorized would have a Material Adverse Effect
and (c) has the right, power and authority to own its properties and to carry on
its business as now conducted and as proposed to be conducted.
6.4 DUE AUTHORIZATION.
Each Credit Party (a) has the right, power and authority to execute,
deliver and perform this Credit Agreement and the other Credit Documents to
which it is a party and to incur the obligations herein and therein provided for
and (b) is duly authorized to, and has been authorized by all necessary
corporate and other action, to execute, deliver and perform this Credit
Agreement and the other Credit Documents to which it is a party.
6.5 NO CONFLICTS.
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Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of the articles or certificate of
incorporation, bylaws or other organizational documents of the Borrower or any
of its Subsidiaries, (b) violate, contravene or materially conflict with any
Requirement of Law or any other law, regulation (including, without limitation,
Regulation U or Regulation X), order, writ, judgment, injunction, decree or
permit applicable to it, (c) violate, contravene or conflict with contractual
provisions of, or cause an event of default under, any indenture, loan
agreement, mortgage, deed of trust, contract or other agreement or instrument to
which it is a party or by which it may be bound, the violation of which could
have or might be reasonably expected to have a Material Adverse Effect, or (d)
result in or require the creation of any Lien (other than those contemplated in
or created in connection with the Credit Documents) upon or with respect to its
properties.
6.6 CONSENTS.
Except for consents, approvals and authorizations which have been
obtained, no consent, approval, authorization or order of, or filing,
registration or qualification with, any court or Governmental Authority or third
party in respect of any Credit Party is required in connection with the
execution, delivery or performance of this Credit Agreement or any of the other
Credit Documents by such Credit Party.
6.7 ENFORCEABLE OBLIGATIONS.
This Credit Agreement and the other Credit Documents have been duly
executed and delivered and constitute legal, valid and binding obligations of
each Credit Party enforceable against such Credit Party in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization or moratorium laws or similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
6.8 NO DEFAULT.
Except for the Indenture Default, no Credit Party, nor any of their
Subsidiaries, is in default in any respect under any contract, lease, loan
agreement, indenture, mortgage, security agreement or other agreement or
obligation to which it is a party or by which any of its properties is bound
which default would have or would be reasonably expected to have a Material
Adverse Effect. No Default or Event of Default exists except as previously
disclosed in writing to the Lenders.
6.9 OWNERSHIP.
Each Credit Party, and each of its Subsidiaries, is the owner of, and
has good and marketable title to, or has a valid license to use all of its
respective assets and none of such assets is subject to any Lien other than
Permitted Liens.
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6.10 INDEBTEDNESS.
The Credit Parties and their Subsidiaries have no Indebtedness except
(a) as disclosed in the financial statements referenced in Section 6.1, (b) as
set forth on SCHEDULE 6.10 and (c) as otherwise permitted by this Credit
Agreement.
6.11 LITIGATION.
There are no actions, suits or legal, equitable, arbitration or
administrative proceedings, pending or, to the knowledge of any Credit Party,
threatened against, any Credit Party or any of its Subsidiaries which could have
or might be reasonably expected to have a Material Adverse Effect.
6.12 TAXES.
Each Credit Party, and each of its Subsidiaries, has filed, or caused
to be filed, all material tax returns (federal, state, local and foreign)
required to be filed and paid (a) all material amounts of taxes shown thereon to
be due and payable (including interest and penalties) and (b) all material other
taxes, fees, assessments and other governmental charges (including documentary
stamp taxes and intangibles taxes) that are due and payable, except for such
taxes (i) which are not yet delinquent or (ii) that are being contested in good
faith and by proper proceedings, and against which adequate reserves are being
maintained in accordance with GAAP. To the knowledge of the Credit Parties,
there are no material amounts claimed to be due against any of them by any
Governmental Authority.
6.13 COMPLIANCE WITH LAW.
Each Credit Party, and each of its Subsidiaries, is in compliance with
all Requirements of Law and all other laws, rules, regulations, orders and
decrees (including without limitation Environmental Laws) applicable to it, or
to its properties, unless such failure to comply would not have or would not be
reasonably expected to have a Material Adverse Effect.
6.14 ERISA.
Except as would not result or be reasonably expected to result in a
Material Adverse Effect:
(a) During the five-year period prior to the date on which
this representation is made or deemed made: (i) no Termination Event
has occurred, and, to the knowledge of the Credit Parties, no event or
condition has occurred or exists as a result of which any Termination
Event could reasonably be expected to occur, with respect to any Plan;
(ii) no "accumulated funding deficiency," as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not
waived, has occurred with respect to any Plan; (iii) each Plan has been
maintained, operated, and funded in compliance with its own terms and
in material compliance with the provisions of ERISA, the Code, and any
other applicable federal or state laws; and (iv) no lien in favor or
the PBGC or a Plan has arisen or is reasonably likely to arise on
account of any Plan.
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(b) The actuarial present value of all "benefit liabilities"
under each Single Employer Plan (determined within the meaning of
Section 401(a)(2) of the Code, utilizing the actuarial assumptions used
to fund such Plans), whether or not vested, did not, as of the last
annual valuation date prior to the date on which this representation is
made or deemed made, exceed the current value of the assets of such
Plan allocable to such accrued liabilities.
(c) Neither the Borrower, nor any of its Subsidiaries nor any
ERISA Affiliate has incurred, or, to the knowledge of the Credit
Parties, are reasonably expected to incur, any withdrawal liability
under ERISA to any Multiemployer Plan or Multiple Employer Plan.
Neither the Borrower, any of its Subsidiaries nor any ERISA Affiliate
has received any notification that any Multiemployer Plan is in
reorganization (within the meaning of Section 4241 of ERISA), is
insolvent (within the meaning of Section 4245 of ERISA), or has been
terminated (within the meaning of Title IV of ERISA), and no
Multiemployer Plan is, to the best knowledge of the Credit Parties,
reasonably expected to be in reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility has occurred with respect to a Plan which has subjected
or is reasonably likely to subject the Borrower or any of its
Subsidiaries or any ERISA Affiliate to any liability under Sections
406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or
under any agreement or other instrument pursuant to which the Borrower
or any of its Subsidiaries or any ERISA Affiliate has agreed or is
required to indemnify any person against any such liability.
(e) The present value (determined using actuarial and other
assumptions which are reasonable with respect to the benefits provided
and the employees participating) of the liability of the Borrower and
its Subsidiaries and each ERISA Affiliate for post-retirement welfare
benefits to be provided to their current and former employees under
Plans which are welfare benefit plans (as defined in Section 3(1) of
ERISA), net of all assets under all such Plans allocable to such
benefits, are reflected on the Financial Statements in accordance with
FASB 106.
(f) Each Plan which is a welfare plan (as defined in Section
3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of
the Code apply has been administered in material compliance with such
sections.
6.15 SUBSIDIARIES.
Set forth on SCHEDULE 6.15 is a complete and accurate list of all
Subsidiaries of each Credit Party. Information on SCHEDULE 6.15 includes
jurisdiction of incorporation or organization, the number of shares of each
class of capital stock or other equity interests outstanding, the number and
percentage of outstanding shares of each class owned (directly or indirectly) by
such Credit Party; and the number and effect, if exercised, of all outstanding
options, warrants, rights of conversion or
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purchase and all other similar rights with respect thereto. The outstanding
capital stock and other equity interests of all such Subsidiaries is validly
issued, fully paid and non-assessable and is owned by each such Credit Party,
directly or indirectly, free and clear of all Liens (other than those arising
under or contemplated in connection with the Credit Documents). Other than as
set forth in SCHEDULE 6.15, neither any Credit Party nor any Subsidiary thereof
has outstanding any securities convertible into or exchangeable for its capital
stock nor does any such Person have outstanding any rights to subscribe for or
to purchase or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to its capital stock. SCHEDULE 6.15 may be updated
from time to time by the Borrower by giving written notice thereof to the
Administrative Agent. As of the Closing Date, none of the Credit Parties owns
any shares of capital stock in any Foreign Subsidiaries.
6.16 USE OF PROCEEDS.
The proceeds of the Loans hereunder will be used solely for the
purposes specified in Section 7.11. No proceeds of the Loans hereunder have been
or will be used (a) to acquire, directly or indirectly, any security in any
transaction which is subject to Sections 13 or 14 of the Securities Exchange Act
of 1934, as amended, (including, without limitation, Sections 13(d) and 14(d)
thereof) or to refinance any Indebtedness used to acquire any such securities or
(b) for the acquisition of another Person unless the board of directors (or
other comparable governing body) or stockholders, as appropriate, of such Person
has approved such acquisition.
6.17 GOVERNMENT REGULATION.
(a) No part of the Letters of Credit or proceeds of the Loans
will be used, directly or indirectly, for the purpose of purchasing or
carrying any "margin stock" within the meaning of Regulation U, or for
the purpose of purchasing or carrying or trading in any securities. If
requested by any Lender or the Administrative Agent, the Borrower will
furnish to the Administrative Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form U-1
referred to in Regulation U. No Indebtedness being reduced or retired
out of the proceeds of the Loans was or will be incurred for the
purpose of purchasing or carrying any margin stock within the meaning
of Regulation U or any "margin security" within the meaning of
Regulation T. "Margin stock" within the meaning of Regulation U does
not constitute more than 25% of the value of the consolidated assets of
the Credit Parties and their Subsidiaries. None of the transactions
contemplated by the Credit Documents (including, without limitation,
the direct or indirect use of the proceeds of the Loans) will violate
or result in a violation of the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, or regulations issued
pursuant thereto, or Regulation T, U or X.
(b) No Credit Party, nor any of their Subsidiaries, is subject
to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act or the Investment Company Act of 1940, each as
amended. In addition, no Credit Party, nor any of their Subsidiaries,
is (i) an "investment company" registered or required to be registered
under the Investment Company Act of 1940, as amended, and is not
controlled
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by such a company, or (ii) a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal shareholder of
any Credit Party or any of their Subsidiaries is a director, executive
officer or principal shareholder of any Lender. For the purposes hereof
the terms "director", "executive officer" and "principal shareholder"
(when used with reference to any Lender) have the respective meanings
assigned thereto in Regulation O issued by the Board of Governors of
the Federal Reserve System.
6.18 ENVIRONMENTAL MATTERS.
(a) Except as would not cause or reasonably be expected to
cause a Material Adverse Effect:
(i) Each of the Real Properties and all operations at
the Real Properties are in compliance with all applicable
Environmental Laws, and there is no violation of any
Environmental Law with respect to the Real Properties or the
businesses operated by the Credit Parties or any of their
Subsidiaries (the "BUSINESSES"), and there are no conditions
relating to the Businesses or Real Properties that would
reasonably be expected to give rise to liability under any
applicable Environmental Laws.
(ii) No Credit Party has received any written notice
of, or inquiry from any Governmental Authority regarding, any
violation, alleged violation, non-compliance, liability or
potential liability regarding Hazardous Materials or
compliance with Environmental Laws with regard to any of the
Real Properties or the Businesses, nor, to the knowledge of a
Credit Party or any of its Subsidiaries, is any such notice
being threatened.
(iii) Hazardous Materials have not been transported
or disposed of from the Real Properties, or generated,
treated, stored or disposed of at, on or under any of the Real
Properties or any other location, in each case by, or on
behalf or with the permission of, a Credit Party or any of its
Subsidiaries in a manner that would give rise to liability
under any applicable Environmental Laws.
(iv) No judicial proceeding or governmental or
administrative action is pending or, to the knowledge of a
Credit Party or any of its Subsidiaries, threatened, under any
Environmental Law to which a Credit Party or any of its
Subsidiaries is or will be named as a party, nor are there any
consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental
Law with respect to a Credit Party or any of its Subsidiaries,
the Real Properties or the Businesses.
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(v) There has been no release (including, without
limitation, disposal) or threat of release of Hazardous
Materials at or from the Real Properties, or arising from or
related to the operations of a Credit Party or any of its
Subsidiaries in connection with the Real Properties or
otherwise in connection with the Businesses where such release
constituted a violation of, or would give rise to liability
under, any applicable Environmental Laws.
(vi) None of the Real Properties contains, or has
previously contained, any Hazardous Materials at, on or under
the Real Properties in amounts or concentrations that, if
released, constitute or constituted a violation of, or could
give rise to liability under, Environmental Laws.
(vii) No Credit Party, nor any of its Subsidiaries,
has assumed any liability of any Person (other than another
Credit Party, or one of its Subsidiaries) under any
Environmental Law.
(b) The Credit Parties have adopted procedures that are
designed to (i) ensure that each Credit Party, any of its operations
and each of the properties owned or leased by each Credit Party
complies with applicable Environmental Laws and (ii) minimize any
liabilities or potential liabilities that each Credit Party, any of its
operations and each of the properties owned or leased by each Credit
Party may have under applicable Environmental Laws.
6.19 INTELLECTUAL PROPERTY.
Each Credit Party owns, or has the legal right to use, all patents,
trademarks, tradenames, copyrights, technology, know-how and processes (the
"INTELLECTUAL PROPERTY") necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal right
to use would not have or be reasonably expected to have a Material Adverse
Effect. Set forth on SCHEDULE 6.19 is a list of all patents, registered and
material unregistered trademarks, tradenames and registered copyrights owned by
each Credit Party or that any Credit Party has the right to use. Except as
provided on SCHEDULE 6.19, none of the Intellectual Property is subject to any
licensing or franchise agreement. Furthermore, except as provided on SCHEDULE
6.19, no claim been asserted against any Credit Party or its Subsidiaries in
writing and is pending by any Person challenging or questioning the use of any
Intellectual Property owned by a Credit Party or that any Credit Party has a
right to use or the validity or effectiveness of any such Intellectual Property,
nor does any Credit Party have knowledge of any such claim, and to the Credit
Parties' knowledge the use of any Intellectual Property by the Credit Parties or
any of their Subsidiaries does not infringe on the rights of any Person, except
for such claims and infringements that in the aggregate, would not have or be
reasonably expected to have a Material Adverse Effect. Maxim Industries does not
own, or have the legal right to use, any registered copyrights. SCHEDULE 6.19
may be updated from time to time by the Borrower by giving written notice
thereof to the Administrative Agent.
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6.20 SOLVENCY.
Each Credit Party is and, after consummation of the transactions
contemplated by this Credit Agreement, will be Solvent.
6.21 INVESTMENTS.
All Investments of each Credit Party and its Subsidiaries are Permitted
Investments.
6.22 LOCATION OF COLLATERAL.
Set forth on SCHEDULE 6.22(a) is a list of all Real Properties with
street address, county and state where located. Set forth on SCHEDULE 6.22(b) is
a list of all locations where any personal property of a Credit Party is
located, including county and state where located. Set forth on SCHEDULE 6.22(c)
is the chief executive office and principal place of business of each Credit
Party. SCHEDULES 6.22(a), 6.22(b) and 6.22(c) may be updated from time to time
by the Borrower by giving written notice thereof to the Administrative Agent.
6.23 DISCLOSURE.
Neither this Credit Agreement nor any financial statements delivered to
the Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any Credit Party in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein, taken as a whole, not misleading.
6.24 LICENSES, ETC.
The Credit Parties have obtained and hold in full force and effect, all
franchises, licenses, permits, certificates, authorizations, qualifications,
accreditations, easements, rights of way and other rights, consents and
approvals which are necessary for the operation of their respective businesses
as presently conducted, except where the failure to obtain same would not have a
Material Adverse Effect.
6.25 COLLATERAL DOCUMENTS.
The Collateral Documents create valid security interests in, and Liens
on, the Collateral purported to be covered thereby, which security interests and
Liens are prior to all other Liens other than Permitted Liens.
6.26 BURDENSOME RESTRICTIONS.
No Credit Party, nor any of this Subsidiaries, is a party to any
agreement or instrument or subject to any other obligation or any charter or
corporate restriction or any provision of any
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applicable law, rule or regulation which, individually or in the aggregate,
would have or be reasonably expected to have a Material Adverse Effect.
6.27 YEAR 2000 COMPLIANCE.
Each Credit Party has (i) initiated a review and assessment of
all areas within its and each of its Subsidiaries' business and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by such Credit Party or any of its Subsidiaries may be unable
to recognize and perform properly date-sensitive functions involving certain
dates prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to
date, implemented that plan in accordance with the timetable. Based on the
foregoing, each Credit Party believes that all computer applications (including
those of its suppliers, vendors and customers) that are material to its and any
of its Subsidiaries' business and operations are reasonably expected on a timely
basis to be able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000 Compliant"), except to
the extent that a failure to do so could not reasonably be expected to have
Material Adverse Effect.
6.28 LABOR CONTRACTS AND DISPUTES.
(i) There is no collective bargaining agreement or other labor contract
covering employees of any Credit Party; (ii) no union or other labor
organization is seeking to organize, or be recognized as, a collective
bargaining unit of employees of any Credit Party; (iii) there is no pending, or
to any Credit Party's knowledge, threatened, strike, work stoppage, material
unfair lease practice claim or other material labor dispute against or effecting
any Credit Party or its employees.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this
Credit Agreement is in effect and until the Loans and LOC Obligations, together
with interest and fees and other obligations then due and payable hereunder,
have been paid in full and the Commitments and Letters of Credit hereunder shall
have terminated:
7.1 INFORMATION COVENANTS.
The Credit Parties will furnish, or cause to be furnished, to the
Administrative Agent and each of the Lenders:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in
any event within 90 days after the close of each fiscal year of the
Borrower (or, with respect to fiscal year
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1999, within 7 days after the Closing Date), a consolidated and
consolidating balance sheet and income statement of the Borrower and
its Subsidiaries, as of the end of such fiscal year, together with
related consolidated and consolidating statements of operations and
retained earnings and of cash flows for such fiscal year, setting forth
in comparative form consolidated and consolidating figures for the
preceding fiscal year, all such consolidated financial information
described above to be in reasonable form and detail and audited by
independent certified public accountants of recognized national
standing reasonably acceptable to the Administrative Agent and whose
opinion shall be to the effect that such financial statements have been
prepared in accordance with GAAP (except for changes with which such
accountants concur) and shall not be limited as to the scope of the
audit or qualified in any manner.
(b) INTERIM FINANCIAL STATEMENTS.
(i) QUARTERLY FINANCIAL STATEMENTS. As soon as
available, and in any event within 45 days after the close of
each fiscal quarter of the Borrower, a consolidated and
consolidating balance sheet and income statement of the
Borrower and its Subsidiaries, as of the end of such fiscal
quarter, together with related consolidated and consolidating
statements of operations and retained earnings and of cash
flows for such fiscal quarter in each case setting forth in
comparative form consolidated and consolidating figures for
the corresponding period of the preceding fiscal year, all
such financial information described above to be in reasonable
form and detail and reasonably acceptable to the
Administrative Agent, and accompanied by a certificate of the
chief financial officer of the Borrower to the effect that
such quarterly financial statements fairly present in all
material respects the financial condition of the Borrower and
its Subsidiaries and have been prepared in accordance with
GAAP, subject to changes resulting from audit and normal
year-end audit adjustments.
(ii) MONTHLY FINANCIAL STATEMENTS. As soon as
available, and in any event within 30 days after the end of
each calendar month, a consolidated balance sheet and income
statement of the Borrower and its Subsidiaries, as of the end
of such month, in each case setting forth in comparative form
consolidated figures for the corresponding period of the
preceding fiscal year, all such financial information
described above to be in reasonable form and detail and
reasonably acceptable to the Administrative Agent, and
accompanied by a certificate of the chief financial officer of
the Borrower to the effect that such monthly financial
statements fairly present in all material respects the
financial condition of the Borrower and its Subsidiaries and
have been prepared in accordance with GAAP, subject to changes
resulting from audit and normal year-end audit adjustments.
(c) OFFICER'S CERTIFICATE. At the time of delivery of the
financial statements provided for in Sections 7.1(a) and 7.1(b)(i)
above, a certificate of an Executive Officer of the Borrower
substantially in the form of EXHIBIT 7.1(c), (i) demonstrating
compliance with the financial covenants contained in Section 7.2 by
calculation thereof as of the end of each
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such fiscal period, (ii) demonstrating compliance with any other terms
of this Credit Agreement as requested by the Administrative Agent and
(iii) stating that no Default or Event of Default exists, or if any
Default or Event of Default does exist, specifying the nature and
extent thereof and what action the Borrower proposes to take with
respect thereto.
(d) BORROWING BASE CERTIFICATE. As soon as available, and in
any event within 30 days after the end of each calendar month, a
Borrowing Base Certificate as of the last Business Day of the preceding
calendar month, substantially in the form of EXHIBIT 7.1(d) and
certified by an Executive Officer of the Borrower to be true and
correct as of the date thereof.
(e) ANNUAL BUSINESS PLAN AND BUDGETS. Prior to the end of each
fiscal year of the Borrower, an annual business plan and budget of the
Borrower and its Subsidiaries on a consolidated basis containing, among
other things, pro forma financial projections (including without
limitation, income statement, balance sheet and statement of cash
flows) for the next fiscal year.
(f) ACCOUNTANT'S CERTIFICATE. Within the period for delivery
of the annual financial statements provided in Section 7.1(a), a
certificate of the accountants conducting the annual audit stating that
they have reviewed this Credit Agreement and stating further whether,
in the course of their audit, they have become aware of any Default or
Event of Default and, if any such Default or Event of Default exists,
specifying the nature and extent thereof.
(g) AUDITOR'S REPORTS. Promptly upon receipt thereof, a copy
of any "management letter" submitted by independent accountants to the
Borrower or any of its Subsidiaries in connection with any annual,
interim or special audit of the books of the Borrower or any of its
Subsidiaries.
(h) REPORTS. Promptly upon transmission or receipt thereof,
(a) copies of any public filings and registrations with, and reports to
or from, the Securities and Exchange Commission, or any successor
agency, and copies of all financial statements, proxy statements,
notices and reports as the Borrower or any of its Subsidiaries shall
send to its shareholders generally and (b) upon the written request of
the Administrative Agent, all reports and written information to and
from the United States Environmental Protection Agency, or any state or
local agency responsible for environmental matters, the United States
Occupational Health and Safety Administration, or any state or local
agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety
matters.
(i) NOTICES. Upon an officer of a Credit Party obtaining
knowledge thereof, the Borrower will give written notice to the
Administrative Agent promptly (and in any event within two Business
Days) of (a) the occurrence of an event or condition consisting of a
Default or Event of Default, specifying the nature and existence
thereof and what action the
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Borrower proposes to take with respect thereto, and (b) the occurrence
of any of the following with respect to the Borrower or any of its
Subsidiaries: (i) the pendency or commencement of any litigation,
arbitral or governmental proceeding against a Credit Party or any of
its Subsidiaries which if adversely determined would have or would be
reasonably expected to have a Material Adverse Effect, (ii) the
institution of any proceedings against a Credit Party or any of its
Subsidiaries with respect to, or the receipt of written notice by such
Person of potential liability or responsibility for violation, or
alleged violation of any federal, state or local law, rule or
regulation, (including but not limited to, Environmental Laws) the
violation of which would have or would be reasonably expected to have a
Material Adverse Effect, or (iii) any information that a Credit Party
may have a Year 2000 Problem on or after January 1, 2000.
(j) ERISA. Upon any of the Credit Parties or any ERISA
Affiliate obtaining knowledge thereof, the Borrower will give written
notice to the Administrative Agent promptly (and in any event within
two Business Days) of: (i) any event or condition, including, but not
limited to, any Reportable Event, that constitutes, or might reasonably
lead to, a Termination Event; (ii) with respect to any Multiemployer
Plan, the receipt of notice as prescribed in ERISA or otherwise of any
withdrawal liability assessed against the Credit Parties or any of
their ERISA Affiliates, or of a determination that any Multiemployer
Plan is in reorganization or insolvent (both within the meaning of
Title IV of ERISA); (iii) the failure to make full payment on or before
the due date (including extensions) thereof of all amounts which a
Credit Party or any of its Subsidiaries or ERISA Affiliates is required
to contribute to each Plan pursuant to its terms and as required to
meet the minimum funding standard set forth in ERISA and the Code with
respect thereto; or (iv) any change in the funding status of any Plan
that could have a Material Adverse Effect; together, with a description
of any such event or condition or a copy of any such notice and a
statement by the principal financial officer of the Borrower briefly
setting forth the details regarding such event, condition, or notice,
and the action, if any, which has been or is being taken or is proposed
to be taken by the Credit Parties with respect thereto. Promptly upon
request, a Credit Party shall furnish the Administrative Agent and each
of the Lenders with such additional information concerning any Plan as
may be reasonably requested, including, but not limited to, copies of
each annual report/return (Form 5500 series), as well as all schedules
and attachments thereto required to be filed with the Department of
Labor and/or the Internal Revenue Service pursuant to ERISA and the
Code, respectively, for each "plan year" (within the meaning of Section
3(39) of ERISA).
(k) ENVIRONMENTAL.
(i) Subsequent to a notice from any Governmental
Authority where the subject matter of such notice would
reasonably cause concern, or during the existence of an Event
of Default, and upon the written request of Administrative
Agent, the Credit Parties will furnish or cause to be
furnished to the Administrative Agent, at the Credit Parties'
expense, a report of an environmental assessment of reasonable
scope, form and depth, including, where appropriate, invasive
soil or groundwater sampling, by a consultant reasonably
acceptable to the Administrative
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Agent addressing the subject of such notice or, if during the
existence of an Event of Default, regarding any release or
threat of release of Hazardous Materials on any property
owned, leased or operated by a Credit Party and the compliance
by the Credit Parties with Environmental Laws. If the Credit
Parties fail to deliver such an environmental report within
sixty (60) days after receipt of such written request, then
the Administrative Agent may arrange for same, and the Credit
Parties hereby grant to the Administrative Agent and its
representatives access to the Real Properties and a license of
a scope reasonably necessary to undertake such an assessment
(including, where appropriate, invasive soil or groundwater
sampling). The reasonable cost of any assessment arranged for
by the Administrative Agent pursuant to this provision will be
payable by the Credit Parties on demand and added to the
obligations secured by the Collateral Documents.
(ii) Each Credit Party will conduct and complete all
investigations, studies, sampling, and testing and all
remedial, removal, and other actions necessary to address all
Hazardous Materials on, from, or affecting any real property
owned or leased by a Credit Party to the extent necessary to
be in compliance with all Environmental Laws and all other
applicable federal, state, and local laws, regulations, rules
and policies and with the orders and directives of all
Governmental Authorities exercising jurisdiction over such
real property to the extent any failure would have or be
reasonably expected to have a Material Adverse Effect.
(l) OTHER INFORMATION. With reasonable promptness upon any
such request, such other information regarding the business, properties
or financial condition of the Credit Parties and their Subsidiaries as
the Administrative Agent may reasonably request.
7.2 FINANCIAL COVENANTS.
(a) FIXED CHARGE COVERAGE RATIO. The Fixed Charge Coverage
Ratio, measured as of the last day of each fiscal quarter of the Credit
Parties, shall be greater than or equal to:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Fixed Charge Coverage Ratio
--------------------- -------------------------------------
<S> <C>
4/30/99 greater than or equal to 1.05 to 1.00
7/31/99 greater than or equal to 1.10 to 1.00
10/31/99 greater than or equal to 1.15 to 1.00
1/31/00 greater than or equal to 1.20 to 1.00
4/30/00 and thereafter greater than or equal to 1.25 to 1.00
</TABLE>
The Fixed Charge Coverage Ratio shall be calculated as
follows:
(i) As of the last day of the fiscal quarter ending
April 30, 1999, the Fixed Charge Coverage Ratio shall be based
on the ratio of (A) EBITDAR for the
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one fiscal-quarter period then ended to (B) Fixed Charges for
the one fiscal-quarter period then ended;
(ii) As of the last day of the fiscal quarter ending
July 31, 1999, the Fixed Charge Coverage Ratio shall be based
on the ratio of (A) EBITDAR for the two fiscal-quarter period
then ended to (B) Fixed Charges for the two fiscal-quarter
period then ended;
(iii) As of the last day of the fiscal quarter ending
October 31, 1999, the Fixed Charge Coverage Ratio shall be
based on the ratio of (A) EBITDAR for the three fiscal-quarter
period then ended to (B) Fixed Charges for the three
fiscal-quarter period then ended; and
(iv) As of the last day of the fiscal quarter ending
January 31, 2000 and each fiscal quarter thereafter, the Fixed
Charge Coverage Ratio shall be based on the ratio of (A)
EBITDAR for the four fiscal-quarter period then ended to (B)
Fixed Charges for the four fiscal-quarter period then ended.
(b) ADJUSTED SENIOR DEBT RATIO. The Adjusted Senior Debt
Ratio, measured as of the last day of each fiscal quarter of the Credit
Parties, shall be less than or equal to:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Adjusted Senior Debt Ratio
--------------------- ----------------------------------
<S> <C>
4/30/99 less than or equal to 6.25 to 1.00
7/31/99 less than or equal to 5.50 to 1.00
10/31/99 less than or equal to 5.00 to 1.00
1/31/00 less than or equal to 4.90 to 1.00
4/30/00 less than or equal to 4.50 to 1.00
7/31/00 and thereafter less than or equal to 4.25 to 1.00
</TABLE>
The Adjusted Senior Debt Ratio shall be calculated as follows:
(i) As of the last day of the fiscal quarter ending
April 30, 1999, the Adjusted Senior Debt Ratio shall be based
on the ratio of (A) Total Senior Debt as of the last day of
such fiscal quarter PLUS ((Adjusted Rent Expense for the one
fiscal-quarter period then ended) MULTIPLIED BY 4) to (B)
(EBITDAR for the one fiscal-quarter period then ended)
MULTIPLIED BY 4;
(ii) As of the last day of the fiscal quarter ending
July 31, 1999, the Adjusted Senior Debt Ratio shall be based
on the ratio of (A) Total Senior Debt as of the last day of
such fiscal quarter PLUS ((Adjusted Rent Expense for the two
fiscal-quarter period then ended) MULTIPLIED BY 2) to (B)
(EBITDAR for the two fiscal-quarter period then ended)
MULTIPLIED BY 2;
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(iii) As of the last day of the fiscal quarter ending
October 31, 1999, the Adjusted Senior Debt Ratio shall be
based on the ratio of (A) Total Senior Debt as of the last day
of such fiscal quarter PLUS ((Adjusted Rent Expense for the
three fiscal-quarter period then ended) MULTIPLIED BY 1.33) to
(B) (EBITDAR for the three fiscal-quarter period then ended)
MULTIPLIED BY 1.33; and
(iv) As of the last day of the fiscal quarter ending
January 31, 2000 and each fiscal quarter thereafter, the
Adjusted Senior Debt Ratio shall be based on the ratio of (A)
Total Senior Debt as of the last day of such fiscal quarter
PLUS Adjusted Rent Expense for the four fiscal-quarter period
then ended to (B) EBITDAR for the four fiscal-quarter period
then ended.
(c) TOTAL DEBT TO CAPITALIZATION RATIO. The Total Debt to
Capitalization Ratio shall at all times be less than 0.45 to 1.00.
(d) NET WORTH. As of the last day of each fiscal quarter of
the Credit Parties, the Net Worth shall be greater than or equal to the
sum of (i) $165 million PLUS (ii) 50% of the cumulative Net Income
(without deduction for losses) earned for each completed fiscal quarter
subsequent to the Closing Date to the date of determination PLUS (iii)
100% of the amount of Net Cash Proceeds from any Equity Issuance.
(e) MINIMUM EBITDAR. As of the last day of each fiscal quarter
of the Credit Parties, EBITDAR shall be greater than or equal to:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Minimum EBITDAR
--------------------- ---------------
<S> <C>
4/30/99 $13,250,000
7/31/99 $31,000,000
10/31/99 $51,500,000
1/31/00 $67,000,000
4/30/00 and thereafter $67,500,000
</TABLE>
EBITDAR shall be calculated as follows:
(i) As of the last day of the fiscal quarter ending
April 30, 1999, EBITDAR shall be based on EBITDAR for the one
fiscal-quarter period then ended;
(ii) As of the last day of the fiscal quarter ending
July 31, 1999, EBITDAR shall be based on EBITDAR for the two
fiscal-quarter period then ended;
(iii) As of the last day of the fiscal quarter ending
October 31, 1999, EBITDAR shall be based on EBITDAR for the
three fiscal-quarter period then ended; and
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(iv) As of the last day of the fiscal quarter ending
January 31, 2000 and each fiscal quarter thereafter, EBITDAR
shall be based on EBITDAR for the four fiscal-quarter period
then ended.
7.3 PRESERVATION OF EXISTENCE AND FRANCHISES.
Each of the Credit Parties will do all things necessary to (a) preserve
and keep in full force and effect its existence and (b) take all reasonable
action to maintain all rights, franchises and authority necessary or desirable
in the normal conduct of its business, except as permitted by Section 8.4.
7.4 BOOKS AND RECORDS.
Each of the Credit Parties will, and cause its Subsidiaries to, keep
complete and accurate books and records of its transactions in accordance with
GAAP (including the establishment and maintenance of appropriate reserves).
7.5 COMPLIANCE WITH LAW.
Each of the Credit Parties will, and cause its Subsidiaries to, comply
with all material laws, rules, regulations and orders, and all applicable
material restrictions imposed by all Governmental Authorities, applicable to it
and its property (including, without limitation, Environmental Laws).
7.6 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Each of the Credit Parties will, and cause its Subsidiaries to, pay,
settle or discharge (a) all taxes, assessments and governmental charges or
levies imposed upon it, or upon its income or profits, or upon any of its
properties, before they shall become delinquent, (b) all lawful claims
(including claims for labor, materials and supplies) which, if unpaid, might
give rise to a Lien upon any of its properties, and (c) all of its other
Indebtedness as it shall become due (to the extent such repayment is not
otherwise prohibited by this Credit Agreement); PROVIDED, HOWEVER, that a Credit
Party or any of its Subsidiaries shall not be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which is being contested in good
faith by appropriate proceedings and as to which adequate reserves therefor have
been established in accordance with GAAP, unless the failure to make any such
payment (i) would give rise to an immediate right to foreclose or collect on a
Lien securing such amounts or (ii) would have or reasonably be expected to have
a Material Adverse Effect.
7.7 INSURANCE.
Each of the Credit Parties will at all times maintain in full force and
effect insurance (including worker's compensation insurance, liability
insurance, casualty insurance and business interruption insurance) in such
amounts, covering such risks and liabilities and with such deductibles or
self-insurance retentions as are in accordance with normal industry practice.
All
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policies shall have the Administrative Agent, on behalf of the Lenders, named as
an additional insured and loss payee.
In the event there occurs any material loss, damage to or destruction of the
Collateral of any Credit Party or any part thereof, such Credit Party shall
promptly give written notice thereof to the Administrative Agent generally
describing the nature and extent of such damage or destruction. Subsequent to
any loss, damage to or destruction of the Collateral of any Credit Party or any
part thereof, such Credit Party, whether or not the insurance proceeds, if any,
received on account of such damage or destruction shall be sufficient for that
purpose, at such Credit Party's cost and expense, will promptly repair or
replace the Collateral of such Credit Party so lost, damaged or destroyed;
PROVIDED, HOWEVER, that such Credit Party need not repair or replace the
Collateral of such Credit Party so lost, damaged or destroyed to the extent the
failure to make such repair or replacement (a) is desirable to the proper
conduct of the business of such Credit Party in the ordinary course and
otherwise is in the best interest of such Credit Party and (b) would not
materially impair the rights and benefits of the Administrative Agent or the
Lenders under this Credit Agreement or any other Credit Document. In the event a
Credit Party shall receive any insurance proceeds, as a result of any loss,
damage or destruction of Collateral, in a net amount in excess of $1,000,000,
such Credit Party will immediately pay over such proceeds to the Administrative
Agent as cash collateral for the Credit Party Obligations. The Administrative
Agent agrees to release such insurance proceeds to such Credit Party for
replacement or restoration of the portion of the Collateral of such Credit Party
lost, damaged or destroyed if (A) within 30 days from the date the
Administrative Agent receives such insurance proceeds, the Administrative Agent
has received written application for such release from such Credit Party
together with evidence reasonably satisfactory to it that the Collateral lost,
damaged or destroyed has been or will be replaced or restored to its condition
(or by Collateral having a value at least equal to the condition of the asset
subject to the loss, damage or destruction) immediately prior to the loss,
destruction or other event giving rise to the payment of such insurance proceeds
and (B) on the date of such release no Default or Event of Default exists. If
the conditions in the preceding sentence are not met, the Administrative Agent
may or, upon the request of the Required Lenders, shall at any time after the
first Business Day subsequent to the date 30 days after it received such
insurance proceeds, apply such insurance proceeds as a mandatory prepayment of
the Credit Party Obligations for application in accordance with the terms of
Section 3.3(b)(iii). All insurance proceeds shall be subject to the security
interest of the Lenders under the Collateral Documents.
The present insurance coverage of the Credit Parties and their Subsidiaries is
outlined as to carrier, policy number, expiration date, type and amount on
SCHEDULE 7.7. SCHEDULE 7.7 shall be amended and updated by the Credit Parties on
an at least annual basis or upon the request of the Administrative Agent.
7.8 MAINTENANCE OF PROPERTY.
Each of the Credit Parties will, and cause its Subsidiaries to,
maintain and preserve its properties and equipment in good repair, working order
and condition, normal wear and tear excepted, and will make, or cause to be
made, in such properties and equipment from time to time all repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto as
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may be needed or proper, to the extent and in the manner customary for companies
in similar businesses.
7.9 PERFORMANCE OF OBLIGATIONS.
Each of the Credit Parties will, and cause its Subsidiaries to, perform
in all material respects all of its obligations under the terms of all material
agreements, indentures, mortgages, security agreements or other debt instruments
to which it is a party or by which it is bound.
7.10 COLLATERAL.
If, subsequent to the Closing Date, a Credit Party shall (a) acquire
any patented, registered or applied for intellectual property or any securities
or (b) acquire any other personal property required to be delivered to the
Administrative Agent as Collateral hereunder or under any of the Collateral
Documents, the Borrower shall immediately notify the Administrative Agent of
same. Each Credit Party shall take such action (including, but not limited to,
the actions set forth in Sections 5.1(g) and 7.15(d)), as reasonably requested
by the Administrative Agent and at its own expense, to ensure that the
Administrative Agent has a perfected Lien in all owned personal property of the
Credit Parties as set forth in the Security Agreements and the Pledge Agreements
(whether now owned or hereafter acquired), subject only to Permitted Liens. Each
Credit Party shall adhere to the covenants regarding the location of personal
property as set forth in the Security Agreements.
7.11 USE OF PROCEEDS.
The Credit Parties will use the proceeds of the Loans solely (a) to
refinance the Indebtedness owing under the Prior Credit Agreement, (b) to
provide working capital, (c) to repurchase Securities, subject to the terms and
conditions of the Credit Documents, (d) to make Permitted Acquisitions and (e)
for general corporate purposes. The Credit Parties will use the Letters of
Credit solely for the purposes set forth in Section 2.2(a).
7.12 AUDITS/INSPECTIONS.
Upon reasonable notice and during normal business hours, each Credit
Party will permit representatives appointed by the Administrative Agent or any
Lender, including, without limitation, independent accountants, agents,
attorneys and appraisers to visit and inspect such Credit Party's property,
including its books and records, its accounts receivable and inventory, its
facilities and its other business assets, and to make photocopies or photographs
thereof and to write down and record any information such representative obtains
and shall permit the Administrative Agent or its representatives or any Lender
or its representatives to investigate and verify the accuracy of information
provided to the Lenders, including, without limitation, the performance of
collateral valuation reviews from time to time to assess the composition of the
Borrowing Base Assets, and to discuss all such matters with the officers,
employees and representatives of the Credit Parties. The Credit Parties agree
that the Administrative Agent may conduct such collateral reviews, at the Credit
Parties' expense, as it reasonably deems appropriate.
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7.13 ADDITIONAL CREDIT PARTIES.
At the time any Person becomes a Subsidiary of a Credit Party, the
Borrower shall so notify the Administrative Agent and promptly thereafter (but
in any event within 30 days after the date thereof) shall cause such Person to
(a) if it is a Domestic Subsidiary, execute a Joinder Agreement in substantially
the same form as EXHIBIT 7.13, (b) cause all of the capital stock of such Person
(if it is a Domestic Subsidiary) or 65% of the capital stock of such Person (if
it is a First Tier Foreign Subsidiary) to be delivered to the Administrative
Agent (together with undated stock powers signed in blank) and pledged to the
Administrative Agent pursuant to an appropriate pledge agreement in
substantially the form of the Pledge Agreement (or a joinder to the existing
Pledge Agreement) and otherwise in a form reasonably acceptable to the
Administrative Agent, (c) if such Person is a Domestic Subsidiary, pledge all of
its assets to the Administrative Agent pursuant to a security agreement in
substantially the form of the Security Agreement (or a joinder to the existing
Security Agreement) and otherwise in a form reasonably acceptable to the
Administrative Agent, and (d) if such Person is a Domestic Subsidiary and has
any Subsidiaries, (A) deliver all of the capital stock of such Domestic
Subsidiaries owned by it and 65% of the stock of the First Tier Foreign
Subsidiaries owned by it (together with undated stock powers signed in blank) to
the Administrative Agent and (B) execute a pledge agreement in substantially the
form of the Pledge Agreement (or a joinder to the existing Pledge Agreement) and
otherwise in a form acceptable to the Administrative Agent, (e) if such Person
is a Domestic Subsidiary and leases any real property, cause to be delivered in
a commercially reasonable manner a landlord waiver or estoppel letter with
respect thereto in a form acceptable to the Administrative Agent) and (f)
deliver such other documentation as the Administrative Agent may reasonably
request in connection with the foregoing, including, without limitation,
appropriate UCC-1 financing statements, environmental reports, landlord's
waivers, certified resolutions and other organizational and authorizing
documents of such Person and favorable opinions of counsel to such Person (which
shall cover, among other things, the legality, validity, binding effect and
enforceability of the documentation referred to above), all in form, content and
scope reasonably satisfactory to the Administrative Agent.
7.14 YEAR 2000 COMPLIANCE.
Each Credit Party will promptly notify the Administrative Agent in the
event such Credit Party discovers or determines that any computer application
that is material to its or any of its Subsidiaries' business and operations will
not be Year 2000 Compliant, except to the extent that such failure could
reasonably be expected to have a Material Adverse Effect.
7.15 POST-CLOSING REQUIREMENTS.
(a) Within 21 days after the Closing Date, the Credit Parties
shall deposit $5 million into the Cash Collateral Account, which
deposit shall be in addition to the deposit required pursuant to
Section 5.1(q).
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(b) Within 30 days after the Closing Date, the Administrative
Agent shall have completed a field examination (whether through
internal or third party appraisers or both), at the Borrower's expense,
with respect to the Borrower's accounts receivable and inventory, the
results of which demonstrate that the margined value of the Borrower's
accounts receivable and inventory, together with the value attributed
to the Executive Buildings (such value not to exceed $7 million), when
added to the amount of cash in the Cash Collateral Account is at least
equal to $112.5 million.
(c) Within 30 days after the Closing Date, the Borrower shall
deliver to the Administrative Agent (i) copies of certificates of good
standing, existence or their equivalent with respect to each Credit
Party certified as of a recent date by the appropriate Governmental
Authorities of the state or other jurisdiction of incorporation or
organization and each other jurisdiction in which the failure to so
qualify and be in good standing would have a Material Adverse Effect on
the business or operations of a Credit Party in such jurisdiction and
(ii) copies of the articles or certificates of incorporation or other
charter documents of each Credit Party certified to be true and
complete as of a recent date by the appropriate Governmental Authority
of the state or other jurisdiction of its incorporation or
organization.
(d) Within 30 days after the Closing Date, the Borrower shall
deliver to the Administrative Agent the following:
(i) searches of Uniform Commercial Code ("UCC")
filings in the jurisdiction of the chief executive office of
each New Subsidiary (and each other Credit Party which the
Administrative Agent deems appropriate) and each jurisdiction
where any Collateral is located or where a filing would need
to be made (and has not previously been made) in order to
perfect the Administrative Agent's security interest in the
Collateral, copies of the financing statements on file in such
jurisdictions, evidence that no Liens exist other than
Permitted Liens and such payoff letters and UCC termination
statements as required by the Administrative Agent in
connection with such UCC search results;
(ii) duly executed UCC financing statements (or
amendments to UCC financing statements) for each appropriate
jurisdiction as is necessary, in the Administrative Agent's
sole discretion, to perfect the Administrative Agent's
security interest in the Collateral;
(iii) searches of ownership of the intellectual
property of each New Subsidiary (and each other Credit Party
which the Administrative Agent deems appropriate) in the
appropriate governmental offices as requested by the
Administrative Agent and such patent, trademark and copyright
filings as requested by the Administrative Agent in connection
therewith;
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(iv) evidence of the transfer of all assets of Maxim
Industries (other than immaterial assets not to exceed $1000
in the aggregate) to a Credit Party, such evidence to be in
form and substance satisfactory to the Administrative Agent;
(v) copies of insurance policies or certificates of
insurance of the New Subsidiaries evidencing liability and
casualty insurance meeting the requirements set forth in the
Credit Documents, including, but not limited to, naming the
Administrative Agent as additional insured or loss payee on
behalf of the Lenders;
(vi) to the extent not previously delivered to the
Administrative Agent, evidence of any merger of a Credit Party
under the Prior Credit Agreement with and into another Credit
Party under the Prior Credit Agreement, in form and substance
satisfactory to the Administrative Agent;
(vii) with respect to each leased location of a
Credit Party (i) on which such Credit Party maintains in
excess of $400,000 of inventory and (ii) for which the
Administrative Agent in its sole discretion determines that a
landlord consent is required, receipt by the Administrative
Agent of a landlord consent from the respective landlord in
form and substance satisfactory to the Administrative Agent;
and
(viii) all original executed note receivables owing
to a Credit Party, together with duly executed allonges, in
form and substance acceptable to the Administrative Agent,
attached thereto.
(e) Within 30 days after the Closing Date (or such later date
as the Administrative Agent may agree), the Borrower shall deliver to
the Administrative Agent, with respect to the Real Property on which
each of the Executive Buildings is located, (i) a deed to secure debt
and security agreement executed by the Borrower in favor of the
Administrative Agent, in form and substance satisfactory to the
Administrative Agent, (ii) duly executed UCC fixture financing
statements for each appropriate jurisdiction as is necessary, in the
Administrative Agent's sole discretion, to perfect the Administrative
Agent's security interest in the Collateral described therein, (iii) an
opinion of counsel to the Borrower in form and substance satisfactory
to the Administrative Agent, (iv) a mortgagee title policy, in form and
substance satisfactory to the Administrative Agent, together with such
title endorsements as the Administrative Agent may require, (v) an
appraiser from a qualified appraiser satisfactory to the Administrative
Agent, (vi) an environmental site assessment from an environmental
consultant satisfactory to the Administrative Agent, (viii) an ALTA
survey, in form and substance satisfactory to the Administrative Agent
and (ix) such other real estate collateral documentation as the
Administrative Agent may require.
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SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this
Credit Agreement is in effect and until the Loans and LOC Obligations, together
with interest, fees and other obligations then due and payable hereunder, have
been paid in full and the Commitments and Letters of Credit hereunder shall have
terminated:
8.1 INDEBTEDNESS.
No Credit Party will, nor will it permit any of its Subsidiaries to,
contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the
other Credit Documents;
(b) Indebtedness existing as of the Closing Date as referenced
in Section 6.10 (and renewals, refinancings, replacements or extensions
thereof on terms and conditions no more favorable, in the aggregate, to
such creditor than such existing Indebtedness and in a principal amount
not in excess of that outstanding as of the date of such renewal,
refinancing, replacement or extension);
(c) Indebtedness in respect of current accounts payable and
accrued expenses incurred in the ordinary course of business and to the
extent not current, accounts payable and accrued expenses that are
subject to bona fide dispute;
(d) Indebtedness owing by a Credit Party to another Credit
Party;
(e) purchase money Indebtedness (including obligations in
respect of Capital Leases or Synthetic Leases) to finance the purchase
of fixed assets (including equipment); PROVIDED that (i) the total of
all such Indebtedness (including any such Indebtedness referred to in
subsection (b) above) for all such Persons taken together shall not
exceed at any one time outstanding the sum of (A) an aggregate
principal amount of $7,500,000 PLUS (B) the principal amount of
Indebtedness outstanding under the Participation Agreement and
Operative Agreements; (ii) such Indebtedness when incurred shall not
exceed the purchase price of the asset(s) financed; and (iii) no such
Indebtedness shall be refinanced for a principal amount in excess of
the principal balance outstanding thereon at the time of such
refinancing;
(f) Indebtedness assumed or seller debt incurred in connection
with Permitted Acquisitions permitted by Section 8.7 (so long as such
Indebtedness assumed or incurred in connection with a Permitted
Acquisition was not assumed or incurred in anticipation of the
respective Permitted Acquisition);
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(g) Indebtedness arising from Hedging Agreements entered into
in the ordinary course of business and not for speculative purposes;
(h) the Subordinated Debt;
(i) Indebtedness up to $10,000,000 under the Participation
Agreement and the Operative Agreements (as defined in the Participation
Agreement);
(j) Indebtedness up to $11,927,000 under the Shaw Promissory
Note; and
(k) other unsecured Indebtedness up to $2,000,000, in the
aggregate, at any one time outstanding.
8.2 LIENS.
No Credit Party will, nor will it permit its Subsidiaries to, contract,
create, incur, assume or permit to exist any Lien with respect to any of its
property or assets of any kind (whether real or personal, tangible or
intangible), whether now owned or after acquired, except for Permitted Liens.
8.3 NATURE OF BUSINESS.
No Credit Party will, nor will it permit its Subsidiaries to, alter the
character of its business from that conducted as of the Effective Date or engage
in any business other than the business conducted as of the Effective Date and
activities which are substantially similar or related thereto or logical
extensions thereof.
8.4 CONSOLIDATION AND MERGER.
No Credit Party will, nor will it permit any Subsidiary to, enter into
any transaction of merger or consolidation or liquidate, wind up or dissolve
itself; provided that any Credit Party may merge or consolidate with or into
another Credit Party, if the following conditions are satisfied:
(a) the Administrative Agent is given prior written notice of
such action;
(b) the Person formed by such consolidation or into which a
Credit Party is merged shall either (A) be such Credit Party or (B) be
a Domestic Subsidiary of such Credit Party and expressly assume in
writing all of the obligations of such Credit Party under the Credit
Documents; provided that if the transaction is between the Borrower and
another Person, the Borrower must be the surviving entity;
(c) the Credit Parties execute and deliver such documents,
instruments and certificates as the Administrative Agent may request
(including, if necessary, to maintain its perfection and priority in
the Collateral pledged pursuant to the Collateral Documents);
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(d) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and
(e) the Borrower delivers to the Administrative Agent an
officer's certificate demonstrating compliance with clause (b) or (c)
above, as applicable, and an opinion of counsel stating that such
consolidation or merger and any written agreement entered into in
connection therewith, comply with this Section 8.4.
8.5 SALE OR LEASE OF ASSETS.
No Credit Party will, nor will it permit its Subsidiaries to, convey,
sell, lease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business or assets whether now owned or
hereafter acquired, including, without limitation, inventory, receivables,
equipment, real property interests (whether owned or leasehold), and securities,
other than (a) any inventory sold or otherwise disposed of in the ordinary
course of business; (b) the sale, lease, transfer or other disposal by a Credit
Party (other than the Borrower) of any or all of its assets to another Credit
Party; (c) obsolete, slow-moving, idle or worn-out assets no longer used or
useful in its business or the trade in of equipment for equipment in better
condition or of better quality; (d) the transfer of assets which constitute a
Permitted Investment; (e) the lease or sublease of real property interests in
the ordinary course of business; (f) accounts receivable and related rights and
interests sold to GE Capital pursuant to the terms of the GE Capital Dealer
Agreement; (g) leases related to vans for MaxCare franchises not to exceed
$3,500,000, in the aggregate, during the term of this Credit Agreement and (g)
other sales of assets not to exceed $2,500,000, in the aggregate, during the
term of this Credit Agreement in connection with the closing and liquidation of
retail stores.
Upon a sale of assets permitted by this Section 8.5, the Administrative
Agent shall promptly deliver to the Borrower, upon the Borrower's request and at
the Borrower's expense, such documentation as is reasonably necessary to
evidence the release of the Administrative Agent's security interest in such
assets, including, without limitation, amendments or terminations of UCC
financing statements.
8.6 SALE LEASEBACKS.
No Credit Party will, nor will it permit its Subsidiaries to, directly
or indirectly become or remain liable as lessee or as guarantor or other surety
with respect to any lease of any property (whether real or personal or mixed),
whether now owned or hereafter acquired, (a) which such Credit Party or its
Subsidiary has sold or transferred or is to sell or transfer to any other Person
other than another Credit Party or (b) which such Credit Party or its Subsidiary
intends to use for substantially the same purpose as any other property which
has been sold or is to be sold or transferred by such Credit Party to any Person
in connection with such lease.
8.7 ADVANCES, INVESTMENTS AND LOANS.
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No Credit Party will, nor will it permit its Subsidiaries to, make any
Investments except for Permitted Investments.
8.8 RESTRICTED PAYMENTS.
No Credit Party will, nor will it permit its Subsidiaries to, directly
or indirectly, (a) declare or pay any dividends or make any other distribution
upon any shares of its capital stock of any class other than payment of
dividends by any Subsidiary of the Borrower to its parent or (b) purchase,
redeem or otherwise acquire or retire or make any provisions for redemption,
acquisition or retirement of any shares of its capital stock of any class or any
warrants or options to purchase any such shares other than the purchase of
shares by the Borrower permitted pursuant to clause (h) of the definition of
Permitted Investments;
8.9 TRANSACTIONS WITH AFFILIATES.
No Credit Party will, nor will it permit its Subsidiaries to, enter
into any transaction or series of transactions, whether or not in the ordinary
course of business, with any officer, director, shareholder, Subsidiary or
Affiliate other than on terms and conditions substantially as favorable as would
be obtainable in a comparable arm's-length transaction with a Person other than
an officer, director, shareholder, Subsidiary or Affiliate.
8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS.
No Credit Party will, nor will it permit its Subsidiaries to, (a)
change its fiscal year or (b) in any manner that would reasonably be likely to
adversely affect the rights of the Lenders, change its articles or certificate
of incorporation or its bylaws.
8.11 NO LIMITATIONS.
No Credit Party will, nor will it permit its Subsidiaries to, directly
or indirectly, create or otherwise cause, incur, assume, suffer or permit to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Person to (a) pay dividends or make any other
distribution on any of such Person's capital stock, (b) pay any Indebtedness
owed to any other Credit Party, (c) make loans or advances to any other Credit
Party or (d) transfer any of its property to any other Credit Party, except for
encumbrances or restrictions existing under or by reason of (i) customary
non-assignment or net worth provisions in any lease governing a leasehold
interest, (ii) any agreement or other instrument of a Person existing at the
time it becomes a Subsidiary of a Credit Party; PROVIDED that such encumbrance
or restriction is not applicable to any other Person, or any property of any
other Person, other than such Person becoming a Subsidiary of a Credit Party and
was not entered into in contemplation of such Person becoming a Subsidiary of a
Credit Party, (iii) this Credit Agreement and the other Credit Documents and
(iv) the Indenture.
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8.12 NO OTHER NEGATIVE PLEDGES.
No Credit Party will, nor will it permit its Subsidiaries to, enter
into, assume or become subject to any agreement prohibiting or otherwise
restricting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired, or requiring the grant of any
security for such obligation if security is given for some other obligation
except as set forth in (a) the Credit Documents and (b) the Indenture.
8.13 LIMITATION ON FOREIGN OPERATIONS.
The Credit Parties will not, nor will they permit any of their
Subsidiaries to, allow the Foreign Subsidiaries to have assets which in the
aggregate constitute more than 5% of Total Assets at any time.
8.14 CAPITAL EXPENDITURES.
The Credit Parties shall not make Capital Expenditures of more than
$30,000,000 in the aggregate in any fiscal year of the Borrower.
8.15 PREPAYMENTS OF INDEBTEDNESS.
No Credit Party will, nor will it permit any of its Subsidiaries to,
(a) amend or modify (or permit the amendment or modification of) any of the
terms of any Indebtedness if such amendment or modification would add or change
any terms in a manner adverse to the Lenders, including but not limited to,
shortening final maturity or average life to maturity of such Indebtedness or
requiring any payment to be made sooner than originally scheduled or increasing
the interest rate applicable thereto or change any subordination provision
thereof, (b) during the existence of a Default or Event of Default, or if a
Default or Event of Default would be caused as a result thereof, make (or give
any notice with respect thereto) any voluntary or optional payment or prepayment
or redemption or acquisition for value of (including, without limitation, by way
of depositing money or securities with the trustee with respect thereto before
due for the purpose of paying when due), refund, refinance or exchange of any
other Indebtedness.
8.16 SUBORDINATED DEBT.
No Credit Party will (a) make or offer to make any principal payments
with respect to the Subordinated Debt, (b) redeem or offer to redeem any of the
Subordinated Debt, or (c) deposit any funds intended to discharge or defease any
or all of the Subordinated Debt; PROVIDED, HOWEVER, (i) the Borrower may
repurchase portions of the Subordinated Debt (each a "SUBORDINATED DEBT
PREPAYMENT") so long as (A) no Default or Event of Default, or Event of Default
(as defined in the Indenture) (including, without limitation, the Indenture
Default), shall have occurred and be continuing or would result from such
Subordinated Debt Prepayment, (B) with respect to the repurchase of any
Securities, the purchase price for any Security shall not exceed 110% of the
principal amount of such Security and (C) the repurchase by the Borrower of the
Subordinated Debt (including, without limitation, the purchase of 4,000,000
Series B
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Securities for the aggregate purchase price of $4,128,000 on March 9, 1999 and
March 16, 1999), together with the aggregate amount of all Stock Repurchases,
shall not exceed $15,000,000 in the aggregate during the term of this Credit
Agreement (such amount to include any accrued interest, premiums or penalties
associated therewith); provided that the aggregate amount of Subordinated Debt
Prepayments (including, without limitation, the purchase of 4,000,000 Series B
Securities for the aggregate purchase price of $4,128,000 on March 9, 1999 and
March 16, 1999) plus the aggregate amount of Stock Repurchases may exceed
$15,000,000 (which shall be considered a Repurchase Event) if (x) Lenders whose
aggregate Credit Exposure (as defined in, and subject to the terms of, the
definition of Required Lenders) constitutes more than 70% of the Credit Exposure
of all Lenders at such time consent to such excess prepayment or repurchase, (y)
the Applicable Percentages for Loans and the Standby Letter of Credit Fees are
increased in accordance with the terms of the definition of Applicable
Percentage and (z) the Repurchase Event Fee is paid to the Administrative Agent,
on behalf of the Lenders, and (ii) upon the occurrence of an Acceleration Event,
the Borrower may repurchase portions of the Subordinated Debt at a price not to
exceed 100% of par so long as (A) no Default or Event of Default, or Event of
Default (as defined in the Indenture) other than the Indenture Default, shall
have occurred and be continuing or would result from such Subordinated Debt
Payment, (B) the Acceleration Event Fee is paid to the Administrative Agent, on
behalf of the Lenders, (C) the Borrower shall have delivered to the
Administrative Agent a certificate of Executive Officer, in form and substance
satisfactory to the Administrative Agent, (x) certifying that no Default or
Event of Default, or Event of Default (as defined in the Indenture) other than
the Indenture Default, has occurred and is continuing or would result from such
Subordinated Debt Payment, (y) demonstrating that after giving effect to such
repurchase on a pro forma basis, as if such repurchase had occurred on the first
day of the twelve month period ending on the last day of the Borrower's most
recently completed fiscal quarter, the Credit Parties would have been in
compliance with all the financial covenants set forth in Section 7.2 and (z)
certifying that after giving effect to such repurchase, the sum of the aggregate
amount of Revolving Loans outstanding plus the aggregate amount of LOC
Obligations outstanding plus the aggregate amount of Synthetic Lease Obligations
outstanding shall be less than the sum of (1) the lesser of (a) the Revolving
Committed Amount and (b) the Borrowing Base Assets MINUS (2) $5 million. The
Subordinated Debt may not be amended or modified in any material manner without
the prior written consent of the Required Lenders.
8.17 LIMITATION ON STORE OPENINGS.
The Credit Parties will not, nor will they permit their Subsidiaries
to, open or start up, in the aggregate, more than (a) fifteen (15) new stores in
the fiscal year 2000 of the Borrower and (b) twenty-five (25) new stores in any
fiscal year of the Borrower thereafter.
8.18 LIMITATION ON FEES AND EXPENSES.
The fees and expenses of the Credit Parties in connection with curing
or obtaining a waiver of the Indenture Default shall not exceed $5 million in
the aggregate.
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SECTION 9
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall exist upon the occurrence, and during the
continuance, of any of the following specified events (each an "EVENT OF
DEFAULT"):
(a) PAYMENT. Any Credit Party shall default in the payment (i)
when due of any principal of any of the Loans or any reimbursement
obligation arising from drawings under Letters of Credit or (ii) within
three Business Days of when due of any interest on the Loans or any
fees or other amounts owing hereunder, under any of the other Credit
Documents or in connection herewith.
(b) REPRESENTATIONS. Any representation, warranty or statement
made or deemed to be made by any Credit Party herein, in any of the
other Credit Documents, or in any statement or certificate delivered or
required to be delivered pursuant hereto or thereto shall prove untrue
in any material respect on the date as of which it was made or deemed
to have been made.
(c) COVENANTS. Any Credit Party shall:
(i) default in the due performance or observance of
any term, covenant or agreement contained in Sections 7.2,
7.3, 7.5, 7.11, 7.12, or 8.1 through 8.18 inclusive;
(ii) default in the due performance or observance by
it of any term, covenant or agreement contained in Sections
7.1 and such default shall continue unremedied for a period of
five Business Days;
(iii) default in the due performance or observance by
it of any term, covenant or agreement (other than those
referred to in subsections (a), (b) or (c)(i) or (ii) of this
Section 9.1) contained in this Credit Agreement and such
default shall continue unremedied for a period of at least 30
days after the earlier of a Credit Party becoming aware of
such default or notice thereof given by the Administrative
Agent.
(d) OTHER CREDIT DOCUMENTS. (i) Any Credit Party shall default
in the due performance or observance of any term, covenant or agreement
in any of the other Credit Documents and such default shall continue
unremedied for a period of at least 30 days after the earlier of a
Credit Party becoming aware of such default or notice thereof given by
the Administrative Agent, or (ii) any Credit Document shall fail to be
in full force and effect or any Credit Party shall so assert or any
Credit Document shall fail to give the Administrative
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Agent and/or the Lenders the security interests, liens, rights, powers
and privileges purported to be created thereby.
(e) GUARANTIES. The guaranty given by the Credit Parties
hereunder or by any Additional Credit Party hereafter or any provision
thereof shall cease to be in full force and effect, or any guarantor
thereunder or any Person acting by or on behalf of such guarantor shall
deny or disaffirm such Guarantor's obligations under such guaranty.
(f) BANKRUPTCY, ETC. The occurrence of any of the following:
(i) a court or governmental agency having jurisdiction in the premises
shall enter a decree or order for relief in respect of any Credit Party
or any of its Subsidiaries in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
or appoint a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of any Credit Party or any of its
Subsidiaries or for any substantial part of its property or ordering
the winding up or liquidation of its affairs; or (ii) an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect is commenced against any Credit Party or any
of its Subsidiaries and such petition remains unstayed and in effect
for a period of 60 consecutive days; or (iii) any Credit Party or any
of its Subsidiaries shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of such Person or any
substantial part of its property or make any general assignment for the
benefit of creditors; or (iv) any Credit Party or any of its
Subsidiaries shall admit in writing its inability to pay its debts
generally as they become due or any action shall be taken by such
Person in furtherance of any of the aforesaid purposes.
(g) DEFAULTS UNDER OTHER AGREEMENTS.
(i) Except for the Indenture Default, a Credit Party
or any of its Subsidiaries shall default in the due
performance or observance (beyond the applicable grace period
with respect thereto) of any material obligation or condition
of any contract or lease to which it is a party; or
(ii) With respect to any Indebtedness in excess of
$2,000,000 (other than Indebtedness outstanding under this
Credit Agreement) of a Credit Party or any of their
Subsidiaries (i) such Person shall (A) default in any payment
(beyond the applicable grace period with respect thereto, if
any) with respect to any such Indebtedness, or (B) except for
the Indenture Default, default (after giving effect to any
applicable grace period) in the observance or performance
relating to such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any
other event or condition shall occur or condition exist, the
effect of which default or other event or condition is to
cause, or permit, the holder or holders of such Indebtedness
(or trustee or agent on behalf of such holders) to cause
(determined without regard to whether any notice or lapse of
time is required)
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any such Indebtedness to become due prior to its stated
maturity; or (ii) any such Indebtedness shall be declared due
and payable, or required to be prepaid other than by a
regularly scheduled required prepayment prior to the stated
maturity thereof; or (iii) any such Indebtedness shall mature
and remain unpaid.
(h) JUDGMENTS. One or more judgments, orders, or decrees shall
be entered against any one or more of the Credit Parties and its
Subsidiaries involving a liability of $2,000,000 or more, in the
aggregate, (to the extent not paid or covered by insurance provided by
a carrier who has acknowledged coverage) and such judgments, orders or
decrees (i) are the subject of any enforcement proceeding commenced by
any creditor or (ii) shall continue unsatisfied, undischarged and
unstayed for a period ending on the first to occur of (A) the last day
on which such judgment, order or decree becomes final and unappealable
or (B) 60 days.
(i) ERISA. The occurrence of any of the following events or
conditions: (A) any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA and Section 412 of the Code, whether or
not waived, shall exist with respect to any Plan, or any lien shall
arise on the assets of any Credit Party or any ERISA Affiliate in favor
of the PBGC or a Plan; (B) a Termination Event shall occur with respect
to a Single Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in the termination of such Plan
for purposes of Title IV of ERISA; (C) a Termination Event shall occur
with respect to a Multiemployer Plan or Multiple Employer Plan, which
is, in the reasonable opinion of the Administrative Agent, likely to
result in (i) the termination of such Plan for purposes of Title IV of
ERISA, or (ii) any Credit Party or any ERISA Affiliate incurring any
liability in connection with a withdrawal from, reorganization of
(within the meaning of Section 4241 of ERISA), or insolvency (within
the meaning of Section 4245 of ERISA) of such Plan; or (D) any
prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) or breach of fiduciary responsibility shall
occur which may subject any Credit Party or any ERISA Affiliate to any
liability under Sections 406, 409, 502(i), or 502(l) of ERISA or
Section 4975 of the Code, or under any agreement or other instrument
pursuant to which any Credit Party or any ERISA Affiliate has agreed or
is required to indemnify any person against any such liability.
(j) OWNERSHIP. There shall occur a Change of Control.
(k) SYNTHETIC LEASE. There shall occur an Event of Default (as
defined in the Participation Agreement) under the Participation
Agreement.
(l) SUBORDINATED DEBT. Any holder of the Subordinated Debt
alleges in writing (or any Governmental Authority with applicable
jurisdiction determines) (i) that the Lenders are not holders of Senior
Indebtedness (as defined in the Indenture) or (ii) the subordinated
provisions in the Indenture shall, in whole or part, terminate, cease
to be effective or cease to be legally valid, binding and enforceable
against any holder of the Subordinated Debt.
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(m) DEFAULT ON SUBORDINATED DEBT. There shall occur (i) (other
than the Indenture Default) an Event of Default (as defined in the
Indenture) under the Indenture or (ii) a Change of Control (as defined
in the Indenture) under the Indenture.
(n) SHAW PROMISSORY NOTE. There shall occur a default or event
of default under the Shaw Promissory Note.
(o) INDENTURE DEFAULT. The failure of the Credit Parties to
receive a written waiver of the Indenture Default in form and substance
satisfactory to the Administrative Agent on or before February 1, 2000.
(p) ACTION BY SUBORDINATED DEBT HOLDERS. The holders of the
Subordinated Debt or any Person acting on behalf of the holders of the
Subordinated Debt shall take any remedial action (whether affirmative
or by omission) with respect to the Indenture Default (other than the
waiver thereof), including but not limited to, acceleration of the
Subordinated Debt, written demand with respect to the Subordinated Debt
or the pursuit of any assets of the Credit Parties in connection
therewith.
9.2 ACCELERATION; REMEDIES.
Upon the occurrence, and during the continuance, of an Event of
Default, and at any time thereafter unless and until such Event of Default has
been waived in writing by the Required Lenders (or the Lenders as may be
required hereunder), the Administrative Agent shall, upon the request and
direction of the Required Lenders, by written notice to the Borrower, take the
following actions without prejudice to the rights of the Administrative Agent or
any Lender to enforce its claims against the Credit Parties, except as otherwise
specifically provided for herein:
(a) TERMINATION OF COMMITMENTS. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(b) ACCELERATION OF LOANS. Declare the unpaid principal of and
any accrued interest in respect of all Loans, any reimbursement
obligations arising from drawings under Letters of Credit and any and
all other indebtedness or obligations of any and every kind owing by a
Credit Party to any of the Lenders hereunder to be due whereupon the
same shall be immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Credit Parties.
(c) CASH COLLATERAL. Direct the Borrower to pay (and the
Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default under Section 9.1(f), it will
immediately pay) to the Administrative Agent additional cash, to be
held by the Administrative Agent, for the benefit of the Lenders, in a
cash collateral account as additional security for the LOC Obligations
in respect of subsequent drawings under all then outstanding Letters of
Credit in an amount equal to the maximum aggregate amount which may be
drawn under all Letters of Credits then outstanding.
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(d) ENFORCEMENT OF RIGHTS. Enforce any and all rights and
interests created and existing under the Credit Documents, including,
without limitation, all rights and remedies existing under the
Collateral Documents, all rights and remedies against a Guarantor and
all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations under Letters of Credit, all accrued
interest in respect thereof, all accrued and unpaid fees and other indebtedness
or obligations owing to the Lenders hereunder shall immediately become due and
payable without the giving of any notice or other action by the Administrative
Agent or the Lenders, which notice or other action is expressly waived by the
Credit Parties.
Notwithstanding the fact that enforcement powers reside primarily with the
Administrative Agent, each Lender has, to the extent permitted by law, a
separate right of payment and shall be considered a separate "creditor" holding
a separate "claim" within the meaning of Section 101(5) of the Bankruptcy Code
or any other insolvency statute.
9.3 ALLOCATION OF PAYMENTS AFTER EVENT OF DEFAULT.
Notwithstanding any other provisions of this Credit Agreement, after
the occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Administrative Agent or any Lender on account of
amounts outstanding under any of the Credit Documents or in respect of the
Collateral shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs
and expenses (including without limitation reasonable attorneys' fees)
of the Administrative Agent or any of the Lenders in connection with
enforcing the rights of the Lenders under the Credit Documents and any
protective advances made by the Administrative Agent or any of the
Lenders with respect to the Collateral under or pursuant to the terms
of the Collateral Documents;
SECOND, to payment of any fees owed to the Administrative
Agent, the Issuing Lender or any Lender;
THIRD, to the payment of all accrued interest payable to the
Lenders hereunder and all other obligations which shall have become due
and payable under the Credit Documents and not repaid pursuant to
clauses "FIRST" and "SECOND" above;
FOURTH, to the payment of the outstanding principal amount of
the Loans and unreimbursed drawings under Letters of Credit, and to the
payment or cash collateralization of the outstanding LOC Obligations,
pro rata as set forth below;
FIFTH, to any principal amounts outstanding under Hedging
Agreements between a Credit Party and a Lender, pro rata, as set forth
below; and
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SIXTH, to the payment of the surplus, if any, to whoever may
be lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (b) each of the Lenders shall receive an amount equal to
its pro rata share (based on the proportion that the then outstanding Loans, LOC
Obligations and obligations under Hedging Agreements held by such Lender bears
to the aggregate then outstanding Loans, LOC Obligations and obligations under
Hedging Agreements) of amounts available to be applied; and (c) to the extent
that any amounts available for distribution pursuant to clause "FOURTH" above
are attributable to the issued but undrawn amount of outstanding Letters of
Credit, such amounts shall be held by the Administrative Agent in a cash
collateral account and applied (x) first, to reimburse the Issuing Lender from
time to time for any drawings under such Letters of Credit and (y) then,
following the expiration of all Letters of Credit, to all other obligations of
the types described in clauses "FOURTH," and "FIFTH" above in the manner
provided in this Section 9.3.
SECTION 10
AGENCY PROVISIONS
10.1 APPOINTMENT.
Each Lender hereby designates and appoints NationsBank, N.A. as
Administrative Agent of such Lender to act as specified herein and the other
Credit Documents, and each such Lender hereby authorizes the Administrative
Agent, as the agent for such Lender, to take such action on its behalf under the
provisions of this Credit Agreement and the other Credit Documents and to
exercise such powers and perform such duties as are expressly delegated by the
terms hereof and of the other Credit Documents, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere herein and in the other Credit Documents, the Administrative
Agent shall not have any duties or responsibilities, except those expressly set
forth herein and therein, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Credit Agreement or any of the other Credit
Documents, or shall otherwise exist against the Administrative Agent. The
provisions of this Section are solely for the benefit of the Administrative
Agent and the Lenders and none of the Credit Parties shall have any rights as a
third party beneficiary of the provisions hereof. In performing its functions
and duties under this Credit Agreement and the other Credit Documents, the
Administrative Agent shall act solely as the agent of the Lenders and does not
assume and shall not be deemed to have assumed any obligation or relationship of
agency or trust with or for any Credit Party.
10.2 DELEGATION OF DUTIES.
The Administrative Agent may execute any of its duties hereunder or
under the other Credit Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel
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concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3 EXCULPATORY PROVISIONS.
Neither the Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates shall be liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection herewith or in connection with any of the other Credit Documents
(except for its or such Person's own gross negligence or willful misconduct) or
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any of the Credit Parties contained herein
or in any of the other Credit Documents or in any certificate, report, document,
financial statement or other written or oral statement referred to or provided
for in, or received by the Administrative Agent under or in connection herewith
or in connection with the other Credit Documents, or enforceability or
sufficiency therefor of any of the other Credit Documents, or for any failure of
the Borrower to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Credit Agreement, or any of the other Credit Documents or
for any representations, warranties, recitals or statements made herein or
therein or made by a Borrower or any Credit Party in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent to the Lenders or by or on behalf
of the Credit Parties to the Administrative Agent or any Lender or be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or the use of the Letters of Credit
or of the existence or possible existence of any Default or Event of Default or
to inspect the properties, books or records of the Credit Parties. The
Administrative Agent is not a trustee for the Lenders and owes no fiduciary duty
to the Lenders.
10.4 RELIANCE ON COMMUNICATIONS.
The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation reasonably believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to any of the Credit Parties,
independent accountants and other experts selected by the Administrative Agent
with reasonable care). The Administrative Agent may deem and treat the Lenders
as the owner of its interests hereunder for all purposes unless a written notice
of assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent in accordance with Section 11.3(b). The Administrative
Agent shall be fully justified in failing or refusing to take any action under
this Credit Agreement or under any of the other Credit Documents unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all
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liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder or under
any of the other Credit Documents in accordance with a request of the Required
Lenders (or to the extent specifically provided in Section 11.6, all the
Lenders) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders (including their successors and
assigns).
10.5 NOTICE OF DEFAULT.
The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or a Credit Party
referring to the Credit Document, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
prompt notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders and as is permitted by the Credit Documents.
10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.
Each Lender expressly acknowledges that neither the Administrative
Agent, BASL nor any of their officers, directors, employees, agent,
attorneys-in-fact or affiliates has made any representations or warranties to it
and that no act by the Administrative Agent or any affiliate thereof hereinafter
taken, including any review of the affairs of any Credit Party, shall be deemed
to constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent and BASL that it has,
independently and without reliance upon the Administrative Agent or BASL or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Credit Parties and made its own decision to make its
Loans hereunder and enter into this Credit Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent or BASL or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Credit Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, assets, operations, property,
financial and other conditions, prospects and creditworthiness of the Credit
Parties. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent and BASL shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, assets, property, financial or other conditions, prospects or
creditworthiness of the Credit Parties which may come into the possession of the
Administrative Agent, BASL or any of their officers, directors, employees,
agents, attorneys-in-fact or affiliates.
10.7 INDEMNIFICATION.
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The Lenders agree to indemnify the Administrative Agent in its capacity
as such (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their respective
Commitments (or if the Commitments have expired or been terminated, in
accordance with the respective principal amounts of outstanding Loans and
Participation Interest of the Lenders), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following payment in full of the
Credit Party Obligations) be imposed on, incurred by or asserted against the
Administrative Agent in its capacity as such in any way relating to or arising
out of this Credit Agreement or the other Credit Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; PROVIDED
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of the Administrative Agent. If any indemnity furnished to the
Administrative Agent for any purpose shall, in the opinion of the Administrative
Agent, be insufficient or become impaired, the Administrative Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
Section shall survive the payment of the Credit Party Obligations and all other
amounts payable hereunder and under the other Credit Documents.
10.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY.
The Administrative Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with a Borrower or
any other Credit Party as though the Administrative Agent were not the
Administrative Agent hereunder. With respect to the Loans made and Letters of
Credit issued and all obligations owing to it, the Administrative Agent shall
have the same rights and powers under this Credit Agreement as any Lender and
may exercise the same as though they were not the Administrative Agent, and the
terms "Lender" and "Lenders" shall include the Administrative Agent in its
individual capacity.
10.9 SUCCESSOR ADMINISTRATIVE AGENT.
The Administrative Agent may, at any time, resign upon 20 days written
notice to the Lenders. Upon any such resignation, the Required Lenders shall
have the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 60 days after the notice of
resignation, then the retiring Administrative Agent shall select a successor
Administrative Agent, provided such successor is an Eligible Assignee. Upon the
acceptance of any appointment as the Administrative Agent hereunder by a
successor, such successor Administrative Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations as the Administrative Agent, as appropriate,
under this Credit Agreement and the other Credit Documents and the provisions of
this Section
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10.9 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was the Administrative Agent under this Credit Agreement.
SECTION 11
MISCELLANEOUS
11.1 NOTICES.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address or telecopy numbers set forth on SCHEDULE
11.1, or at such other address as such party may specify by written notice to
the other parties hereto.
11.2 RIGHT OF SET-OFF.
In addition to any rights now or hereafter granted under applicable law
or otherwise, and not by way of limitation of any such rights, upon the
occurrence of an Event of Default and the commencement of remedies described in
Section 9.2, each Lender is authorized at any time and from time to time,
without presentment, demand, protest or other notice of any kind (all of which
rights being hereby expressly waived), to set-off and to appropriate and apply
any and all deposits (general or special) and any other indebtedness at any time
held or owing by such Lender (including, without limitation, branches, agencies
or Affiliates of such Lender wherever located) to or for the credit or the
account of any Credit Party against obligations and liabilities of such Credit
Party to the Lenders hereunder, under the Notes, the other Credit Documents or
otherwise, irrespective of whether the Administrative Agent or the Lenders shall
have made any demand hereunder and although such obligations, liabilities or
claims, or any of them, may be contingent or unmatured, and any such set-off
shall be deemed to have been made immediately upon the occurrence of an Event of
Default even though such charge is made or entered on the books of such Lender
subsequent thereto. The Credit Parties hereby agree that any Person purchasing a
participation in the Loans and Commitments hereunder pursuant to Section 11.3(c)
or 3.8 may exercise all rights of set-off with respect to its participation
interest as fully as if such Person were a Lender hereunder.
11.3 BENEFIT OF AGREEMENT.
(a) GENERALLY. This Credit Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; PROVIDED that none of the Credit
Parties may assign and transfer any of its interests (except as
permitted by Section 8.4 or 8.5) without the prior written consent of
the Lenders; and
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PROVIDED FURTHER that the rights of each Lender to transfer, assign or
grant participations in its rights and/or obligations hereunder shall
be limited as set forth below in this Section 11.3.
(b) ASSIGNMENTS. Each Lender may assign to one or more
Eligible Assignees all or a portion of its rights and obligations under
this Credit Agreement (including, without limitation, all or a portion
of its Loans, its Notes, and its Commitments); PROVIDED, HOWEVER, that:
(i) each such assignment shall be to an Eligible
Assignee;
(ii) except in the case of an assignment to another
Lender or an assignment of all of a Lender's rights and
obligations under this Credit Agreement, any such partial
assignment shall be in an amount at least equal to $5,000,000
(or, if less, the remaining amount of the Commitment being
assigned by such Lender) or an integral multiple of $1,000,000
in excess thereof;
(iii) each such assignment by a Lender shall be of a
constant, and not varying, percentage of all of its rights and
obligations under this Credit Agreement and the Notes;
(iv) unless otherwise agreed to by the Borrower and
the Administrative Agent, such Lender proposing to assign a
portion of its Commitment shall be required to assign to such
Eligible Assignee (A) an identical percentage of its
Commitment (as defined in Appendix A to the Participation
Agreement) and (B) an identical percentage of its Holder
Commitment (as defined in Appendix A to the Participation
Agreement); provided that to the extent an Affiliate of any
Lender holds any portion of such Commitment or Holder
Commitment, such Lender shall cause such Affiliate to assign
to such Eligible Assignee (C) an identical percentage of its
Commitment (as defined in the Appendix A to the Participation
Agreement) and (D) an identical percentage of its Holder
Commitment (as defined in Appendix A to the Participation
Agreement);
(v) the parties to such assignment shall execute and
deliver to the Administrative Agent for its acceptance an
Assignment Agreement in substantially the form of EXHIBIT
11.3(b), together with a processing fee from the assignor of
$3,500.
Upon execution, delivery, and acceptance of such Assignment Agreement,
the assignee thereunder shall be a party hereto and, to the extent of
such assignment, have the obligations, rights, and benefits of a Lender
hereunder and the assigning Lender shall, to the extent of such
assignment, relinquish its rights and be released from its obligations
under this Credit Agreement. Upon the consummation of any assignment
pursuant to this Section 11.3(b), the assignor, the Administrative
Agent and the Borrower shall make appropriate arrangements so that, if
required, new Notes are issued to the assignor and the
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assignee. If the assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall deliver to the
Borrower and the Administrative Agent certification as to exemption
from deduction or withholding of taxes in accordance with Section 3.13.
By executing and delivering an assignment agreement in accordance with
this Section 11.3(b), the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each other and
the other parties hereto as follows: (A) such assigning Lender warrants
that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim and the assignee
warrants that it is an Eligible Assignee; (B) except as set forth in
clause (A) above, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Credit
Agreement, any of the other Credit Documents or any other instrument or
document furnished pursuant hereto or thereto, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value
of this Credit Agreement, any of the other Credit Documents or any
other instrument or document furnished pursuant hereto or thereto or
the financial condition of any Credit Party or the performance or
observance by any Credit Party of any of its obligations under this
Credit Agreement, any of the other Credit Documents or any other
instrument or document furnished pursuant hereto or thereto; (C) such
assignee represents and warrants that it is legally authorized to enter
into such assignment agreement; (D) such assignee confirms that it has
received a copy of this Credit Agreement, the other Credit Documents
and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such
assignment agreement; (E) such assignee will independently and without
reliance upon the Administrative Agent, such assigning Lender or any
other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Credit Agreement and the
other Credit Documents; (F) such assignee appoints and authorizes the
Administrative Agent to take such action on its behalf and to exercise
such powers under this Credit Agreement or any other Credit Document as
are delegated to the Administrative Agent by the terms hereof or
thereof, together with such powers as are reasonably incidental
thereto; and (G) such assignee agrees that it will perform in
accordance with their terms all the obligations which by the terms of
this Credit Agreement and the other Credit Documents are required to be
performed by it as a Lender.
(c) REGISTER. The Administrative Agent shall maintain a copy
of each Assignment Agreement delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders
and the Commitment of, and principal amount of the Loans owing to, each
Lender from time to time (the "REGISTER"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Credit Agreement. The Register shall
be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
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(d) ACCEPTANCE. Upon its receipt of an Assignment Agreement
executed by the parties thereto, together with any Note subject to such
assignment and payment of the processing fee, the Administrative Agent
shall, if such Assignment Agreement has been completed and is in
substantially the form of EXHIBIT 11.3(b) hereto, (i) accept such
Assignment Agreement, (ii) record the information contained therein in
the Register and (iii) give prompt notice thereof to the parties
thereto.
(e) PARTICIPATIONS. Each Lender may sell participations to one
or more Persons in all or a portion of its rights, obligations or
rights and obligations under this Credit Agreement (including all or a
portion of its Commitments and its Loans); PROVIDED, HOWEVER, that (i)
such Lender's obligations under this Credit Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
participant shall be entitled to the benefit of the yield protection
provisions contained in Sections 3.9 through 3.14, inclusive, and the
right of set-off contained in Section 11.2, and (iv) the Borrower shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Credit Agreement,
and such Lender shall retain the sole right to enforce the obligations
of the Borrower relating to its Loans and its Notes and to approve any
amendment, modification, or waiver of any provision of this Credit
Agreement (other than amendments, modifications, or waivers decreasing
the amount of principal of or the rate at which interest is payable on
such Loans or Notes, extending any scheduled principal payment date or
date fixed for the payment of interest on such Loans or Notes,
extending its Commitments or releasing all or substantially all of the
Collateral securing the Credit Party Obligations).
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(f) NONRESTRICTED ASSIGNMENTS. Notwithstanding any other
provision set forth in this Credit Agreement, any Lender may at any
time assign and pledge all or any portion of its Loans and its Notes to
any Federal Reserve Bank as collateral security pursuant to Regulation
A and any Operating Circular issued by such Federal Reserve Bank. No
such assignment shall release the assigning Lender from its obligations
hereunder.
(g) INFORMATION. Any Lender may furnish any information
concerning the Borrower or any of its Subsidiaries in the possession of
such Lender from time to time to assignees and participants (including
prospective assignees and participants), subject, however, to the
provisions of Section 11.16 hereof.
11.4 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of Administrative Agent or any Lender
in exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Borrower or any Credit Party and
the Administrative Agent or any Lender shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
or under any other Credit Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies provided herein are cumulative and not
exclusive of any rights or remedies which the
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Administrative Agent or any Lender would otherwise have. No notice to or demand
on any Credit Party in any case shall entitle any Credit Party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
11.5 PAYMENT OF EXPENSES; INDEMNIFICATION.
The Credit Parties agree to: (a) pay all reasonable out-of-pocket costs
and expenses of (i) the Administrative Agent and BASL in connection with (A) the
negotiation, preparation, execution and delivery and administration of this
Credit Agreement and the other Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and expenses of Moore & Van Allen, PLLC, special counsel to the
Administrative Agent), (B) any amendment, waiver or consent relating hereto and
thereto including, but not limited to, any such amendments, waivers or consents
resulting from or related to any work-out, renegotiation or restructure relating
to the performance by the Credit Parties under this Credit Agreement, and (C)
searches of the UCC and the preparation and filing of UCC financing statements
in connection with such searches subsequent to the Closing Date (including,
without limitation, the reasonable fees and expenses of Moore & Van Allen, PLLC)
and (ii) the Administrative Agent and the Lenders in connection with (A)
enforcement of the Credit Documents and the documents and instruments referred
to therein, including, without limitation, in connection with any such
enforcement, the reasonable fees and disbursements of counsel for the
Administrative Agent and each of the Lenders, and (B) any bankruptcy or
insolvency proceeding of a Credit Party of any of its Subsidiaries and (b)
indemnify the Administrative Agent, BASL and each Lender, its officers,
directors, employees, representatives and agents from and hold each of them
harmless against any and all losses, liabilities, claims, damages or expenses
incurred by any of them as a result of, or arising out of, or in any way related
to, or by reason of, any investigation, litigation or other proceeding (whether
or not the Administrative Agent, BASL or Lender is a party thereto) related to
(i) the entering into and/or performance of any Credit Document or the use of
proceeds of any Loans (including other extensions of credit) hereunder or the
consummation of any other transactions contemplated in any Credit Document,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding, (ii) any Environmental Claim, (iii) any claims for Non-Excluded
Taxes (but excluding in the case of (i), (ii) and (iii) above, any such losses,
liabilities, claims, damages or expenses to the extent incurred by reason of
gross negligence or willful misconduct on the part of the Person to be
indemnified).
11.6 AMENDMENTS, WAIVERS AND CONSENTS.
Neither this Credit Agreement nor any other Credit Document nor any of
the terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing and signed by the Required Lenders and the then Credit Parties; PROVIDED
that no such amendment, change, waiver, discharge or termination shall without
the consent of each Lender affected thereby:
(a) extend the final maturity of any Loan or of any
reimbursement obligation; or any portion thereof, arising from drawings
under Letters of Credit;
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(b) reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any
post-default increase in interest rates) thereon or fees hereunder;
(c) reduce or waive the principal amount of any Loan or of any
reimbursement obligation, or any portion thereof, arising from drawings
under Letters of Credit;
(d) increase or extend the Revolving Committed Amount, the LOC
Committed Amount or the Commitment of any Lender (it being understood
and agreed that a waiver of any Default or Event of Default or a waiver
of any mandatory reduction in the Revolving Committed Amount or the LOC
Committed Amount shall not constitute a change in the terms of the
Revolving Committed Amount, the LOC Committed Amount or the Commitment
of any Lender);
(e) release all or substantially all of the Collateral
securing the Credit Party Obligations hereunder (provided that the
Administrative Agent may, without consent from any other Lender,
release any Collateral that is sold or transferred by a Credit Party in
conformance with Section 8.5);
(f) release the Borrower from its obligations or release all
or substantially all of the other Credit Parties from their respective
obligations under the Credit Documents;
(g) amend, modify or waive any provision of this Section or
Section 3.4(a), 3.4(b), 3.4(c), 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13,
3.14, 5.2, 9.1(a), 11.2, 11.3 or 11.5;
(h) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders; or
(i) consent to the assignment or transfer by the Borrower of
any of its rights and obligations under (or in respect of) the Credit
Documents.
Notwithstanding the above, no provisions of Section 10 may be amended or
modified without the consent of the Administrative Agent, and no provisions of
Section 2.2, Section 2.3 or Section 2.4 may be amended or modified without the
consent of the Issuing Lender.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any reorganization plan that affects the Loans or the
Letters of Credit, and each Lender acknowledges that the provisions of Section
1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set
forth herein and (y) the Required Lenders may consent to allow a Credit Party to
use cash collateral in the context of a bankruptcy or insolvency proceeding.
11.7 COUNTERPARTS/TELECOPY.
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<PAGE>
This Credit Agreement may be executed in any number of counterparts,
each of which where so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. Delivery of executed
counterparts by telecopy shall be as effective as an original and shall
constitute a representation that an original will be delivered.
11.8 HEADINGS.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 DEFAULTING LENDER.
Each Lender understands and agrees that if such Lender is a Defaulting
Lender then notwithstanding the provisions of Section 11.6 it shall not be
entitled to vote on any matter requiring the consent of the Required Lenders or
to object to any matter requiring the consent of all the Lenders; provided,
however, that all other benefits and obligations under the Credit Documents
shall apply to such Defaulting Lender.
11.10 SURVIVAL OF INDEMNIFICATION AND REPRESENTATIONS AND WARRANTIES.
All indemnities set forth herein and all representations and warranties
made herein shall survive the execution and delivery of this Credit Agreement,
the making of the Loans, the issuance of the Letters of Credit and the repayment
of the Loans, LOC Obligations and other obligations and the termination of the
Commitments hereunder.
11.11 GOVERNING LAW; JURISDICTION.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF GEORGIA. Any legal action or proceeding with respect to
this Credit Agreement or any other Credit Document may be brought in
the courts of the State of North Carolina or of the United States for
the Western District of North Carolina, and, by execution and delivery
of this Credit Agreement, each Credit Party hereby irrevocably accepts
for itself and in respect of its property, generally and
unconditionally, the jurisdiction of such courts. Each Credit Party
further irrevocably consents to the service of process out of any of
the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address for notices pursuant to Section 11.1,
such service to become effective 10 days after such mailing. Nothing
herein shall affect the right of a Lender to serve process in any other
manner permitted by law or to commence legal proceedings or to
otherwise proceed against a Credit Party in any other jurisdiction.
Each Credit Party agrees that a final judgment in any action or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
98
<PAGE>
provided by law; provided that nothing in this Section 11.11(a) is
intended to impair a Credit Party's right under applicable law to
appeal or seek a stay of any judgment.
(b) Each Credit Party hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Agreement or any other Credit Document brought in the courts
referred to in subsection (a) hereof and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such
action or proceeding brought in any such court has been brought in an
inconvenient forum.
11.12 WAIVER OF JURY TRIAL.
TO THE EXTENT PERMITTED BY LAW, EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE
OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.13 TIME.
All references to time herein shall be references to Eastern Standard
Time or Eastern Daylight time, as the case may be, unless specified otherwise.
11.14 SEVERABILITY.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.15 FURTHER ASSURANCES.
The Credit Parties agree, upon the request of the Administrative Agent,
to promptly take such actions, as reasonably requested, as is necessary to carry
out the intent of this Credit Agreement and the other Credit Documents,
including, but not limited to, such actions as are necessary to ensure that the
Lenders have a perfected security interest in the Collateral subject to no Liens
other than Permitted Liens.
11.16 CONFIDENTIALITY.
Each Lender agrees that it will use its reasonable best efforts to keep
confidential and to cause any representative designated under Section 7.12 to
keep confidential any non-public information from time to time supplied to it
under any Credit Document; PROVIDED, HOWEVER, that nothing herein shall prevent
the disclosure of any such information to (a) the extent a Lender in good faith
believes such disclosure is required by Requirement of Law, (b) counsel for a
Lender or
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<PAGE>
to its accountants, (c) bank examiners or auditors or comparable Persons, (d)
any affiliate of a Lender, (e) any other Lender, or any assignee, transferee or
participant, or any potential assignee, transferee or participant, of all or any
portion of any Lender's rights under this Agreement who is notified of the
confidential nature of the information or (f) any other Person in connection
with any litigation to which any one or more of the Lenders is a party; and
PROVIDED FURTHER that no Lender shall have any obligation under this Section
11.16 to the extent any such information becomes available on a non-confidential
basis from a source other than a Credit Party or that any information becomes
publicly available other than by a breach of this Section 11.16 by any Lender or
representative thereof.
11.17 ENTIRETY.
This Credit Agreement together with the other Credit Documents and the
Fee Letter represent the entire agreement of the parties hereto and thereto, and
supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating to the Credit
Documents or the transactions contemplated herein and therein.
11.18 BINDING EFFECT; CONTINUING AGREEMENT.
(a) This Credit Agreement shall become effective at such time
when all of the conditions set forth in Section 5.1 have been satisfied
or waived by the Lenders and it shall have been executed by the
Borrower, the Guarantors and the Administrative Agent, and the
Administrative Agent shall have received copies hereof (telefaxed or
otherwise) which, when taken together, bear the signatures of each
Lender, and thereafter this Credit Agreement shall be binding upon and
inure to the benefit of the Borrower, the Guarantors, the
Administrative Agent and each Lender and their respective successors
and assigns. Upon this Credit Agreement becoming effective, the Prior
Credit Agreement shall be deemed terminated and the lenders party to
the Prior Credit Agreement shall no longer have any obligations
thereunder.
(b) This Credit Agreement shall be a continuing agreement and
shall remain in full force and effect until all Loans, LOC Obligations,
interest, fees and other Credit Party Obligations have been paid in
full and all Commitments and Letters of Credit have been terminated.
Upon termination, the Credit Parties shall have no further obligations
(other than the indemnification provisions that survive) under the
Credit Documents and the Administrative Agent shall, at the request and
expense of the Borrower, deliver all Collateral in its possession to
the Borrower and release all Liens on Collateral; provided that should
any payment, in whole or in part, of the Credit Party Obligations be
rescinded or otherwise required to be restored or returned by the
Administrative Agent or any Lender, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, then the
Credit Documents shall automatically be reinstated and all Liens of the
Lenders shall reattach to the Collateral and all amounts required to be
restored or returned and all costs and expenses incurred by the
Administrative Agent or Lender in connection therewith shall be deemed
included as part of the Credit Party Obligations.
100
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
101
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
Each of the parties hereto has caused a counterpart of this Credit
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: THE MAXIM GROUP, INC., a Delaware corporation
By: /s/ Thomas P. Leahey
----------------------------------
Name: Thomas P. Leahey
--------------------------------
Title: Executive Vice President
-------------------------------
GUARANTORS:
CARPETMAX, L.P., a Georgia limited partnership
By: The Maxim Group, Inc. as its sole general partner
By: /s/ Thomas P. Leahey
----------------------------------
Name: Thomas P. Leahey
--------------------------------
Title: Executive Vice President
-------------------------------
[SIGNATURES CONTINUE]
<PAGE>
BAILEY & ROBERTS CARPETMAX OF
TENNESSEE, INC., a Tennessee corporation
C & S TEXTILES, INC., an Idaho corporation
CARPETMAX OF UTAH, INC., a Utah corporation
CARPETMAX RETAIL STORES, INC., a
Delaware corporation
CARPETSPLUS OF AMERICA, INC., a Georgia
corporation
GCO, INC., a Nevada corporation
GCO CARPET OUTLET, INC., an Alabama
corporation
INVESTOR MANAGEMENT, INC., an Alabama
corporation
MAXIM EQUIPMENT LEASING COMPANY,
INC., a Georgia corporation
MAXIM RETAIL GROUP, INC., a Georgia
corporation
MAXIM RETAIL STORES, INC., a Georgia
corporation
TRI-R OF ORLANDO, INC., a Georgia corporation
COLORADO CARPET & RUGS, INC., a Colorado
corporation
MANASOTA CARPET, INC., a Florida
corporation
WADSWORTH & OWENS DECORATING
CENTER, INC., a Florida corporation
By: /s/ Thomas P. Leahey
----------------------------------
Name: Thomas P. Leahey
--------------------------------
Title: Vice President of each of the
foregoing Guarantors
[SIGNATURES CONTINUE]
<PAGE>
LENDERS:
- --------
NATIONSBANK, N.A., individually in its capacity as a
Lender, in its capacity as the Administrative Agent,
and in its capacity as the Issuing Lender
By: /s/ David H. Dinkins
----------------------------------
Name: David H. Dinkins
--------------------------------
Title: Vice President
-------------------------------
<PAGE>
EXHIBIT 10.23.1
FIRST AMENDMENT TO
CREDIT AGREEMENT AND FORBEARANCE
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND FORBEARANCE (this
"Agreement") is entered into as of July 23, 1999 among The Maxim Group, Inc., a
Delaware corporation (the "Borrower"), the Domestic Subsidiaries of the
Borrower, as Guarantors, Bank of America, N.A. (formerly NationsBank, N.A.), as
Administrative Agent (in such capacity, the "Administrative Agent") and the
Lenders party thereto. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings given to them in the Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Guarantors, the Administrative Agent and the
Lenders are parties to that certain Amended and Restated Credit Agreement dated
as of May 18, 1999 (as amended, modified, supplemented, extended or restated
from time to time, the "Credit Agreement");
WHEREAS, the following Events of Default exist under the Credit
Agreement (collectively, the "Acknowledged Events of Default"): (1) the Credit
Parties have failed to furnish to the Administrative Agent and the Lenders the
financial statements for fiscal year 1999 which are required by Section 7.1(a)
of the Credit Agreement to be delivered to the Administrative Agent and the
Lenders within 90 days after the close of such fiscal year; (2) the Credit
Parties have failed to furnish to the Administrative Agent and the Lenders the
financial statements as of April 30, 1999 which are required by Section
7.1(b)(i) of the Credit Agreement to be delivered to the Administrative Agent
and the Lenders within 45 days of the close of the fiscal quarter ending April
30, 1999; (3) the Credit Parties have failed to furnish to the Administrative
Agent and the Lenders the financial statements as of the end of May, 1999 which
are required by Section 7.1(b)(ii) of the Credit Agreement to be delivered to
the Administrative Agent and the Lenders within 30 days of the end of such
calendar month; (4) an Executive Officer of the Borrower has failed to deliver
to the Administrative Agent and the Lenders the officer's certificates required
by Section 7.1(c) of the Credit Agreement which are to be delivered with the
financial statements referenced in subclauses (1) and (2) above; (5) the Credit
Parties have failed to furnish to the Administrative Agent and the Lenders a
certificate of the accountants conducting the annual audit of the financial
statements referenced in subclause (1) above which are required by 7.1(f) of the
Credit Agreement to be delivered within 90 days after the close of fiscal year
1999; (6) the field examination with respect to the Borrower's accounts
receivable and inventory failed to demonstrate that the margined value of the
Borrower's accounts receivable and inventory, together with the value attributed
to the Executive Buildings and the amount of cash in the Cash Collateral Account
totaled at least $112,500,000 as required by Section 7.15(b) of the Credit
Agreement; (7) the Borrower has failed to deliver landlord consents satisfactory
to the Administrative Agent within 30 days of the Closing Date as required by
Section 7.15(d)(vii) of the Credit Agreement; (8) the Borrower has failed to
deliver to the Administrative Agent the real estate documentation with respect
to the Executive Buildings required by Section 7.15(e) of the Credit Agreement
within 30 days of the Closing Date as required by Section 7.15(e) of the
<PAGE>
Credit Agreement; and (9) each Credit Party changed its fiscal year after the
Closing Date in violation of Section 8.10 of the Credit Agreement.
WHEREAS, the Borrower has requested that the Administrative Agent and
the Lenders waive the Acknowledged Events of Default, and the Administrative
Agent and the Lenders have refused that request;
WHEREAS, the Borrower has now asked the Administrative Agent and the
Lenders to forbear from exercising their rights and remedies arising from the
Acknowledged Events of Default until September 24, 1999 (the "Forbearance
Termination Date") and to continue to make available to the Borrower the Loans
provided under the Credit Agreement; and
WHEREAS, the Administrative Agent and the Lenders are, upon and subject
to the terms and conditions specified in this Agreement, willing to forbear from
exercising their rights and remedies arising from the Acknowledged Events of
Default until the Forbearance Termination Date and to continue to make available
to the Borrower the Loans.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. REAFFIRMATION OF EXISTING DEBT. The Credit Parties acknowledge and
confirm that (a) the Borrower's obligation to repay the outstanding principal
amount of the Loans and reimburse the Issuing Lender for any drawing on a Letter
of Credit is unconditional and not subject to any offsets, defenses or
counterclaims, (b) the Administrative Agent, on behalf of the Lenders, has a
valid and enforceable first priority perfected security interest in the
Collateral, (c) the Administrative Agent and the Lenders have performed fully
all of their respective obligations under the Credit Agreement and the other
Credit Documents, and (d) by entering into this Agreement, the Administrative
Agent and the Lenders do not waive or release any term or condition of the
Credit Agreement or any of the other Credit Documents or any of their rights or
remedies under such Credit Documents or applicable law or any of the obligations
of any Credit Party thereunder.
2. AGREEMENT TO FORBEAR. Subject to the other terms and conditions of
this Agreement, the Administrative Agent and the Lenders agree to forbear
exercising their rights and remedies arising exclusively as a result of the
Acknowledged Events of Default until the Forbearance Termination Date; PROVIDED,
HOWEVER, that the Administrative Agent and the Lenders shall be free to exercise
any or all of their rights and remedies arising on account of the Acknowledged
Events of Default at any time after the occurrence of a Forbearance Default
(defined below).
3. FORBEARANCE DEFAULTS. Nothing set forth herein or contemplated
hereby is intended to constitute an agreement by the Administrative Agent or the
Lenders to forbear the exercise of any of the rights and remedies available to
the Administrative Agent and/or the Lenders under the Credit Agreement and the
other Credit Documents (all of which rights and remedies are hereby expressly
reserved by the Administrative and the Lenders) upon and after the
2
<PAGE>
occurrence of a Forbearance Default. For purposes hereof, the term "Forbearance
Default" shall mean the existence or occurrence of any or all of the following:
(a) any Default or Event of Default under the Credit Agreement or any other
Credit Document other than the Acknowledged Events of Default, (b) a breach by
the Credit Parties of any term of this Agreement, (c) any Person shall commence
any suit or other legal proceeding against any Credit Party or any of its assets
to enforce any obligations for Indebtedness of any Credit Party to such Person
or (d) the acceleration of the Subordinated Debt prior to its stated maturity.
The Administrative Agent and the Lenders shall be free to exercise any or all of
their rights and remedies arising on account of any Default or Event of Default
under the Credit Agreement or any other Credit Document upon the earlier of (x)
the occurrence of a Forbearance Default and (y) the Forbearance Termination
Date. This Agreement is a Credit Document. Furthermore, notwithstanding any term
to the contrary contained in the Credit Agreement or any other Credit Document,
if the Subordinated Debt is accelerated prior to its stated maturity, (i) the
Administrative Agent and the Lenders shall be free to exercise any or all of
their rights and remedies under the Credit Agreement (including, without
limitation, all rights contained in Section 9.2 of the Credit Agreement) or any
other Credit Document and (ii) the Lenders shall not be required to make any
Loans to the Borrower.
4. NEW DEFINITION. The following definition is hereby added to Section
1.1 of the Credit Agreement and shall read as follows:
"SHAW INDEBTEDNESS" means the unsecured indebtedness in the amount of
$11,927,000 evidenced by the Shaw Promissory Note.
5. AMENDED DEFINITION. The pricing grid in the definition of
"Applicable Percentage" set forth in Section 1.1 of the Credit Agreement is
amended and restated in its entirety to read as follows:
<TABLE>
<CAPTION>
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
Applicable Applicable Applicable
Fixed Charge Percentage for Applicable Percentage for Percentage for
Pricing Coverage Eurodollar Loans Percentage for Standby Letter Trade Letter of
Level Ratio Base Rate Loans of Credit Fees Credit Fees Commitment Fees
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
I GREATER THAN OR EQUAL TO 2.00 to 1.0 1.25% 0.0% 1.25% 0.625%
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
II GREATER THAN OR EQUAL TO 1.75 to 1.0 1.625% 0.0% 1.625% 0.625%
but
LESS THAN 2.00 to 1.0
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
III GREATER THAN OR EQUAL TO 1.50 to 1.0 2.00% 0.25% 2.00% 0.625%
but
LESS THAN 1.75 to 1.0
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
IV GREATER THAN OR EQUAL TO 1.30 to 1.0 2.25% 0.50% 2.25% 0.625%
but
LESS THAN 1.50 to 1.0
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
V LESS THAN 1.30 to 1.0 2.50% 0.50% 2.50% 0.625%
- ------------- ------------------------------------- ----------------- ---------------- ----------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
- ------------- ------------------
Applicable
Percentage for
Pricing Commitment
Level Fees
- ------------- ------------------
- ------------- ------------------
<S> <C>
I 0.250%
- ------------- ------------------
- ------------- ------------------
II 0.300%
- ------------- ------------------
- ------------- ------------------
III 0.375%
- ------------- ------------------
- ------------- ------------------
IV 0.450%
- ------------- ------------------
- ------------- ------------------
V 0.500%
- ------------- ------------------
</TABLE>
3
<PAGE>
6. REVOLVING LOAN COMMITMENT. The two provisos in Section 2.1(a) of the
Credit Agreement are hereby amended and restated in their entirety to read as
follows:
PROVIDED, HOWEVER, that (i) the sum of the aggregate amount of
Revolving Loans outstanding plus the aggregate amount of LOC
Obligations outstanding plus the aggregate amount of Synthetic Lease
Obligations outstanding shall not exceed (A) the lesser of (x) the
Revolving Committed Amount and (y) the Borrowing Base Assets and (B)
until such time as the Indenture Default is cured or an Acceleration
Event occurs, $22,500,000; PROVIDED, FURTHER, HOWEVER, that if an
Acceleration Event occurs, the sum of the aggregate amount of Revolving
Loans outstanding plus the aggregate amount of LOC Obligations
outstanding plus the aggregate amount of Synthetic Lease Obligations
outstanding may only exceed $22,500,000 if such excess amount is used
to retire the Securities and (ii) with respect to each individual
Lender, the Lender's pro rata share of outstanding Revolving Loans plus
such Lender's pro rata share of outstanding LOC Obligations plus such
Lender's pro rata share of the aggregate amount of the outstanding
Synthetic Lease Obligations shall not exceed such Lender's Revolving
Loan Commitment Percentage of the Revolving Committed Amount.
7. PREPAYMENT OF INDEBTEDNESS. A subsection (c) is hereby added at the
end of Section 8.15 of the Credit Agreement and shall read as follows:
(c) notwithstanding any term to the contrary contained herein,
(i) make or offer to make any payments with respect to the Shaw
Indebtedness without the prior written consent of the Administrative
Agent, (ii) redeem or offer to redeem any of the Shaw Indebtedness
without the prior written consent of the Administrative Agent or (iii)
deposit any funds intended to discharge the Shaw Indebtedness without
the prior written consent of the Administrative Agent.
8. SHAW INDEBTEDNESS. The following sentence is hereby added to the
Credit Agreement after subsection (c) of Section 8.15 of the Credit Agreement
and shall read as follows:
The Shaw Indebtedness may not be amended or modified in any manner
without the prior written consent of the Administrative Agent.
9. RELEASE. The Credit Parties hereby release the Administrative Agent,
the Lenders, and the Administrative Agent's and the Lenders' respective
officers, employees, representatives, agents, counsel and directors from any and
all actions, causes of action, claims, demands, damages and liabilities of
whatever kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any action or
failure to act on or prior to the date hereof.
10. CONDITIONS PRECEDENT. The effectiveness of this Agreement is
subject to the satisfaction of each of the following conditions:
4
<PAGE>
(a) The Administrative Agent shall have received original duly
executed counterparts of this Agreement duly executed by the Credit
Parties, the Administrative Agent and the Lenders.
(b) The Borrower shall have delivered to the Administrative
Agent an opinion of counsel to the Credit Parties in form and substance
satisfactory to the Administrative Agent as to the due authorization,
execution, delivery and enforceability of this Agreement.
(c) The Borrower shall have delivered to the Administrative
Agent, with respect to the Real Property on which each of the Executive
Buildings is located, (i) a deed to secure debt and security agreement
executed by the Borrower in favor of the Administrative Agent, in form
and substance satisfactory to the Administrative Agent, (ii) duly
executed UCC fixture financing statements for each appropriate
jurisdiction as is necessary, in the Administrative Agent's sole
discretion, to perfect the Administrative Agent's security interest in
the Collateral described therein, (iii) an opinion of counsel to the
Borrower in form and substance satisfactory to the Administrative
Agent, (iv) a mortgagee title policy, in form and substance
satisfactory to the Administrative Agent, together with such title
endorsements as the Administrative Agent may require, (v) an appraisal
from a qualified appraiser satisfactory to the Administrative Agent,
(vi) an environmental site assessment from an environmental consultant
satisfactory to the Administrative Agent, (viii) an ALTA survey, in
form and substance satisfactory to the Administrative Agent and (ix)
such other real estate collateral documentation as the Administrative
Agent may require.
(d) The Administrative Agent shall have received such other
documents and information as it deems reasonably necessary.
11. MISCELLANEOUS.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Agreement. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the
other Credit Documents, are hereby ratified and confirmed and shall
remain in full force and effect according to their terms.
(b) The Credit Parties hereby represent and warrant as
follows:
(i) Each Credit Party has taken all necessary action
to authorize the execution, delivery and performance of this Agreement.
(ii) This Agreement has been duly executed and
delivered by each Credit Party and constitutes each such Credit Party's
legal, valid and binding obligations, enforceable in accordance with
its terms, except as such enforceability may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting creditors' rights
generally and (ii) general principles of equity
5
<PAGE>
(regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(iii) No consent, approval, authorization or order
of, or filing, registration or qualification with, any court or
governmental authority or third party is required in connection with
the execution, delivery or performance by any Credit Party of this
Agreement.
(c) The Credit Parties hereby represent and warrant to the
Lenders that (i) the representations and warranties of the Credit
Parties set forth in Section 6 of the Credit Agreement are true and
correct as of the date hereof and (ii) other than the Acknowledged
Events of Default no unwaived event has occurred and is continuing
which constitutes a Default or an Event of Default.
(d) The Guarantors (i) acknowledge and consent to all of the
terms and conditions of this Agreement, (ii) affirm all of their
obligations under the Credit Documents and (iii) agree that this
Agreement and all documents executed in connection herewith do not
operate to reduce or discharge the Guarantors' obligations under the
Credit Agreement or the other Credit Documents.
(e) This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same
instrument. Delivery of an executed counterpart of this Agreement by
telecopy shall be effective as an original and shall constitute a
representation that an executed original shall be delivered.
(f) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.
[remainder of page intentionally left blank]
6
<PAGE>
Each of the parties hereto has caused a counterpart of this Agreement
to be duly executed and delivered as of the date first above written.
BORROWER: THE MAXIM GROUP, INC., a Delaware
corporation
By: /s/ Thomas P. Leahey
--------------------------------
Name: Thomas P. Leahey
------------------------------
Title: EVP Finance
------------------------------
GUARANTORS: CARPETMAX, L.P., a Georgia limited partnership
By: The Maxim Group, Inc. as its sole general partner
By: /s/ Thomas P. Leahey
------------------------------------------
Name: Thomas P. Leahey
----------------------------------------
Title: EVP Finance
---------------------------------------
[SIGNATURES CONTINUE]
<PAGE>
BAILEY & ROBERTS CARPETMAX OF TENNESSEE,
INC., a Tennessee corporation
C & S TEXTILES, INC., an Idaho corporation
CARPETMAX OF UTAH, INC., a Utah corporation
CARPETMAX RETAIL STORES, INC., a Delaware
corporation
CARPETSPLUS OF AMERICA, INC., a Georgia
corporation
GCO, INC., a Nevada corporation
GCO CARPET OUTLET, INC., an Alabama corporation
INVESTOR MANAGEMENT, INC., an Alabama
corporation
MAXIM EQUIPMENT LEASING COMPANY, INC., a
Georgia corporation
MAXIM RETAIL GROUP, INC., a Georgia corporation
MAXIM RETAIL STORES, INC., a Georgia corporation
TRI-R OF ORLANDO, INC., a Georgia corporation
COLORADO CARPET & RUGS, INC., a Colorado
corporation
MANASOTA CARPET, INC., a Florida corporation
WADSWORTH & OWENS DECORATING CENTER,
INC., a Florida corporation
By: /s/ Thomas P. Leahey
----------------------------------------
Name: Thomas P. Leahey
----------------------------------------
Title: EVP Finance of each of the foregoing
Guarantors
BANK OF AMERICA, N.A., individually in its
capacity as a Lender, in its capacity as
Administrative Agent and in its capacity as
Issuing Lender
By: /s/ David H. Dinkins
---------------------------------------
Name: David H. Dinkins
---------------------------------------
Title: Vice President
---------------------------------------
<PAGE>
Exhibit 10.23.2
SECOND AMENDMENT TO
CREDIT AGREEMENT, FORBEARANCE AND WAIVER
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, FORBEARANCE AND WAIVER (this
"Agreement") is entered into as of September 7, 1999 among The Maxim Group,
Inc., a Delaware corporation (the "Borrower"), the Domestic Subsidiaries of the
Borrower, as Guarantors, Bank of America, N.A. (formerly NationsBank, N.A.), as
Administrative Agent (in such capacity, the "Administrative Agent") and the
Lenders party thereto. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings given to them in the Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Guarantors, the Administrative Agent and the
Lenders are parties to that certain Amended and Restated Credit Agreement dated
as of May 18, 1999 (as amended by that certain First Amendment to Credit
Agreement and Forbearance dated as of July 23, 1999 (the "First Amendment") and
as further amended, modified, supplemented, extended or restated from time to
time, the "Credit Agreement");
WHEREAS, the following Events of Default exist under the Credit
Agreement (collectively, the "Acknowledged Events of Default"): (1) the Credit
Parties have failed to furnish to the Administrative Agent and the Lenders the
financial statements for fiscal year 1999 which are required by Section 7.1(a)
of the Credit Agreement to be delivered to the Administrative Agent and the
Lenders within 90 days after the close of such fiscal year; (2) the Credit
Parties have failed to furnish to the Administrative Agent and the Lenders the
financial statements as of April 30, 1999 which are required by Section
7.1(b)(i) of the Credit Agreement to be delivered to the Administrative Agent
and the Lenders within 45 days of the close of the fiscal quarter ending April
30, 1999; (3) the Credit Parties have failed to furnish to the Administrative
Agent and the Lenders the financial statements as of the end of May, 1999 which
are required by Section 7.1(b)(ii) of the Credit Agreement to be delivered to
the Administrative Agent and the Lenders within 30 days of the end of such
calendar month; (4) an Executive Officer of the Borrower has failed to deliver
to the Administrative Agent and the Lenders the officer's certificates required
by Section 7.1(c) of the Credit Agreement which are to be delivered with the
financial statements referenced in subclauses (1) and (2) above; (5) the Credit
Parties have failed to furnish to the Administrative Agent and the Lenders a
certificate of the accountants conducting the annual audit of the financial
statements referenced in subclause (1) above which are required by 7.1(f) of the
Credit Agreement to be delivered within 90 days after the close of fiscal year
1999; (6) the field examination with respect to the Borrower's accounts
receivable and inventory failed to demonstrate that the margined value of the
Borrower's accounts receivable and inventory, together with the value attributed
to the Executive Buildings and the amount of cash in the Cash Collateral Account
totaled at least $112,500,000 as required by Section 7.15(b) of the Credit
Agreement; (7) the Borrower has failed to deliver landlord consents satisfactory
to the Administrative Agent within 30 days of the Closing Date as required by
Section 7.15(d)(vii) of the Credit Agreement; (8) the Borrower has failed to
deliver to the Administrative Agent the real estate documentation with respect
to the Executive Buildings required by Section 7.15(e) of the Credit Agreement
within 30 days of the Closing Date as required by Section 7.15(e) of the
<PAGE>
Credit Agreement; and (9) each Credit Party changed its fiscal year after the
Closing Date in violation of Section 8.10 of the Credit Agreement.
WHEREAS, pursuant to the terms of the First Amendment, the
Administrative Agent and the Lenders agreed to forbear from exercising their
rights and remedies arising from the Acknowledged Events of Default until
September 24, 1999 (the "Forbearance Termination Date") and to continue to make
available to the Borrower the Loans provided under the Credit Agreement;
WHEREAS, the Borrower has requested that the Administrative Agent and
the Lenders agree to (i) extend the Forbearance Termination Date until October
15, 1999 (the "New Forbearance Termination Date"), (ii) continue to make
available to the Borrower the Loans provided under the Credit Agreement and
(iii) waive the Event of Default resulting from the failure of the Borrower to
deliver to the Administrative Agent the real estate documentation with respect
to the Executive Buildings required by Section 7.15(e) of the Credit Agreement
within 30 days of the Closing Date as required by Section 7.15(e) of the Credit
Agreement (the "Real Estate Documentation Default"); and
WHEREAS, the Administrative Agent and the Lenders are, upon and subject
to the terms and conditions specified in this Agreement, willing to (i) forbear
from exercising their rights and remedies arising from the Acknowledged Events
of Default until the New Forbearance Termination Date, (ii) continue to make
available to the Borrower the Loans and (iii) waive the Real Estate
Documentation Default.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. REAFFIRMATION OF EXISTING DEBT. The Credit Parties acknowledge and
confirm that (a) the Borrower's obligation to repay the outstanding principal
amount of the Loans and reimburse the Issuing Lender for any drawing on a Letter
of Credit is unconditional and not subject to any offsets, defenses or
counterclaims, (b) the Administrative Agent, on behalf of the Lenders, has a
valid and enforceable first priority perfected security interest in the
Collateral, (c) the Administrative Agent and the Lenders have performed fully
all of their respective obligations under the Credit Agreement and the other
Credit Documents, and (d) by entering into this Agreement, the Administrative
Agent and the Lenders do not waive or release any term or condition of the
Credit Agreement or any of the other Credit Documents or any of their rights or
remedies under such Credit Documents or applicable law or any of the obligations
of any Credit Party thereunder.
2. AGREEMENT TO FORBEAR. Subject to the other terms and conditions of
this Agreement, the Administrative Agent and the Lenders agree to forbear
exercising their rights and remedies arising exclusively as a result of the
Acknowledged Events of Default until the New Forbearance Termination Date;
PROVIDED, HOWEVER, that the Administrative Agent and the Lenders shall be free
to exercise any or all of their rights and remedies arising on account of the
2
<PAGE>
Acknowledged Events of Default at any time after the occurrence of a Forbearance
Default (defined below).
3. FORBEARANCE DEFAULTS. Nothing set forth herein or contemplated
hereby is intended to constitute an agreement by the Administrative Agent or the
Lenders to forbear the exercise of any of the rights and remedies available to
the Administrative Agent and/or the Lenders under the Credit Agreement and the
other Credit Documents (all of which rights and remedies are hereby expressly
reserved by the Administrative Agent and the Lenders) upon and after the
occurrence of a Forbearance Default. For purposes hereof, the term "Forbearance
Default" shall mean the existence or occurrence of any or all of the following:
(a) any Default or Event of Default under the Credit Agreement or any other
Credit Document other than the Acknowledged Events of Default, (b) a breach by
the Credit Parties of any term of this Agreement, (c) any Person shall commence
any suit or other legal proceeding against any Credit Party or any of its assets
to enforce any obligations for Indebtedness of any Credit Party to such Person
or (d) the acceleration of the Subordinated Debt prior to its stated maturity.
The Administrative Agent and the Lenders shall be free to exercise any or all of
their rights and remedies arising on account of any Default or Event of Default
under the Credit Agreement or any other Credit Document upon the earlier of (x)
the occurrence of a Forbearance Default and (y) the New Forbearance Termination
Date. This Agreement is a Credit Document. Furthermore, notwithstanding any term
to the contrary contained in the Credit Agreement or any other Credit Document,
if the Subordinated Debt is accelerated prior to its stated maturity, (i) the
Administrative Agent and the Lenders shall be free to exercise any or all of
their rights and remedies under the Credit Agreement (including, without
limitation, all rights contained in Section 9.2 of the Credit Agreement) or any
other Credit Document and (ii) the Lenders shall not be required to make any
Loans to the Borrower.
4. WAIVER. The Administrative Agent and the Lenders, by their execution
below, hereby waive the Real Estate Documentation Default. Except for the waiver
contained herein, this Agreement does not modify or effect the obligations of
the Credit Parties to comply fully with all terms, conditions and covenants in
the Credit Documents. This one-time waiver is limited solely to the Real Estate
Documentation Default and shall not be construed to be a (a) waiver of any other
Default or Event of Default (including, without limitation, the other
Acknowledged Events of Default), (b) modification or amendment to the Credit
Agreement, or (c) waiver of any other rights or remedies the Administrative
Agent or any Lender may have under the Credit Agreement or any other Credit
Documents or under applicable law.
5. REVOLVING LOAN COMMITMENT. The two provisos in Section 2.1(a) of the
Credit Agreement are hereby amended and restated in their entirety to read as
follows:
PROVIDED, HOWEVER, that (i) the sum of the aggregate amount of
Revolving Loans outstanding plus the aggregate amount of LOC
Obligations outstanding plus the aggregate amount of Synthetic Lease
Obligations outstanding shall not exceed (A) the lesser of (x) the
Revolving Committed Amount and (y) the Borrowing Base Assets and (B)
until such time as the Indenture Default is cured or an Acceleration
Event occurs, $27,500,000; PROVIDED, FURTHER, HOWEVER, that if an
Acceleration Event occurs, the sum of the aggregate amount of Revolving
Loans outstanding plus the aggregate amount of LOC Obligations
outstanding
3
<PAGE>
plus the aggregate amount of Synthetic Lease Obligations outstanding
may only exceed $27,500,000 if such excess amount is used to retire the
Securities and (ii) with respect to each individual Lender, the
Lender's pro rata share of outstanding Revolving Loans plus such
Lender's pro rata share of outstanding LOC Obligations plus such
Lender's pro rata share of the aggregate amount of the outstanding
Synthetic Lease Obligations shall not exceed such Lender's Revolving
Loan Commitment Percentage of the Revolving Committed Amount.
6. RELEASE. The Credit Parties hereby release the Administrative Agent,
the Lenders, and the Administrative Agent's and the Lenders' respective
officers, employees, representatives, agents, counsel and directors from any and
all actions, causes of action, claims, demands, damages and liabilities of
whatever kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any action or
failure to act on or prior to the date hereof.
7. CONDITIONS PRECEDENT. The effectiveness of this Agreement is subject
to the satisfaction of each of the following conditions:
(a) The Administrative Agent shall have received original
counterparts of this Agreement duly executed by the Credit Parties, the
Administrative Agent and the Lenders.
(b) The Borrower shall have delivered to the Administrative
Agent an opinion of counsel to the Credit Parties in form and substance
satisfactory to the Administrative Agent as to the due authorization,
execution, delivery and enforceability of this Agreement.
(c) The Administrative Agent shall have received such other
documents and information as it deems reasonably necessary.
8. MISCELLANEOUS.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Agreement. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the
other Credit Documents, are hereby ratified and confirmed and shall
remain in full force and effect according to their terms.
(b) The Credit Parties hereby represent and warrant as
follows:
(i) Each Credit Party has taken all necessary action
to authorize the execution, delivery and performance of this Agreement.
(ii) This Agreement has been duly executed and
delivered by each Credit Party and constitutes each such Credit Party's
legal, valid and binding obligations, enforceable in accordance with
its terms, except as such enforceability may be subject to
4
<PAGE>
(i) bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity).
(iii) No consent, approval, authorization or order
of, or filing, registration or qualification with, any court or
governmental authority or third party is required in connection with
the execution, delivery or performance by any Credit Party of this
Agreement.
(c) The Credit Parties hereby represent and warrant to the
Lenders that (i) the representations and warranties of the Credit
Parties set forth in Section 6 of the Credit Agreement are true and
correct as of the date hereof and (ii) other than the Acknowledged
Events of Default no unwaived event has occurred and is continuing
which constitutes a Default or an Event of Default.
(d) The Guarantors (i) acknowledge and consent to all of the
terms and conditions of this Agreement, (ii) affirm all of their
obligations under the Credit Documents and (iii) agree that this
Agreement and all documents executed in connection herewith do not
operate to reduce or discharge the Guarantors' obligations under the
Credit Agreement or the other Credit Documents.
(e) This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same
instrument. Delivery of an executed counterpart of this Agreement by
telecopy shall be effective as an original and shall constitute a
representation that an executed original shall be delivered.
(f) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.
[remainder of page intentionally left blank]
5
<PAGE>
Each of the parties hereto has caused a counterpart of this Agreement
to be duly executed and delivered as of the date first above written.
BORROWER: THE MAXIM GROUP, INC., a Delaware
corporation
By: /s/ Thomas P. Leahey
-------------------------
Name: Thomas P. Leahey
-------------------------
Title: EVP Finance
-------------------------
GUARANTORS: CARPETMAX, L.P., a Georgia limited partnership
By: The Maxim Group, Inc. as its sole general partner
By: /s/ Thomas P. Leahey
-------------------------
Name: Thomas P. Leahey
-------------------------
Title: EVP Finance
-------------------------
[SIGNATURES CONTINUE]
<PAGE>
BAILEY & ROBERTS CARPETMAX OF TENNESSEE,
INC., a Tennessee corporation
C & S TEXTILES, INC., an Idaho corporation
CARPETMAX OF UTAH, INC., a Utah corporation
CARPETMAX RETAIL STORES, INC., a Delaware
corporation
CARPETSPLUS OF AMERICA, INC., a Georgia
corporation
GCO, INC., a Nevada corporation
GCO CARPET OUTLET, INC., an Alabama corporation
INVESTOR MANAGEMENT, INC., an Alabama corporation
MAXIM EQUIPMENT LEASING COMPANY, INC., a
Georgia corporation
MAXIM RETAIL GROUP, INC., a Georgia corporation
MAXIM RETAIL STORES, INC., a Georgia corporation
TRI-R OF ORLANDO, INC., a Georgia corporation
COLORADO CARPET & RUGS, INC., a Colorado
corporation
MANASOTA CARPET, INC., a Florida corporation
WADSWORTH & OWENS DECORATING CENTER, INC., a
Florida corporation
By: /s/ Thomas P. Leahey
------------------------------------
Name: Thomas P. Leahey
Title: EVP Finance of each of the foregoing
Guarantors
BANK OF AMERICA, N.A., individually
in its capacity as a Lender, in its
capacity as Administrative Agent and
in its capacity as Issuing Lender
By: /s/ David H. Dinkins
------------------------------------
Name: David H. Dinkins
Title: Vice President
<PAGE>
EXHIBIT 10.23.3
THIRD AMENDMENT TO
CREDIT AGREEMENT AND FORBEARANCE
THIS THIRD AMENDMENT TO CREDIT AGREEMENT AND FORBEARANCE (this
"Agreement") is entered into as of October 11, 1999 among The Maxim Group, Inc.,
a Delaware corporation (the "Borrower"), the Domestic Subsidiaries of the
Borrower, as Guarantors, Bank of America, N.A. (formerly NationsBank, N.A.), as
Administrative Agent (in such capacity, the "Administrative Agent") and the
Lenders party thereto. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings given to them in the Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Guarantors, the Administrative Agent and the
Lenders are parties to that certain Amended and Restated Credit Agreement dated
as of May 18, 1999 (as amended by that certain First Amendment to Credit
Agreement and Forbearance dated as of July 23, 1999 (the "First Amendment") and
that certain Second Amendment to Credit Agreement, Forbearance and Waiver dated
as of September 7, 1999 (the "Second Amendment") and as further amended,
modified, supplemented, extended or restated from time to time, the "Credit
Agreement");
WHEREAS, the following Events of Default exist under the Credit
Agreement (collectively, the "Acknowledged Events of Default"): (1) the Credit
Parties have failed to furnish to the Administrative Agent and the Lenders the
financial statements for fiscal year 1999 which are required by Section 7.1(a)
of the Credit Agreement to be delivered to the Administrative Agent and the
Lenders within 90 days after the close of such fiscal year; (2) the Credit
Parties have failed to furnish to the Administrative Agent and the Lenders both
the financial statements as of April 30, 1999 and the financial statements as of
July 31, 1999 which are required by Section 7.1(b)(i) of the Credit Agreement to
be delivered to the Administrative Agent and the Lenders within 45 days of the
close of the fiscal quarters ending April 30, 1999 and July 31, 1999; (3) the
Credit Parties have failed to furnish to the Administrative Agent and the
Lenders the financial statements as of the end of May, 1999, June, 1999 and
August, 1999 which are required by Section 7.1(b)(ii) of the Credit Agreement to
be delivered to the Administrative Agent and the Lenders within 30 days of the
end of such calendar months; (4) an Executive Officer of the Borrower has failed
to deliver to the Administrative Agent and the Lenders the officer's
certificates required by Section 7.1(c) of the Credit Agreement which are to be
delivered with the financial statements referenced in subclauses (1) and (2)
above; (5) the Credit Parties have failed to furnish to the Administrative Agent
and the Lenders a certificate of the accountants conducting the annual audit of
the financial statements referenced in subclause (1) above which are required by
7.1(f) of the Credit Agreement to be delivered within 90 days after the close of
fiscal year 1999; (6) the field examination with respect to the Borrower's
accounts receivable and inventory failed to demonstrate that the margined value
of the Borrower's accounts receivable and inventory, together with the value
attributed to the Executive Buildings and the amount of cash in the Cash
Collateral Account totaled at least $112,500,000 as required by Section 7.15(b)
of the Credit Agreement; (7) the Borrower has failed to deliver landlord
consents satisfactory to the Administrative Agent within 30 days of the Closing
Date as required by Section 7.15(d)(vii) of the Credit Agreement; and (8) each
Credit Party changed its fiscal year after the Closing Date in violation of
Section 8.10 of the Credit Agreement.
WHEREAS, pursuant to the terms of the First Amendment, the
Administrative Agent and the Lenders agreed to forbear from exercising their
rights and remedies arising from the Acknowledged Events of Default until
September 24, 1999 (the "Forbearance Termination Date") and to continue to make
available to the Borrower the Loans provided under the Credit Agreement;
WHEREAS, pursuant to the terms of the Second Amendment, the
Administrative Agent and the Lenders agreed to forbear from exercising their
rights and remedies arising from the Acknowledged Events of Default until
October 15, 1999 (the "Extended Forbearance Termination Date"), to waive the
Event of Default resulting from the failure of the Borrower to deliver to the
Administrative Agent the real estate documentation with respect to the Executive
Buildings within 30 days of the Closing Date as
<PAGE>
required by Section 7.15(e) of the Credit Agreement, and to continue to make
available to the Borrower the Loans provided under the Credit Agreement;
WHEREAS, the Borrower has requested that the Administrative Agent and
the Lenders agree to (i) extend the Extended Forbearance Termination Date until
November 15, 1999 (the "New Forbearance Termination Date") and (ii) continue to
make available to the Borrower the Loans provided under the Credit Agreement;
and
WHEREAS, the Administrative Agent and the Lenders are, upon and subject
to the terms and conditions specified in this Agreement, willing to (i) forbear
from exercising their rights and remedies arising from the Acknowledged Events
of Default until the New Forbearance Termination Date and (ii) continue to make
available to the Borrower the Loans.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. REAFFIRMATION OF EXISTING DEBT. The Credit Parties acknowledge and
confirm that (a) the Borrower's obligation to repay the outstanding principal
amount of the Loans and reimburse the Issuing Lender for any drawing on a Letter
of Credit is unconditional and not subject to any offsets, defenses or
counterclaims, (b) the Administrative Agent, on behalf of the Lenders, has a
valid and enforceable first priority perfected security interest in the
Collateral, (c) the Administrative Agent and the Lenders have performed fully
all of their respective obligations under the Credit Agreement and the other
Credit Documents, and (d) by entering into this Agreement, the Administrative
Agent and the Lenders do not waive or release any term or condition of the
Credit Agreement or any of the other Credit Documents or any of their rights or
remedies under such Credit Documents or applicable law or any of the obligations
of any Credit Party thereunder.
2. AGREEMENT TO FORBEAR. Subject to the other terms and conditions of
this Agreement, the Administrative Agent and the Lenders agree to forbear
exercising their rights and
2
<PAGE>
remedies arising exclusively as a result of the Acknowledged Events of Default
until the New Forbearance Termination Date; PROVIDED, HOWEVER, that the
Administrative Agent and the Lenders shall be free to exercise any or all of
their rights and remedies arising on account of the Acknowledged Events of
Default at any time after the occurrence of a Forbearance Default (defined
below).
3. FORBEARANCE DEFAULTS. Nothing set forth herein or contemplated
hereby is intended to constitute an agreement by the Administrative Agent or the
Lenders to forbear the exercise of any of the rights and remedies available to
the Administrative Agent and/or the Lenders under the Credit Agreement and the
other Credit Documents (all of which rights and remedies are hereby expressly
reserved by the Administrative Agent and the Lenders) upon and after the
occurrence of a Forbearance Default. For purposes hereof, the term "Forbearance
Default" shall mean the existence or occurrence of any or all of the following:
(a) any Default or Event of Default under the Credit Agreement or any other
Credit Document other than the Acknowledged Events of Default, (b) a breach by
the Credit Parties of any term of this Agreement, (c) any Person shall commence
any suit or other legal proceeding against any Credit Party or any of its assets
to enforce any obligations for Indebtedness of any Credit Party to such Person
or (d) the acceleration of the Subordinated Debt prior to its stated maturity.
The Administrative Agent and the Lenders shall be free to exercise any or all of
their rights and remedies arising on account of any Default or Event of Default
under the Credit Agreement or any other Credit Document upon the earlier of (x)
the occurrence of a Forbearance Default and (y) the New Forbearance Termination
Date. This Agreement is a Credit Document. Furthermore, notwithstanding any term
to the contrary contained in the Credit Agreement or any other Credit Document,
if the Subordinated Debt is accelerated prior to its stated maturity, (i) the
Administrative Agent and the Lenders shall be free to exercise any or all of
their rights and remedies under the Credit Agreement (including, without
limitation, all rights contained in Section 9.2 of the Credit Agreement) or any
other Credit Document and (ii) the Lenders shall not be required to make any
Loans to the Borrower.
4. REVOLVING LOAN COMMITMENT. The two provisos in Section 2.1(a) of the
Credit Agreement are hereby amended and restated in their entirety to read as
follows:
PROVIDED, HOWEVER, that (i) the sum of the aggregate amount of
Revolving Loans outstanding plus the aggregate amount of LOC
Obligations outstanding plus the aggregate amount of Synthetic Lease
Obligations outstanding shall not exceed (A) the lesser of (x) the
Revolving Committed Amount and (y) the Borrowing Base Assets and (B)
until such time as the Indenture Default is cured or an Acceleration
Event occurs, $32,500,000 and (ii) with respect to each individual
Lender, the Lender's pro rata share of outstanding Revolving Loans
plus such Lender's pro rata share of outstanding LOC Obligations
plus such Lender's pro rata share of the aggregate amount of the
outstanding Synthetic Lease Obligations shall not exceed such
Lender's Revolving Loan Commitment Percentage of the Revolving
Committed Amount.
5. SALE OR LEASE OF ASSETS. The first paragraph of Section 8.5 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
3
<PAGE>
8.5 SALE OR LEASE OF ASSETS.
No Credit Party will, nor will it permit its Subsidiaries to,
convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or any part of its
business or assets whether now owned or hereafter acquired, including,
without limitation, inventory, receivables, equipment, real property
interests (whether owned or leasehold), and securities, other than (a)
any inventory sold or otherwise disposed of in the ordinary course of
business; (b) the sale, lease, transfer or other disposal by a Credit
Party (other than the Borrower) of any or all of its assets to another
Credit Party; (c) obsolete, slow-moving, idle or worn-out assets no
longer used or useful in its business or the trade in of equipment for
equipment in better condition or of better quality; (d) the transfer of
assets which constitute a Permitted Investment; (e) the lease or
sublease of real property interests in the ordinary course of business;
(f) accounts receivable and related rights and interests sold to GE
Capital pursuant to the terms of the GE Capital Dealer Agreement; (g)
leases related to vans for MaxCare franchises not to exceed $3,500,000,
in the aggregate, during the term of this Credit Agreement; (h) the
sale of that certain real property owned by the Borrower and located at
1911 North Highway 16, Denver, North Carolina; PROVIDED that the
proceeds from the sale of such real property (net of reasonable
transaction costs payable to third parties and taxes paid or a good
faith estimate of the taxes payable with respect to such proceeds)
shall be deposited in the Cash Collateral Account and shall be subject
to the terms of the Credit Documents relating to the Cash Collateral
Account; and (i) other sales of assets not to exceed $2,500,000, in the
aggregate, during the term of this Credit Agreement in connection with
the closing and liquidation of retail stores.
6. RELEASE. The Credit Parties hereby release the Administrative Agent,
the Lenders, and the Administrative Agent's and the Lenders' respective
officers, employees, representatives, agents, counsel and directors from any and
all actions, causes of action, claims, demands, damages and liabilities of
whatever kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises from any action or
failure to act on or prior to the date hereof.
7. CONDITIONS PRECEDENT. The effectiveness of this Agreement is subject
to the satisfaction of each of the following conditions:
(a) The Administrative Agent shall have received original
counterparts of this Agreement duly executed by the Credit Parties, the
Administrative Agent and the Lenders.
(b) The Borrower shall have delivered to the Administrative
Agent an opinion of counsel to the Credit Parties in form and substance
satisfactory to the Administrative Agent as to the due authorization,
execution, delivery and enforceability of this Agreement.
(c) The Administrative Agent shall have received such other
documents and information as it deems reasonably necessary.
4
<PAGE>
8. MISCELLANEOUS.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Agreement. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the
other Credit Documents, are hereby ratified and confirmed and shall
remain in full force and effect according to their terms.
(b) The Credit Parties hereby represent and warrant as follows:
(i) Each Credit Party has taken all necessary action
to authorize the execution, delivery and performance of this Agreement.
(ii) This Agreement has been duly executed and
delivered by each Credit Party and constitutes each such Credit Party's
legal, valid and binding obligations, enforceable in accordance with
its terms, except as such enforceability may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity).
(iii) No consent, approval, authorization or order
of, or filing, registration or qualification with, any court or
governmental authority or third party is required in connection with
the execution, delivery or performance by any Credit Party of this
Agreement.
(c) The Credit Parties hereby represent and warrant to the
Lenders that (i) the representations and warranties of the Credit
Parties set forth in Section 6 of the Credit Agreement are true and
correct as of the date hereof and (ii) other than the Acknowledged
Events of Default no unwaived event has occurred and is continuing
which constitutes a Default or an Event of Default.
(d) The Guarantors (i) acknowledge and consent to all of the
terms and conditions of this Agreement, (ii) affirm all of their
obligations under the Credit Documents and (iii) agree that this
Agreement and all documents executed in connection herewith do not
operate to reduce or discharge the Guarantors' obligations under the
Credit Agreement or the other Credit Documents.
(e) This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same
instrument. Delivery of an executed counterpart of this Agreement by
telecopy shall be effective as an original and shall constitute a
representation that an executed original shall be delivered.
5
<PAGE>
(f) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.
[remainder of page intentionally left blank]
6
<PAGE>
Each of the parties hereto has caused a counterpart of this Agreement
to be duly executed and delivered as of the date first above written.
BORROWER: THE MAXIM GROUP, INC., a Delaware
corporation
By: /s/ Thomas P. Leahey
-----------------------------------
Name: Thomas P. Leahey
--------------------------------
Title: EVP Finance
--------------------------------
GUARANTORS: CARPETMAX, L.P., a Georgia limited partnership
By: The Maxim Group, Inc. as its sole general partner
By: /s/ Thomas P. Leahey
-----------------------------------
Name: Thomas P. Leahey
--------------------------------
Title: EVP Finance
--------------------------------
[SIGNATURES CONTINUE]
<PAGE>
BAILEY & ROBERTS CARPETMAX OF TENNESSEE, INC.,
a Tennessee corporation
C & S TEXTILES, INC., an Idaho corporation
CARPETMAX OF UTAH, INC., a Utah corporation
CARPETMAX RETAIL STORES, INC., a Delaware
corporation
CARPETSPLUS OF AMERICA, INC., a Georgia
corporation
GCO, INC., a Nevada corporation
GCO CARPET OUTLET, INC., an Alabama corporation
INVESTOR MANAGEMENT, INC., an Alabama
corporation
MAXIM EQUIPMENT LEASING COMPANY, INC., a
Georgia corporation
MAXIM RETAIL GROUP, INC., a Georgia corporation
MAXIM RETAIL STORES, INC., a Georgia corporation
TRI-R OF ORLANDO, INC., a Georgia corporation
COLORADO CARPET & RUGS, INC., a Colorado
corporation
MANASOTA CARPET, INC., a Florida corporation
WADSWORTH & OWENS DECORATING CENTER,
INC., a Florida corporation
By: /s/ Thomas P. Leahey
------------------------------------------------
Name: Thomas P. Leahey
----------------------------------------------
Title: VP of each of the foregoing
--------------------------------------------
Guarantors
--------------------------------------------
BANK OF AMERICA, N.A., individually in its
capacity as a Lender, in its capacity as
Administrative Agent and in its capacity as Issuing
Lender
By: /s/ David H. Dinkins
-----------------------------------------------
Name: David H. Dinkins
----------------------------------------------
Title: Vice Presidents
---------------------------------------------
<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into as of this 27th day of
September, 1999, by and between The Maxim Group, Inc., a Delaware corporation
(the "Company"), and Leonard H. Thill (hereinafter "Executive");
WHEREAS, the Company, recognizing the experience and knowledge of
Executive in financial accounting matters, desires to retain the valuable
services of Executive, it being in the best interests of the Company to
arrange a term of employment for Executive; and
WHEREAS, Executive desires to devote full time service to the
business of the Company, in accordance with the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. For the Term of Employment, as hereinafter defined,
the Company agrees to employ Executive and Executive agrees to accept such
employment and to perform such duties and functions as the Board of Directors
of the Company may assign to Executive from time to time, but only
administrative and managerial functions commensurate with Executive's past
experience and performance level. Unless otherwise agreed to by Executive, he
shall perform such duties primarily from the Company's offices in Kennesaw,
Georgia. Executive agrees to devote his full time and energy to the business
of the Company, and shall perform his duties in a trustworthy and
businesslike manner, all for the purpose of advancing the interests of the
Company.
It is hereby expressly agreed among the parties hereto that primary
responsibility for the supervision of Executive shall rest with the Board of
Directors of the Company and Chief Executive Officer, which shall review
Executive's performance annually, make adjustments to Executive's
compensation and award such other bonuses and employee benefits as they shall
deem appropriate.
2. TITLE. Executive shall serve as Chief Financial Officer of the
Company, as well as such other positions, and with such titles, as the Board
of Directors and Executive may mutually agree upon during the Term of
Employment (as defined below).
3. TERM OF EMPLOYMENT. The "Term of Employment" referred to in
Section 1 hereof and hereinafter shall be three years, commencing on the date
of this Agreement. This Agreement shall automatically renew on the third
anniversary of the date of this Agreement unless earlier terminated in
accordance with Section 6 of the Agreement, or unless either party
<PAGE>
gives the other written notice at least thirty (30) days prior to such
anniversary date that he or it does not desire to renew the Agreement.
4. COMPENSATION.
4.1 BASE SALARY. During the Term of Employment, Executive shall be
paid an annual base salary (hereinafter "Base Salary"), which shall be paid
in equal installments in accordance with the Company's normal pay practices,
but not less frequently than monthly. Executive's initial annual Base Salary
shall be $225,000. The Board of Directors of the Company shall review
Executive's Base Salary annually and may increase such Base Salary for the
subsequent one-year period.
4.2 INCENTIVE BONUS PLAN. During the Term of Employment and in
addition to Executive's Base Salary, Executive shall be entitled to receive
such additional bonus payments determined as follows:
(a) A bonus equal in amount up to 50% of Executive's Base
Salary for each fiscal year of the Company in which the Company meets or
exceeds certain financial and operating goals as set by the executive
management team of the Company and the Compensation Committee of the Board of
Directors.
(b) Executive shall also be entitled to participate, in the
discretion of the Board of Directors, in such other executive incentive bonus
plans for any fiscal year or portion thereof as may from time to time be
designated by the Board of Directors for executive officers generally.
4.3 STOCK OPTIONS. The Company has granted to Executive stock
options to purchase one hundred thousand (100,000) shares of Company common
stock, all issued under the Company's stock option plan. The options will
vest in equal annual increments over a five-year period ending on the fifth
anniversary of the date of this Agreement. All vested options will expire on
September 21, 2009. Fifty thousand (50,000) stock options will have an
exercise price of $6.13 per share. The remaining fifty thousand (50,000)
stock options will have an exercise price of $6.67 per share.
4.4 ADDITIONAL BENEFITS. During the Term of Employment, Executive
shall have the right to participate in any and all employee benefit programs
established and maintained by the Company from time to time including,
without limitation, such medical or dental plans as may be established from
time to time by the Company. Executive shall be entitled to participate in
any qualified or unqualified stock option, pension, profit sharing or other
employee benefit plan adopted by the Company hereinafter and covering
executive officers generally.
Throughout the Term of Employment, Executive shall also be entitled
to reimbursement for reasonable business expenses incurred by him in the
performance of his duties hereunder,
-2-
<PAGE>
including certain entertainment expenses, as approved from time to time by
the Board of Directors of the Company.
4.5 VACATION. Executive shall be entitled to annual vacation leave
in accordance with the Company's vacation policy as set forth in the current
Employee Handbook of the Company. Vacation shall be scheduled at reasonable
times not in conflict with Executive's duties hereunder.
5. ILLNESS, INCAPACITY OR DEATH DURING EMPLOYMENT.
(a) If by reason of illness or incapacity, Executive is unable
to perform his services or discharge his duties hereunder for sixty (60) or
more consecutive days or ninety (90) days in the aggregate during any twelve
(12) month period, then upon ten (10) days' prior notice, the Company may, in
its sole discretion, either suspend Executive without pay of any kind, salary
or bonus, until Executive is able to perform his services and discharge his
duties hereunder or terminate the employment of Executive, and thereupon,
Executive shall be paid his Base Salary from the date of termination through
the 10-day notice period.
(b) In the event of Executive's death, all obligations of the
Company under this Agreement shall terminate other than the payment of that
portion of the Base Salary and bonus, if any, earned by Executive to the date
of death.
6. TERMINATION.
6.1 FOR CAUSE. This Agreement may be terminated by the Company at
any time during the Term of Employment for cause (as hereinafter defined)
immediately and without further obligation other than for monies already paid
to the Employee. For purposes of this Agreement, "for cause" shall mean the
occurrence of any of the following:
(a) Employee's inattention to or substandard performance of the
services required of Employee hereunder;
(b) failure of Employee to follow reasonable written
instructions or policies of the Company;
(c) Employee willfully engaging in conduct which is
demonstrably and materially injurious to the Company or its
subsidiaries, monetarily or otherwise;
(d) conviction of Employee during the Term of Employment of a
crime involving breach of trust or moral turpitude; or
(e) Employee's commission of any act or activity prohibited
under the terms of this Agreement.
-3-
<PAGE>
For purposes of Clause (c) of this definition, no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest
of the Company. In the event that the Company discharges Employee for cause
under this Section 6.1, and it is subsequently determined judicially that the
termination was without cause (as hereinafter defined), then such discharge
shall be deemed a discharge without cause subject to the provisions of
Section 6.2 of this Agreement. In the event that the Company discharges
Employee for cause under this Section 6.1, such notice of discharge shall be
accompanied by a written and specific description of the reason(s) for such
discharge.
6.2 WITHOUT CAUSE. The Company may, upon thirty (30) days' written
notice to Executive, terminate this Agreement without cause at any time
during the Term of Employment. In such event and notwithstanding any
provision to the contrary contained in any stock option agreement of
Executive, any stock options which have been granted to Executive but which
are not yet exercisable as of the date of notice of termination shall be
deemed to be presently exercisable as of the date of notice of termination.
The Company shall pay to Executive, as liquidated damages in lieu of all
other claims, twelve (12) months' Base Salary then in effect at the time of
Executive's termination. Payment of such monies shall be made in equal
monthly installments. The Company may, in its sole discretion, at any time
during the period that payments under this Section 6.2 would otherwise be
due, discharge its obligations pursuant to this Section 6.2 by paying to
Executive the present value of its obligations hereunder as determined by an
enrolled actuary.
6.3 EXECUTIVE'S OBLIGATIONS UPON TERMINATION. Upon the termination
of his employment hereunder for whatever reason, Executive shall:
(a) Forthwith tender his resignation from any directorship or
office he may hold in the Company; and
(b) Not at any time represent himself still to be connected or
to have any connection with the Company.
6.4 EFFECT OF TERMINATION. The provisions of this Agreement shall
survive the termination of this Agreement and the termination of Executive's
employment with the Company to the extent required to give full effect to the
covenants and agreements contained herein.
7. CONFIDENTIALITY.
7.1 CONFIDENTIAL INFORMATION. Subject to Section 7(b) below,
Executive agrees that, both during the term of this Agreement and after the
termination of this Agreement, Executive will hold in a fiduciary capacity
for the benefit of the Company, and shall not directly or indirectly use or
disclose, except as authorized by the Company in connection with the
performance of Executive's duties, any Confidential Information, as defined
hereinafter, that
-4-
<PAGE>
Executive may have or acquire (whether or not developed or compiled by
Executive and whether or not Executive has been authorized to have access to
such Confidential Information) during the term of this Agreement. The term
"Confidential Information" as used in this Agreement shall mean and include
any information, data and know-how relating to the business of the Company
that is disclosed to Executive by the Company or known by him as a result of
his relationship with the Company and not generally within the public domain
(whether constituting a trade secret or not), including without limitation,
the following information:
(i) financial information, such as the Company's earnings,
assets, debts, prices, fee structure, volumes of purchases
or sales or other financial data, whether relating to the
Company generally, or to particular products, services,
geographic areas or time periods;
(ii) supply and service information, such as information
concerning the goods and services utilized or purchased by
the Company, the names or addresses of suppliers, terms of
supply or service contracts, or of particular
transactions, or related information about potential
suppliers, to the extent that such information is not
generally known to the public, and to the extent that the
combination of suppliers or use of a particular supplier,
though generally known or available, yields advantages to
the Company the details of which are not generally known;
(iii) marketing information, such as details about ongoing or
proposed marketing programs or agreements by or on behalf
of the Company, marketing forecasts or results of
marketing efforts or information about impending
transactions;
(iv) personnel information, such as employees' personal or
medical histories, compensation or other terms of
employment, actual or proposed promotions, hiring,
resignations, disciplinary actions, terminations or
reasons therefor, training methods, performance or other
employee information;
(v) customer information, such as any compilation of past,
existing or prospective customers, customer proposals or
agreements between customers and the Company, status of
customer accounts or credit, or related information about
actual or prospective customers; and
(vi) information with respect to any corporate affairs that the
Company agreed to treat as confidential.
The term "Confidential Information" does not include information that has
become generally available to the public by the act of one who has the right
to disclose such information without violating any right of the Company or
the client to which such information pertains.
-5-
<PAGE>
7.2 COVENANT OF CONFIDENTIALITY. The covenant contained in this
Section 7 shall survive the termination of Executive's employment with the
Company for any reason for a period of five (5) years; provided, however,
that with respect to those items of Confidential Information which constitute
trade secrets under applicable law, Executive's obligations of
confidentiality and non-disclosure as set forth in this Section 7 shall
continue to survive after said five (5) year period to the greatest extent
permitted by applicable law. These rights of the Company are in addition to
those rights the Company has under the common law or applicable statutes for
the protection of trade secrets.
8. NON-COMPETITION.
8.1 TERRITORY. Executive acknowledges that he will perform services
hereunder which directly affect the Company's business presently conducted
within the territory comprised of the 48 contiguous states of the United
States (the "Territory"). Accordingly, the parties hereto deem it necessary
to enter into the protective agreement set forth below, the terms and
conditions of which have been negotiated by and between the parties hereto.
8.2 NON-SOLICITATION. Executive agrees (a) that he will not take any
customer or franchise lists of the Company after leaving his employ and (b)
that he will, for so long as he is employed hereunder and for a period of two
(2) years following termination of his employment for any reason, refrain
from soliciting or attempting to solicit directly or indirectly or by
assisting others, any business from any of the Company's customers or
franchisees, including actively sought prospective customers or franchisees,
with whom Executive had material contact during his employment for purposes
of providing products or services that are similar to or competitive with
those provided by the Company, namely floor covering products and support
services of the type offered or provided by the Company.
8.3 NON-SOLICITATION OF EMPLOYEES. Executive agrees that he will,
for so long as he is employed hereunder and for a period of three (3) years
after termination of his employment, refrain from recruiting or hiring, or
attempting to recruit or hire, directly or by assisting others, any employee
of the Company who is employed by the Company or any successor or affiliate
of the Company if the Company or its successor or affiliate is then engaged
in the business of the sale of franchises to retail floor covering dealers,
and the sale and distribution of floor covering products and support services
of the type offered or provided by the Company.
8.4 ACKNOWLEDGEMENTS. The covenants of Executive set forth in this
Section 8 are separate and independent covenants for which valuable
consideration has been paid, the receipt, adequacy and sufficiency of which
are acknowledged by Executive, and have also been made by Executive to induce
the Company to enter into this Agreement. The aforesaid covenants may be
availed of or relied upon by the Company in any court of competent
jurisdiction, and shall form the basis of injunctive relief and damages (but
not including expenses of litigation) suffered by the Company arising out of
any breach of the aforesaid covenants by Executive. The covenants of
Executive set forth in this Section 8 are cumulative to all other covenants
of Executive in
-6-
<PAGE>
favor of the Company contained in this Agreement and shall survive the
termination of this Agreement for the purposes intended. Should any covenant,
term or condition contained in this Section 8 become or be declared invalid
or unenforceable by a court of competent jurisdiction, then the parties
request that such court judicially modify such unenforceable provision
consistent with the intent of Section 8 so that it shall be enforceable as
modified, and in any event the invalidity of any provision of Section 8 shall
not affect the validity of any other provision in Section 8 or elsewhere in
this Agreement.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto regarding employment of Executive, and
supersedes and replaces any prior agreements relating thereto.
10. ASSIGNMENT. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, executors, administrators, legal representatives,
successors and assigns of the parties hereto, except that the duties and
responsibilities of Executive hereunder are of a personal nature and shall
not be assignable or delegable in whole or in part by Executive. No
assignment by the Company of its rights hereunder shall relieve the Company
of any liability to Executive hereunder.
11. SEVERABILITY. Each section and subsection of this Agreement
constitutes a separate and distinct understanding, covenant and provision
hereof. In the event that any provision of this Agreement shall finally be
determined to be unlawful, such provision shall be deemed to be severed from
this Agreement, but every other provision of this Agreement shall remain in
full force and effect.
12. GOVERNING LAW. This Agreement shall in all respects be
interpreted, construed and governed by and in accordance with the laws of the
State of Georgia.
13. RIGHTS OF THIRD PARTIES. Nothing herein, expressed or implied,
is intended to or shall be construed to confer upon or give to any person,
firm or other entity, other than the parties hereto and their permitted
assigns, any rights or remedies under or by reason of this Agreement.
14. AMENDMENT. This Agreement may not be amended orally but only by
an instrument in writing duly executed by the parties hereto.
15. NOTICES. Any notice or other document or communication permitted
or required to be given to Executive pursuant to the terms hereof shall be
deemed given if personally delivered to Executive or sent to him, postage
prepaid, by registered or certified mail, at 2510 Thorngate Drive, Acworth,
Georgia 30101, or any such other address as Executive shall have notified the
Company in writing. Any notice or other document or other communication
permitted or required to be given to the Company pursuant to the terms hereof
shall be deemed given if personally delivered or sent to the Company, postage
prepaid, by registered or certified
-7-
<PAGE>
mail, at 210 TownPark Drive, Kennesaw, Georgia 30144, or at such other
address as the Company shall have notified Executive in writing.
16. WAIVER. The waiver by either party hereto of a breach of any
provision of this Agreement by the other shall not operate or be construed as
a waiver of any subsequent breach of the same or any other provision of this
Agreement by the breaching party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
THE MAXIM GROUP, INC.
Attest: /s/ THOMAS P. LEAHEY By: /s/ A. J. NASSAR
-------------------------- ------------------------------
Executive Vice President - Title: PRESIDENT AND CHIEF EXECUTIVE
Finance OFFICER
"EXECUTIVE"
/s/ LEONARD H. THILL
------------------------------(L.S.)
Leonard H. Thill
-8-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Advance Floor Decorators, Inc., a Michigan corporation
Bailey & Roberts CarpetMax of Tennessee, Inc., a Tennessee corporation
CarpetMAX, L.P., a Georgia limited partnership
C&S Textiles, Inc., an Idaho corporation
CarpetMAX Retail Stores, Inc., a Delaware corporation
CarpetMAX of Utah, Inc., a Utah corporation
CarpetsPlus of America, Inc., a Georgia corporation
Colorado Carpet & Rugs, Inc., a Colorado corporation
Everythingdecor, Inc., a Georgia corporation
Floor Service Distributors, Inc., a Georgia corporation
4 Floors, Inc., an Ohio corporation
GCO Carpet Outlet, Inc., an Alabama corporation
GCO, Inc., a Nevada corporation
Investor Management, Inc., an Alabama corporation
Karen's, Inc., a Michigan corporation
Manasota Carpet, Inc. a Florida corporation
Maxim Equipment Leasing Company, Inc., a Georgia corporation
Maxim Industries, Inc., a Delaware corporation
Maxim Retail Group, Inc., a Georgia corporation
Maxim Retail Stores, Inc., a Georgia corporation
Tri-R of Orlando, Inc., a Georgia corporation
Wadsworth & Owens Decorating Center, Inc., a Florida corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-80984, 33-81002, 333-19691,
333-19693, 333-47299 and 333-59423).
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 11, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000910468
<NAME> THE MAXIM GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 89,901
<SECURITIES> 0
<RECEIVABLES> 75,974
<ALLOWANCES> 7,384
<INVENTORY> 58,744
<CURRENT-ASSETS> 220,347
<PP&E> 83,504
<DEPRECIATION> 11,738
<TOTAL-ASSETS> 388,768
<CURRENT-LIABILITIES> 225,912
<BONDS> 116,343
0
0
<COMMON> 21
<OTHER-SE> 160,846
<TOTAL-LIABILITY-AND-EQUITY> 388,768
<SALES> 664,426
<TOTAL-REVENUES> 664,426
<CGS> 457,339
<TOTAL-COSTS> 220,748
<OTHER-EXPENSES> (1,023)
<LOSS-PROVISION> 6,801
<INTEREST-EXPENSE> 15,097
<INCOME-PRETAX> (24,831)
<INCOME-TAX> (5,656)
<INCOME-CONTINUING> (19,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 377
<CHANGES> 0
<NET-INCOME> (19,552)
<EPS-BASIC> (1.10)
<EPS-DILUTED> (1.10)<F1><F2>
<FN>
<F1>Includes non-recurring charges of $23,713
<F2>Includes gain on sale of Image of $24,863
</FN>
</TABLE>
